Evidence that Capital Formation is Over-Estimated in ICP 2011

Using the ICP 2011’s cross-country data on input prices and project cost shares, I show that the construction prices in ICP 2011 are substantially underestimated in low- and middle-income countries. As a consequence, the PPP-adjusted construction in these countries is overestimated on average by about 100% and gross fixed capital formation as a share of GDP is overestimated by 25-30%. I also examine the ICP 2005 construction prices and show that there are similar problems with the ICP 2005 data.

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