Using a model with a CES production function and capital market imperfections, the authors show that the decline in the relative price of capital goods can largely explain the observed decline in the labour share assuming an elasticity of substitution between capital and labour significantly larger than one. In the model, the strength of capital market imperfections determine the extent to which firms rely on their own saving to fund investment, leading to “excess” corporate savings. The conclusions from the comparison between the two specifications are qualitatively unchanged whether the trends are assumed to be common or country-specific.