Factor Adjustments after Deregulation: Panel Evidence from Colombian Plants
41 Pages Posted: 7 Nov 2005
There are 3 versions of this paper
Factor Adjustments after Deregulation: Panel Evidence from Colombian Plants
Factor Adjustments after Deregulation: Panel Evidence from Colombian Plants
Date Written: October 2005
Abstract
In this paper, we analyze employment and capital adjustments using a panel of plants from Colombia. We allow for nonlinear adjustment of employment to reflect not only adjustment costs of labor but also adjustment costs of capital, and vice-versa. Using data from the Annual Manufacturing Survey, which include plant-level prices, we generate measures of plant-level productivity, demand shocks, and cost shocks, and use them to measure desired factor levels. We then estimate adjustment functions for capital and labor as a function of the gap between desired and actual factor levels. As in other countries, we find non-linear adjustments in employment and capital in response to market fundamentals. In addition, we find that employment and capital adjustments reinforce each other, in that capital shortages reduce hiring and labor shortages reduce investment. Moreover, we find that the market oriented reforms introduced in Colombia after 1990 increased employment adjustments, especially on the job destruction margin, while reducing capital adjustments. Finally, we find that while completely eliminating frictions from factor adjustments would yield a dramatic increase in aggregate productivity through improved allocative efficiency, the reforms introduced in Colombia generated only modest improvements.
Keywords: Adjustment costs, deregulation, input reallocation, irreversibilities and joint factor adjustment
JEL Classification: C14, E22, E24, J63, O11
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
The Economics of Labor Adjustment: Mind the Gap
By Russell Cooper and Jonathan L. Willis
-
The Economics of Labor Adjustment: Mind the Gap
By Jonathan L. Willis and Russell Cooper
-
Factor Adjustments after Deregulation: Panel Evidence from Colombian Plants
By Marcela Eslava, John Haltiwanger, ...
-
Protection, Openness and Factor Adjustment: Evidence from the Manufacturing Sector in Uruguay
-
Protection, Openness, and Factor Adjustment: Evidence from the Manufacturing Sector in Uruguay
-
Mind the (Approximation) Gap: A Robustness Analysis
By Russell Cooper and Jonathan L. Willis
-
Microeconomic Flexibility in India and Pakistan: Employment Adjustment at the Firm Level