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Microeconomic Flexibility in Latin America

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  • Ricardo Caballero G.
  • Eduardo Engel G.
  • Alejandro Micco A.

Abstract

We characterize the degree of microeconomic inflexibility in several Latin American economies and find that Brazil, Chile and Colombia are more flexible than Mexico and Venezuela. The difference in flexibility among these economies is mainly explained by the behavior of large establishments, which adjust more promptly in the more flexible economies, especially when accumulated shocks are substantial. We also study the path of flexibility in Chile and show that it declined in the aftermath of the Asian crisis. This decline can account for a substantial fraction of the sharp fall in TFP-growth in Chile since 1997 (from 3.1 percent per year for the preceding decade, to about 0.3 percent after). Moreover, if it were to persist, it could permanently shave almost half of a percent off Chile’s structural rate of growth.

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Bibliographic Info

Article provided by Central Bank of Chile in its journal Economía Chilena.

Volume (Year): 7 (2004)
Issue (Month): 2 (August)
Pages: 5-26

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Handle: RePEc:chb:bcchec:v:7:y:2004:i:2:p:5-26

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  1. Ricardo J. Caballero & Eduardo M.R.A. Engel & John Haltiwanger, 1995. "Aggregate Employment Dynamics: Building From Microeconomic Evidence," NBER Working Papers 5042, National Bureau of Economic Research, Inc.
  2. Ricardo J. Caballero & Mohamad L. Hammour, 2001. "Creative Destruction and Development : Institutions, Crises and Restructuring," DELTA Working Papers, DELTA (Ecole normale supérieure) 2001-04, DELTA (Ecole normale supérieure).
  3. Carmen Pagés-Serra & James J. Heckman, 2000. "The Cost of Job Security Regulation: Evidence from Latin American Labor Markets," Research Department Publications, Inter-American Development Bank, Research Department 4227, Inter-American Development Bank, Research Department.
  4. Burgess, Simon & Knetter, Michael & Michelacci, Claudio, 2000. "Employment and Output Adjustment in the OECD: A Disaggregate Analysis of the Role of Job Security Provisions," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 67(267), pages 419-35, August.
  5. Juan Botero & Simeon Djankov & Rafael Porta & Florencio C. Lopez-De-Silanes, 2004. "The Regulation of Labor," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 119(4), pages 1339-1382, November.
  6. Ricardo Caballero & Eduardo Engel & Alejandro Micco, 2005. "Microeconomic Flexibility in Latin America," Central Banking, Analysis, and Economic Policies Book Series, Central Bank of Chile, in: Jorge Restrepo & Andrea Tokman R. & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series Edi (ed.), Labor Markets and Institutions, edition 1, volume 8, chapter 10, pages 329-366 Central Bank of Chile.
  7. Matthew D. Shapiro, 1986. "The Dynamic Demand for Capital and Labor," NBER Working Papers 1899, National Bureau of Economic Research, Inc.
  8. Ricardo J. Caballero & Eduardo M.R.A. Engel, 1992. "Microeconomic Adjustment Hazards and Aggregate Dynamics," NBER Working Papers 4090, National Bureau of Economic Research, Inc.
  9. Carmen Pagés-Serra, 2000. "The Cost of Job Security Regulation: Evidence from Latin American Labor Markets," JOURNAL OF LACEA ECONOMIA, LACEA - LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION.
  10. Stephen Nickell & Luca Nunziata, 2000. "Employment patterns in OECD countries," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 20198, London School of Economics and Political Science, LSE Library.
  11. Steven J. Davis & John C. Haltiwanger & Scott Schuh, 1998. "Job Creation and Destruction," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262540932, December.
  12. Thomas J. Sargent, 1978. "Estimation of dynamic labor demand schedules under rational expectations," Staff Report, Federal Reserve Bank of Minneapolis 27, Federal Reserve Bank of Minneapolis.
  13. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  14. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, Elsevier, vol. 12(3), pages 383-398, September.
  15. Katharine G. Abraham & Susan N. Houseman, 1994. "Does Employment Protection Inhibit Labor Market Flexibility? Lessons from Germany, France, and Belgium," Book chapters authored by Upjohn Institute researchers, W.E. Upjohn Institute for Employment Research, in: Rebecca M. Blank (ed.), Social Protection Versus Economic Flexibility: Is There a Trade-off?, pages 59-93 W.E. Upjohn Institute for Employment Research.
  16. Burgess, Simon M & Knetter, Michael M, 1998. "An International Comparison of Employment Adjustment to Exchange Rate Fluctuations," Review of International Economics, Wiley Blackwell, vol. 6(1), pages 151-63, February.
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