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On the ills of adjustment

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  • Caballero, Ricardo J.
  • Hammour, Mohamad L.

Abstract

We analyze market impediments to the process of structural adjustment. We focus on incomplete-contract inefficiencies in the transactions between workers and firms that render the quasi-rents from 'specific' investment appropriable. During adjustment, the result is a depressed rate of creation of the new productive structure and excessive destruction of the old one, leading to an employment crisis. Moreover, appropriability weakens the incentives for extensive restructuring and results in a 'sclerotic' productive structure. An adequate managed- adjustment program combines vigorous creation incentives in the expanding sector with measures to support employment in the contracting one. In contrast, the common prescription of gradualism does not act as an effective 'synchronizer' of creation and destruction, for it can only reduce destruction by also reducing an already depressed creation rate.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Development Economics.

Volume (Year): 51 (1996)
Issue (Month): 1 (October)
Pages: 161-192

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Handle: RePEc:eee:deveco:v:51:y:1996:i:1:p:161-192

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  1. Liu, Lili, 1993. "Entry-exit, learning, and productivity change Evidence from Chile," Journal of Development Economics, Elsevier, vol. 42(2), pages 217-242, December.
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Citations

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Cited by:
  1. Nauro F. Campos & Fabrizio Coricelli, 2002. "Growth in Transition: What We Know, What We Don't, and What We Should," William Davidson Institute Working Papers Series 470, William Davidson Institute at the University of Michigan.
  2. Ricardo J. Caballero & Mohamad L. Hammour, 1996. "The Macroeconomics of Specificity," NBER Working Papers 5757, National Bureau of Economic Research, Inc.
  3. Maxim Bouev, 2004. "Diverging Paths: Transition in the Presence of the Informal Sector," William Davidson Institute Working Papers Series 2004-689, William Davidson Institute at the University of Michigan.
  4. Ricardo J. Caballero & Mohamad L. Hammour, 1996. "The "Fundamental Transformation" in Macroeconomics," NBER Working Papers 5471, National Bureau of Economic Research, Inc.
  5. Ricardo J. Caballero, 1997. "Aggregate Investment," NBER Working Papers 6264, National Bureau of Economic Research, Inc.
  6. Jaan Masso & Raul Eamets & Kaia Philips, 2004. "Job Creation And Job Destruction In Estonia: Labour Reallocation And Structural Changes," Working Papers 39, CENTRE FOR THE STUDY OF ECONOMIC AND SOCIAL CHANGE IN EUROPE,School of Slavonic and East European Studies,University College London (SSEES,UCL).
  7. Ricardo J. Caballero & Mohamad L. Hammour, 2001. "Creative Destruction and Development : Institutions, Crises and Restructuring," DELTA Working Papers 2001-04, DELTA (Ecole normale supérieure).
  8. Jurajda, Stepán & Terrell, Katherine, 2008. "Job Reallocation in Two Cases of Massive Adjustment in Eastern Europe," World Development, Elsevier, vol. 36(11), pages 2144-2169, November.
  9. Maliranta, Mika, 2002. "From R&D to Productivity Through Micro-Level Restructuring," Discussion Papers 795, The Research Institute of the Finnish Economy.
  10. Gourinchas, Pierre-Olivier, 1999. "Exchange rates do matter: French job reallocation and exchange rate turbulence, 1984-1992," European Economic Review, Elsevier, vol. 43(7), pages 1279-1316, June.
  11. Scholz, Christian M., 1997. "Environmental tax reform with irreversible investment, technological progress and unemployment," Kiel Working Papers 798, Kiel Institute for the World Economy.
  12. Jasper Hoek, 2002. "Labor Market Institutions and Restructuring: Evidence from Regulated and Unregulated Labor Markets in Brazil," William Davidson Institute Working Papers Series 484, William Davidson Institute at the University of Michigan.
  13. Valerie A. Ramey & Matthew D. Shapiro, 1998. "Displaced Capital," NBER Working Papers 6775, National Bureau of Economic Research, Inc.
  14. Richard Mash, 1999. "The Investment Response to Imperfectly Credible Trade Liberalisation with Endogenous Probability of Reversal," Economics Series Working Papers WPS/1998-13, University of Oxford, Department of Economics.
  15. Jaan Masso & Raul Eamets & Kaia Philips, 2004. "Where Have All The Jobs Gone? Gross Job Flows In Estonia," University of Tartu - Faculty of Economics and Business Administration Working Paper Series 28, Faculty of Economics and Business Administration, University of Tartu (Estonia).

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