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Protection, Openness, and Factor Adjustment: Evidence from the Manufacturing Sector in Uruguay

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  • Carlos Casacuberta
  • N�stor Gandelman

Abstract

Using a panel of Uruguayan manufacturing firms we analyze the adjustment process in capital, blue collar, and white collar employment. Adjustment functions are defined with respect to the gap between optimal and actual factor use. Our results confirm the asymmetric nature of factor adjustment, the relevance of nonlinearities, and the interdependence between factor shortages. The average annual estimated desired to actual output gap due to adjustment costs for 1982–95 was 2%. A clear relationship emerges between trade openness and adjustment functions of all three factors. Sectors experiencing stronger trade liberalization adjust less when creating jobs (reducing labor shortages) than sectors with lower changes in tariffs. Also, the larger (in absolute terms) the tariff reductions, the easier it became to adjust when destroying jobs (reducing labor surpluses). Overall the association of higher international exposure with factor adjustment is stronger for blue collar workers than for white collar workers. The results for capital are qualitatively similar but quantitatively smaller.

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Bibliographic Info

Article provided by University of Chicago Press in its journal Economic Development and Cultural Change.

Volume (Year): 60 (2012)
Issue (Month): 3 ()
Pages: 597 - 629

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Handle: RePEc:ucp:ecdecc:doi:10.1086/664018

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Web page: http://www.journals.uchicago.edu/EDCC/

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  1. Baldwin, Robert E. & Mutti, John H. & Richardson, J. David, 1980. "Welfare effects on the United States of a significant multilateral tariff reduction," Journal of International Economics, Elsevier, vol. 10(3), pages 405-423, August.
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  10. Carlos Casacuberta & Gabriela Fachola & Nestor Gandelman, 2004. "The Impact of Trade Liberalization on Employment, Capital, and Productivity Dynamics: Evidence from the Uruguayan Manufacturing Sector," Research Department Publications 3170, Inter-American Development Bank, Research Department.
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Cited by:
  1. María Pía Olivero & Yoto V. Yotov, 2012. "Dynamic gravity: endogenous country size and asset accumulation," Canadian Journal of Economics, Canadian Economics Association, vol. 45(1), pages 64-92, February.

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