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Microeconomic Flexibility in Latin America

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Author Info
Ricardo J. Caballero
Eduardo M.R.A. Engel () (Dept. of Economics, Yale University)
Alejandro Micco

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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 large decline in TFP-growth in Chile since 1997 (from 3.1 percent per year for the preceding decade, to about 0.3 percent after that). Moreover, if it were to persist, it could permanently shave off almost half of a percent from Chile's structural rate of growth.

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Publisher Info
Paper provided by Economic Growth Center, Yale University in its series Working Papers with number 884.

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Length: 33 pages
Date of creation: Mar 2004
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Handle: RePEc:egc:wpaper:884

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Related research
Keywords: Microeconomic rigidities; creative-destruction; job flows; restructuring and reallocation; productivity growth;

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Find related papers by JEL classification:
E2 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment
J2 - Labor and Demographic Economics - - Demand and Supply of Labor
J6 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Caballero, Ricardo J & Engel, Eduardo M R A & Haltiwanger, John, 1997. "Aggregate Employment Dynamics: Building from Microeconomic Evidence," American Economic Review, American Economic Association, vol. 87(1), pages 115-37, March. [Downloadable!] (restricted)
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  2. Simeon Djankov & Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer & Juan Botero, 2003. "The Regulation of Labor," NBER Working Papers 9756, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. 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, Blackwell Publishing, vol. 58(2), pages 277-97, April. [Downloadable!] (restricted)
  4. Caballero, Ricardo J & Engel, Eduardo M R A, 1993. "Microeconomic Adjustment Hazards and Aggregate Dynamics," The Quarterly Journal of Economics, MIT Press, vol. 108(2), pages 359-83, May. [Downloadable!] (restricted)
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  5. Shapiro, Matthew D, 1986. "The Dynamic Demand for Capital and Labor," The Quarterly Journal of Economics, MIT Press, vol. 101(3), pages 513-42, August. [Downloadable!] (restricted)
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  6. Ricardo J. Caballero & Mohamad L. Hammour, 2001. "Creative Destruction and Development : Institutions, Crises and Restructuring," DELTA Working Papers 2001-04, DELTA (Ecole normale supérieure).
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  7. 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, vol. 67(267), pages 419-35, August. [Downloadable!] (restricted)
  8. Burgess, Simon M & Knetter, Michael M, 1998. "An International Comparison of Employment Adjustment to Exchange Rate Fluctuations," Review of International Economics, Blackwell Publishing, vol. 6(1), pages 151-63, February.
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  9. Steven J. Davis & John C. Haltiwanger & Scott Schuh, 1998. "Job Creation and Destruction," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262540932, January.
  10. James J. Heckman & Carmen Pages, 2000. "The Cost of Job Security Regulation: Evidence from Latin American Labor Markets," NBER Working Papers 7773, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  11. Katharine G. Abraham & Susan N. Houseman, 1993. "Does Employment Protection Inhibit Labor Market Flexibility? Lessons from Germany, France, and Belgium," NBER Working Papers 4390, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Ricardo J. Caballero & Kevin N. Cowan & Eduardo M.R.A. Engel & Alejandro Micco, 2004. "Effective Labor Regulation and Microeconomic Flexibility," Cowles Foundation Discussion Papers 1480, Cowles Foundation, Yale University, revised Oct 2006. [Downloadable!]
    Other versions:
  2. Marcela Eslava & John Haltiwanger & Adriana Kugler & Maurice Kugler, 2005. "Factor Adjustments after Deregulation: Panel Evidence from Colombian Plants," IZA Discussion Papers 1751, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  3. Raphael Bergoeing & Norman Loayzaw & Andrea Repetto, 2004. "Slow Recoveries," NBER Working Papers 10584, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  4. William Maloney & Andrés Rodríguez-Clare, 2005. "Insuficiencias de innovación," RES Working Papers 4430, Inter-American Development Bank, Research Department. [Downloadable!]
  5. Esteban Puentes & Dante Contreras & Claudia Sanhueza, 2007. "Self-Employment in Chile, long run trends and education and age structures changes," Estudios de Economia, University of Chile, Department of Economics, vol. 34(2 Year 20), pages 203-247, December. [Downloadable!]
  6. Loayza, Norman V. & Oviedo, Ana Maria & Serven, Luis, 2005. "Regulation and macroeconomic performance," Policy Research Working Paper Series 3469, The World Bank. [Downloadable!]
  7. William Maloney & Andrés Rodríguez-Clare, 2005. "Innovation Shortfalls," RES Working Papers 4429, Inter-American Development Bank, Research Department. [Downloadable!]
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  8. Orlando Gracia & Hernando Zuleta, 2007. "Tratado de libre comercio entre Colombia y Estados Unidos: ¿Qué impacto puede tener en Colombia?," DOCUMENTOS DE TRABAJO 004369, UNIVERSIDAD DEL ROSARIO - FACULTAD DE ECONOMÍA. [Downloadable!]
  9. Rita Almeida & Pedro Carneiro, 2007. "Inequality and Employment in a Dual Economy: Enforcement of Labor Regulation in Brazil," IZA Discussion Papers 3094, Institute for the Study of Labor (IZA). [Downloadable!]
  10. Hernando Zuleta & Orlando Gracia, 2004. "The Free Trade Agreement between Colombia and USA: What can happen to Colombia?," INVESTIGACIÓN ECONÓMICA EN COLOMBIA 003594, FUNDACIÓN PONDO. [Downloadable!]
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  11. Elías Albagli & Pablo García & Jorge Restrepo, 2004. "Labor Market Rigidity and Structural Shocks: An Open-Economy Approach for International Comparisons," Working Papers Central Bank of Chile 263, Central Bank of Chile. [Downloadable!]
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