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Factor Adjustments after Deregulation: Panel Evidence from Colombian Plants

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Author Info
Marcela Eslava () (CEDE, Universidad de los Andes)
John Haltiwanger () (University of Maryland, NBER and IZA Bonn)
Adriana Kugler () (University of Houston, NBER, CEPR and IZA Bonn)
Maurice Kugler () (University of Southampton)

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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.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1751.

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Length: 40 pages
Date of creation: Sep 2005
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Handle: RePEc:iza:izadps:dp1751

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Related research
Keywords: joint factor adjustment; irreversibilities; adjustment costs; input reallocation; deregulation;

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Find related papers by JEL classification:
E22 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
O11 - Economic Development, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Semiparametric and Nonparametric Methods
J63 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Turnover; Vacancies; Layoffs

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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. Prantl, Susanne & Spitz-Oener, Alexandra, 2009. "How Does Entry Regulation Influence Entry into Self-Employment and Occupational Mobility?," IZA Discussion Papers 4221, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  2. Maurice Kugler & Eric A. Verhoogen, 2007. "Product Quality at the Plant Level: Plant Size, Exports, Output Prices and Input Prices in Colombia," Discussion Papers 0708-12, Columbia University, Department of Economics. [Downloadable!]
    Other versions:
  3. Carlos Casacuberta & Néstor Gandelman, 2006. "Protection, Openness and Factor Adjustment: Evidence from the manufacturing sector in Uruguay," Documentos de Trabajo (working papers) 1806, Department of Economics - dECON. [Downloadable!]
  4. Contreras, Juan, 2006. "An Empirical Model of Factor Adjustment Dynamics," MPRA Paper 9797, University Library of Munich, Germany. [Downloadable!]
  5. Amil Petrin & Jagadeesh Sivadasan, 2006. "Job Security Does Affect Economic Efficiency: Theory, A New Statistic, and Evidence from Chile," NBER Working Papers 12757, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Eslava, Marcela & Haltiwanger, John C. & Kugler, Adriana & Kugler, Maurice, 2009. "Trade Reforms and Market Selection: Evidence from Manufacturing Plants in Colombia," IZA Discussion Papers 4256, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  7. Kaplan, David S., 2008. "Job creation and labor reform in Latin America," Policy Research Working Paper Series 4708, The World Bank. [Downloadable!]
    Other versions:
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