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On the Ills of Adjustment

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Author Info
Ricardo J. Caballero
Mohamad L. Hammour

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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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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5198.

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Date of creation: Jul 1995
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Handle: RePEc:nbr:nberwo:5198

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E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
F00 - International Economics - - General - - - General

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  1. Mussa, Michael, 1978. "Dynamic Adjustment in the Heckscher-Ohlin-Samuelson Model," Journal of Political Economy, University of Chicago Press, vol. 86(5), pages 775-91, October. [Downloadable!] (restricted)
  2. Lopez, Ramon E. & Riveros, Luis A., 1989. "Macroeconomic adjustment and the labor market in four Latin American countries," Policy Research Working Paper Series 335, The World Bank. [Downloadable!]
  3. Thomas, Jonathan & Worrall, Tim, 1994. "Foreign Direct Investment and the Risk of Expropriation," Review of Economic Studies, Blackwell Publishing, vol. 61(1), pages 81-108, January. [Downloadable!] (restricted)
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  4. Hosios, Arthur J, 1990. "On the Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Blackwell Publishing, vol. 57(2), pages 279-98, April. [Downloadable!] (restricted)
  5. Liu, Lili, 1993. "Entry-exit, learning, and productivity change Evidence from Chile," Journal of Development Economics, Elsevier, vol. 42(2), pages 217-242, December. [Downloadable!] (restricted)
  6. Edwards, Sebastian, 1988. "Terms of Trade, Tariffs, and Labor Market Adjustment in Developing Countries," World Bank Economic Review, Oxford University Press, vol. 2(2), pages 165-85, May.
  7. Klein, Benjamin & Crawford, Robert G & Alchian, Armen A, 1978. "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law & Economics, University of Chicago Press, vol. 21(2), pages 297-326, October.
  8. Tybout, James & de Melo, Jamie & Corbo, Vittorio, 1991. "The effects of trade reforms on scale and technical efficiency : New evidence from Chile," Journal of International Economics, Elsevier, vol. 31(3-4), pages 231-250, November. [Downloadable!] (restricted)
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  9. Pierre-Richard Agénor & Joshua Aizenman, 1994. "Macroeconomic Adjustment with Segmented Labor Markets," IMF Working Papers 94/56, International Monetary Fund.
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  10. Lapan, Harvey E, 1976. "International Trade, Factor Market Distortions, and the Optimal Dynamic Subsidy," American Economic Review, American Economic Association, vol. 66(3), pages 335-46, June. [Downloadable!] (restricted)
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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. 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 Stephen M. Ross Business School. [Downloadable!]
  2. Valerie A. Ramey & Matthew D. Shapiro, 1998. "Displaced Capital," NBER Working Papers 6775, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. 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 Stephen M. Ross Business School. [Downloadable!]
    Other versions:
  4. Ricardo J. Caballero, 1997. "Aggregate Investment," NBER Working Papers 6264, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. Garey Ramey & Joel Watson, 1996. "Bilateral Trade and Opportunism in a Matching Market," University of California at San Diego, Economics Working Paper Series 96-08, Department of Economics, UC San Diego. [Downloadable!]
  6. Tor Jakob Klette & Astrid Mathiassen, 1996. "Job Creation, Job Destruction and Plant Turnover in Norvegian Manufacturing," Annales d'Economie et de Statistique, ADRES, issue 41-42, pages 06, Janvier-J. [Downloadable!]
    Other versions:
  7. Ricardo J. Caballero & Mohamad L. Hammour, 2000. "Creative Destruction and Development: Institutions, Crises, and Restructuring," NBER Working Papers 7849, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. 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 Stephen M. Ross Business School. [Downloadable!]
  9. 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). [Downloadable!]
  10. Mika Maliranta, 2002. "From R&D to Productivity Through Micro-Level Restructuring," Discussion Papers 795, The Research Institute of the Finnish Economy. [Downloadable!]
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