Total Factor Productivity and Labor Reallocation: The Case of the Korean 1997 Crisis
AbstractDetrended Total Factor Productivity (TFP), net of changes in capital utilization, fell by 3.3% after the Korean 1997 financial crisis. We construct a small open economy model that accounts for 30.0% of the fall in response to a sudden stop of capital inflows and an increase in international interest rates. Empirically, the fall in TFP follows a reallocation of labor from the more productive manufacturing sector to the less productive agriculture and public sectors. The model has a consumption and an investment sector. The reallocation of labor in the data corresponds to a reallocation from the investment sector to the consumption sector. In the model, a sudden stop raises the costs of imports, which are used as an input in the investment sector. Investment falls sharply in response to the increase in interest rates. A fall in export demand and working capital requirements amplify the effects of the sudden stop.
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Bibliographic InfoPaper provided by Society for Economic Dynamics in its series 2007 Meeting Papers with number 157.
Date of creation: 2007
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Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
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Other versions of this item:
- Benjamin David & Meza Felipe, 2009. "Total Factor Productivity and Labor Reallocation: The Case of the Korean 1997 Crisis," The B.E. Journal of Macroeconomics, De Gruyter, vol. 9(1), pages 1-41, July.
- F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
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