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The Frisch Elasticity in the Mercosur Countries: A Pseudo-Panel Approach

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  • Roberto González
  • Hector Sala

Abstract

type="main"> In estimating the Frisch elasticity – i.e., the elasticity of substitution between worked hours and real wages, holding constant the marginal utility of wealth – for the Mercosur countries, this article finds a strong heterogeneity. It argues that severe liquidity constraints are the main reason for the negative estimates and that the heterogeneity is the outcome of differences in many relevant economic dimensions – ranging from sectorial specialisation to welfare-state provisions and labour-market specificities. The diversity of Frisch elasticities calls for the development of a cross-country (rather than a within-country) policy approach, since they crucially affect the dynamics of the business cycle, the synchronisation of which is a step prior to the design of macro-convergence policies in the Mercosur context.

Suggested Citation

  • Roberto González & Hector Sala, 2015. "The Frisch Elasticity in the Mercosur Countries: A Pseudo-Panel Approach," Development Policy Review, Overseas Development Institute, vol. 33(1), pages 107-131, January.
  • Handle: RePEc:bla:devpol:v:33:y:2015:i:1:p:107-131
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    JEL classification:

    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J82 - Labor and Demographic Economics - - Labor Standards - - - Labor Force Composition
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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