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The Determinants of Capital Intensity in Manufacturing: The Role of Factor Market Imperfections

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Listed author(s):
  • Hasan, Rana
  • Mitra, Devashish
  • Sundaram, Asha

Abstract

We study the role of factor market imperfections in determining industry-level capital intensities. Using cross-country panel data on manufacturing industries, we find that labor market imperfections arising from labor regulation have a greater influence on capital intensity than do credit market imperfections. Less restrictive labor regulations are associated with lower capital intensity in manufacturing, especially in middle-income and developing economies and in sectors that either require more frequent labor adjustment or are more unskilled labor intensive. This suggests that stringent labor regulations can impose costs on labor use, thereby curtailing gains from trade based on factor-abundance driven comparative advantage.

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File URL: http://www.sciencedirect.com/science/article/pii/S0305750X13001332
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Article provided by Elsevier in its journal World Development.

Volume (Year): 51 (2013)
Issue (Month): C ()
Pages: 91-103

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Handle: RePEc:eee:wdevel:v:51:y:2013:i:c:p:91-103
DOI: 10.1016/j.worlddev.2013.05.012
Contact details of provider: Web page: http://www.elsevier.com/locate/worlddev

Keywords: capital intensity; factor-market imperfections; Heckscher–Ohlin model; factor abundance;

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  1. Alejandro Cuñat & Marc J. Melitz, 2012. "Volatility, Labor Market Flexibility, And The Pattern Of Comparative Advantage," Journal of the European Economic Association, European Economic Association, vol. 10(2), pages 225-254, 04.
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  3. Panagariya, Arvind, 2011. "India: The Emerging Giant," OUP Catalogue, Oxford University Press, number 9780199751563, April.
  4. Juan C. Botero & Simeon Djankov & Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer, 2004. "The Regulation of Labor," The Quarterly Journal of Economics, Oxford University Press, vol. 119(4), pages 1339-1382.
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  8. Trefler, Daniel, 1993. "International Factor Price Differences: Leontief Was Right!," Journal of Political Economy, University of Chicago Press, vol. 101(6), pages 961-987, December.
  9. Devashish Mitra & Beyza Ural, 2009. "Indian manufacturing: A slow sector in a rapidly growing economy," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 18(1), pages 205-205.
  10. Gupta, Poonam & Hasan, Rana & Kumar, Utsav, 2009. "Big Reforms but Small Payoffs: Explaining the Weak Record of Growth and Employment in Indian Manufacturing," MPRA Paper 13496, University Library of Munich, Germany.
  11. Andrei A. Levchenko, 2007. "Institutional Quality and International Trade," Review of Economic Studies, Oxford University Press, vol. 74(3), pages 791-819.
  12. Rana Hasan & Devashish Mitra & K.V. Ramaswamy, 2007. "Trade Reforms, Labor Regulations, and Labor-Demand Elasticities: Empirical Evidence from India," The Review of Economics and Statistics, MIT Press, vol. 89(3), pages 466-481, August.
  13. Aditya Bhattacharjea, 2006. "Labour Market Regulation and Industrial Performance in India--A Critical Review of the Empirical Evidence," Working papers 141, Centre for Development Economics, Delhi School of Economics.
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Cited by:

  1. Judzik, Dario & Sala, Hector, 2015. "The determinants of capital intensity in Japan and the US," Journal of the Japanese and International Economies, Elsevier, vol. 35(C), pages 78-98.

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