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Factor Adjustments after Deregulation: Panel Evidence from Colombian Plants

  • Marcela Eslava

    (Universidad de Los Andes)

  • John Haltiwanger

    (University of Maryland, NBER, and IZA)

  • Adriana Kugler

    (University of Houston, NBER, CEPR, and IZA)

  • Maurice Kugler

    (Wilfrid Laurier University, Centre for International Governance Innovation)

We analyze nonlinear adjustments of capital and labor using plant data from the Colombian Annual Manufacturing Survey, allowing for interdependence in adjustments of the two factors. We find nonlinear employment and capital adjustments. We also find that capital shortages reduce hiring, and labor surpluses reduce capital shedding. Moreover, we find that job destruction and capital formation increased after factor market deregulation in Colombia. Finally, we find that completely eliminating frictions in factor adjustment would yield a substantial increase in aggregate productivity through improved allocative efficiency, but that the actual impact of the Colombian deregulation on productivity was modest. © 2010 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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Article provided by MIT Press in its journal The Review of Economics and Statistics.

Volume (Year): 92 (2010)
Issue (Month): 2 (May)
Pages: 378-391

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Handle: RePEc:tpr:restat:v:92:y:2010:i:2:p:378-391
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