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Protection, Openness and Factor Adjustment: Evidence from the manufacturing sector in Uruguay

  • Carlos Casacuberta

    (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República)

  • Néstor Gandelman

    (Universidad ORT, Uruguay)

Using a panel of Uruguayan manufacturing firms we analyze the adjustment process in capital, blue collar and white collar employment. Our results confirm the lumpy nature of factor adjustment, the relevance of nonlinearities and the interdependence between factor shortages. The average annual estimated output gap due to adjustment cost for1982-1995 was 2%. Trade openness affected the adjustment functions of all three factors. Highly protected sectors adjust less when creating jobs (reducing labor shortages) than sectors with low protection. This may be due to fears of policy reversal in highly protected sectors. Also, highly protected sectors adjust more easily (than low protection sectors) when destroying jobs (reducing labor surpluses), especially in the case of blue collar labor. This suggests that trade protection may in fact destroy rather than create jobs within industries, as firms in highly protected sectors are more reluctant to hire and more ready to fire than firms in sectors with low protection. The results for capital are qualitatively similar but quantitatively smaller. Overall the impact of higher international exposure is larger for blue collar workers than white collar workers.

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Paper provided by Department of Economics - dECON in its series Documentos de Trabajo (working papers) with number 1806.

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Length: 34 pages
Date of creation: Sep 2006
Date of revision:
Handle: RePEc:ude:wpaper:1806
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