FACTOR ADJUSTMENTS AFTER DEREGULATION: PANEL EVIDENCE FROM COLOMBIAN PLANTS

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 su...

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Bibliographic Details
Published in:The review of economics and statistics 2010-05, Vol.92 (2), p.378-391
Main Authors: Eslava, Marcela, Haltiwanger, John, Kugler, Adriana, Kugler, Maurice
Format: Article
Language:English
Subjects:
Allocative efficiency
Capital costs
Capital investments
Capital shortages
Capital surplus
Cost estimates
Data analysis
Demand shocks
Deregulation
Economic reform
Employment
Industrial plants
Labor costs
Nonlinear programming
Productivity
Studies
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Summary: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.
ISSN:0034-6535
1530-9142
DOI:10.1162/rest.2010.11470