Factor Adjustments after Deregulation: Panel Evidence from Colombian Plants
University of the Andes (CEDE)
University of Maryland - Department of Economics; National Bureau of Economic Research (NBER); Institute for the Study of Labor (IZA)
Adriana D. Kugler
Georgetown University - Public Policy Institute (GPPI); Centre for Economic Policy Research (CEPR); Institute for the Study of Labor (IZA); National Bureau of Economic Research (NBER)
Wilfrid Laurier University - School of Business & Economics; Harvard University - Center for International Development (CID); Centre for International Governance Innovation (CIGI); National Bureau of Economic Research (NBER)
NBER Working Paper No. w11656
We analyze employment and capital adjustments using plant data from the Colombian Annual Manufacturing Survey. We estimate adjustment functions for capital and labor as a non-linear function of the gaps between desired and actual factor levels, allowing for interdependence in adjustments of the two factors. In addition to non-linear employment and capital adjustments in response to market fundamentals, we find that capital shortages reduce hiring and labor surpluses reduce capital shedding. We also find that after factor market deregulation in Colombia in 1991, factor adjustment hazards increased on the job destruction and capital formation margins. Finally, we find that completely eliminating frictions in factor adjustment would yield a substantial increase in aggregate productivity through improved allocative efficiency. Yet, the actual impact of the Colombian deregulation on aggregate productivity through factor adjustment was modest.
Number of Pages in PDF File: 44working papers series
Date posted: December 4, 2005
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