Microeconomic Flexibility in Latin America

35 Pages Posted: 4 Mar 2004

See all articles by Ricardo J. Caballero

Ricardo J. Caballero

Massachusetts Institute of Technology (MIT) - Department of Economics; National Bureau of Economic Research (NBER)

Eduardo M. R. A. Engel

Yale University - Department of Economics; National Bureau of Economic Research (NBER)

Alejandro Micco

University of Chile

Multiple version iconThere are 2 versions of this paper

Date Written: March 2004

Abstract

We characterize the degree of microeconomic inflexibility in several Latin American economies and find that Brazil, Chile and Colombia are more flexible than Mexico and Venezuela. The difference in flexibility among these economies is mainly explained by the behavior of large establishments, which adjust more promptly in the more flexible economies, especially when accumulated shocks are substantial. We also study the path of flexibility in Chile and show that it declined in the aftermath of the Asian crisis. This decline can account for a substantial fraction of the large decline in TFP-growth in Chile since 1997 (from 3.1 percent per year for the preceding decade, to about 0.3 percent after that). Moreover, if it were to persist, it could permanently shave off almost half of a percent from Chile's structural rate of growth.

Keywords: Microeconomic rigidities, creative-destruction, job flows, restructuring and reallocation, productivity growth

JEL Classification: E2, J2, J6

Suggested Citation

Caballero, Ricardo J. and Engel, Eduardo M. and Micco, Alejandro, Microeconomic Flexibility in Latin America (March 2004). MIT Department of Economics Working Paper No. 04-09; Yale University Economic Growth Center Discussion Paper No. 884. Available at SSRN: https://ssrn.com/abstract=512582

Ricardo J. Caballero (Contact Author)

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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Eduardo M. Engel

Yale University - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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Alejandro Micco

University of Chile ( email )

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Santiago, R. Metropolitana 7520421
Chile

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