Protection, Openness and Factor Adjustment: Evidence from the Manufacturing Sector in Uruguay

37 Pages Posted: 13 Sep 2006

See all articles by Nestor Gandelman

Nestor Gandelman

Universidad ORT Uruguay

Carlos Casacuberta

Universidad ORT at Uruguay - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: August 2006

Abstract

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 for 1982-1995 is 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.

Keywords: protection, openness, factor adjustment, Uruguay

Suggested Citation

Gandelman, Nestor and Casacuberta, Carlos, Protection, Openness and Factor Adjustment: Evidence from the Manufacturing Sector in Uruguay (August 2006). Available at SSRN: https://ssrn.com/abstract=929175

Nestor Gandelman (Contact Author)

Universidad ORT Uruguay ( email )

Bulevar España 2633
Montevideo, 11.300
Uruguay

Carlos Casacuberta

Universidad ORT at Uruguay - Department of Economics ( email )

Bulevar Espana 2633
Montevideo, 11300
Uruguay

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