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

Carlos Casacuberta and Néstor Gandelman
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Carlos Casacuberta: Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República
Néstor Gandelman: Universidad ORT, Uruguay

No 1806, Documentos de Trabajo (working papers) from Department of Economics - dECON

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 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.

Keywords: Adjustment costs; Adjustment functions; Openness (search for similar items in EconPapers)
JEL-codes: F16 E22 J23 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dev and nep-int
Date: 2006-09
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