Sudden stops, financial frictions, and labor market flows: Evidence from Latin America

Francisco Gallego and José Tessada

Journal of Development Economics, 2012, vol. 97, issue 2, 257-268

Abstract: While the aggregate effects of sudden stops and international financial crises are well known, the disaggregated channels through which they work are not well explored yet. In this paper, using job flows from a sectoral panel dataset for four Latin American countries, we find that sudden stops are characterized as periods of lower job creation and increased job destruction. Moreover, these effects are heterogeneous across sectors: we find that when a sudden stop occurs, sectors with higher dependence on external financing experience lower job creation. In turn, sectors with higher liquidity needs experience significantly larger job destruction. This evidence is consistent with the idea that dependence on external financing affects mainly the creation margin and that exposure to liquidity conditions affects mainly the destruction margin. Overall, our results provide evidence of financial frictions being an important transmission channel of sudden stops and in the restructuring process in general.

Keywords: Sudden stops; Job flows; Adjustment; Financial frictions (search for similar items in EconPapers)
JEL-codes: E24 F3 G21 J63 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (8)

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Related works:
Working Paper: Sudden Stops, Financial Frictions, and Labor Market Flows: Evidence from Latin America (2010)
Working Paper: Sudden Stops, Financial Frictions, and Labor Market Flows: Evidence from Latin America (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:deveco:v:97:y:2012:i:2:p:257-268

DOI: 10.1016/j.jdeveco.2011.04.003

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