The Determinants of Capital Intensity in Manufacturing: The Role of Factor Market Imperfections

Rana Hasan, Devashish Mitra () and Asha Sundaram

World Development, 2013, vol. 51, issue C, 91-103

Abstract: We study the role of factor market imperfections in determining industry-level capital intensities. Using cross-country panel data on manufacturing industries, we find that labor market imperfections arising from labor regulation have a greater influence on capital intensity than do credit market imperfections. Less restrictive labor regulations are associated with lower capital intensity in manufacturing, especially in middle-income and developing economies and in sectors that either require more frequent labor adjustment or are more unskilled labor intensive. This suggests that stringent labor regulations can impose costs on labor use, thereby curtailing gains from trade based on factor-abundance driven comparative advantage.

Keywords: capital intensity; factor-market imperfections; Heckscher–Ohlin model; factor abundance (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (19)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:wdevel:v:51:y:2013:i:c:p:91-103

DOI: 10.1016/j.worlddev.2013.05.012

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