Microeconomic Flexibility in Latin America

Ricardo J. Caballlero, Eduardo Engel, Alejandro Micco

NBER Working Paper No. 10398
Issued in March 2004
NBER Program(s):Economic Fluctuations and Growth, Labor Studies

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.

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Document Object Identifier (DOI): 10.3386/w10398


  • Caballero G., Ricardo, Eduardo Engel G., and Alejandro Micco A., 2004. "Microeconomic Flexibility in Latin America," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 7(2), pages 5-26, August citation courtesy of
  • Caballero, Ricardo, Eduardo Engel, and Alejandro Micco, 2005. "Microeconomic Flexibility in Latin America." In Labor Markets and Institutions, edition 1, volume 8, Central Banking, Analysis, and Economic Policies Book Series, Jorge Restrepo, Andrea Tokman R., Norman Loayza (Series Editor), and Klaus Schmidt-Hebbel, chapter 10, pages 329-366, Central Bank of Chile.

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