Affiliation:
1. The World Bank , USA
2. Universidad Nacional de La Plata , Argentina
Abstract
Abstract
We explore how different investment frictions affect the patterns of responses of labour markets to tariff cuts. To investigate these patterns, we formulate a multi-sector dynamic model featuring capital and labour adjustment costs that we fit to Argentine data. Using counterfactual simulations of a tariff decline in the textile sector, we show that capital adjustment can create long-run responses of real wages that are larger than the short-run responses. This happens as textile firms disinvest during the transition. We also show that the reduction of tariffs on capital inputs boosts investment and real wages across sectors.
Publisher
Oxford University Press (OUP)
Subject
Economics and Econometrics
Cited by
5 articles.
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