Open AccessMicroeconomic Flexibility in India and Pakistan: Employment Adjustment at the Firm Level
Author(s) -
Theresa Thompson Chaudhry
Publication year - 2009
Publication title -
the lahore journal of economics
Language(s) - English
Resource type - Journals
eISSN - 1811-5446
pISSN - 1811-5438
DOI - 10.35536/lje.2009.v14.isp.a2
Subject(s) - pace , flexibility (engineering) , clothing , economics , labour economics , demographic economics , business , geography , management , archaeology , geodesy
In this paper, we look at the pace at which firms adjust their employment levels as a measure of “microeconomic flexibility.” Flexibility aids in creative destruction processes, where less efficient establishments recede and dynamic firms can rapidly expand. Following the techniques used by Caballero, Engel, and Micco (2004), we use firm-level data from India and Pakistan to estimate the proportion of the gap closed in a year between desired and actual employment. The results for the proportion of the gap closed for India were 0.46 in 2001 and 0.45 in 2000. For Pakistan, we estimated the proportion of the gap closed as 0.2 in 2001 and 0.53 in 2000. The results for 2001 were much lower than expected (and lower than previous estimates for both countries), possibly due to the events of 9/11. Pakistan compared favorably to India in various key sectors, including chemicals, food processing, and garments. Exporters did not seem to have a quicker speed of adjustment.