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

Rana Hasan, Devashish Mitra, Asha Sundaram

Research output: Contribution to journalArticlepeer-review

9 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)91-103
Number of pages13
JournalWorld Development
Volume51
DOIs
StatePublished - Nov 1 2013

Keywords

  • Capital intensity
  • Factor abundance
  • Factor-market imperfections
  • Heckscher-Ohlin model

ASJC Scopus subject areas

  • Geography, Planning and Development
  • Development
  • Sociology and Political Science
  • Economics and Econometrics

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