Structural Flexibility: A Partial Ordering

25 Pages Posted: 19 Dec 2000 Last revised: 11 Feb 2021

See all articles by Kala Krishna

Kala Krishna

Pennsylvania State University - Department of Economics; National Bureau of Economic Research (NBER)

Marie C. Thursby

Georgia Institute of Technology - Strategic Management Area; National Bureau of Economic Research (NBER)

Date Written: January 1994

Abstract

We use an approach developed by Krishna and Young to examine the ability of economies to adjust to exogenous shocks. While, in general, economies cannot be ranked in terms of their flexibility, we provide a partial ordering for certain types of economies. In particular, properties of the revenue function are used to show that placing restrictions on factor mobility and on production in certain sectors reduces the flexibility of a small open economy with respect to all price, endowment, and technology shocks of small enough magnitude. Since one can think of these restrictions as distortions, we would expect them to reduce the level of GNP in the economy. The insight provided by the analysis of flexibility is that, not only is the level of GNP affected, but also the intrinsic ability of the economy to adjust to shocks is reduced.

Suggested Citation

Krishna, Kala and Thursby, Marie C., Structural Flexibility: A Partial Ordering (January 1994). NBER Working Paper No. w4615, Available at SSRN: https://ssrn.com/abstract=253999

Kala Krishna (Contact Author)

Pennsylvania State University - Department of Economics ( email )

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Marie C. Thursby

Georgia Institute of Technology - Strategic Management Area ( email )

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National Bureau of Economic Research (NBER)

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