Working Paper: NBER ID: w4039
Authors: Kala Krishna
Abstract: This paper provides definitions and measures of the extent of adaptability of an economy to exogenous changes in product prices, factor availability and technological change. It is argued that flexibility can in general only be defined relative to the exogenous changes that occur. Using a dual approach, measures of flexibility in response to the particular exogenous shock are developed. In addition, a decomposition of the total change in National Income into its component parts including gains due to flexibility or losses due to inflexibility is developed.
Keywords: Structural Adaptability; Economic Flexibility; Exogenous Changes; Revenue Function
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Economy's flexibility (P19) | Ability to adjust to changes in prices, factor endowments, and technology (F16) |
| Greater flexibility (D29) | Larger response to changes in prices, factor endowments, and technology (F16) |
| Price changes (P22) | National income (P44) |
| Adaptation index (C43) | Actual change in nominal national income (E01) |
| Adaptation to changes in endowments and technology (O49) | Flexibility interpreted through the curvature of the production possibilities frontier (D24) |