Determinants of Firm Profitability in Colombia’s Manufacturing Sector : Exchange Rate or Structural?

Author/Editor:

Naomi Griffin

Publication Date:

May 4, 2015

Electronic Access:

Free Full Text (PDF file size is 957 KB).Use the free Adobe Acrobat Reader to view this PDF file

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

The appreciation of the real exchange rate over the past several years is considered one of the key drivers behind the weak performance of Colombia’s manufacturing sector in recent years. This paper examines the effects of the real exchange rate, external and domestic demand, and structural changes on firms’ profitability in Colombia’s manufacturing sector between 2000 and 2012. While export intensive companies have suffered lower profit growth with real exchange rate appreciation,we find no strong evidence that real appreciation has, on average, negatively affected the profitability of manufacturing firms; on the contrary, we find that real appreciation may have increased firms’ profitability by reducing the cost of imported inputs as Colombian manufacturing firms become more domestically oriented. At the same time, some structural changes (related to trade disruption with Venezuela and increased trade competition from China) seem to partially explain the weakness of the manufacturing sector since 2008.

Series:

Working Paper No. 15/97

Subject:

English

Publication Date:

May 4, 2015

ISBN/ISSN:

9781484364222/1018-5941

Stock No:

WPIEA2015097

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

26

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