Balance of Payments Constraint on Industrial Growth in Colombia 1975-2015

Abstract

This research analyzes the role of industrial exports and imports in the growth of the sector, under a balance-of-payments-constraint approach, in the period 1975-2015. The empirical results, obtained using the technique of correction of errors, show that while the income elasticities of demand for industrial exports and imports generate a trade deficit, prices tend to counteract it; however, the industrial trade balance is in deficit throughout the analysis period. The results also show that the external industrial sector explains a high percentage of total national exports and imports, a paradoxical and worrying aspect for the country’s aggregate growth, taking into account that the participation of the industrial sector in the growth of the Colombian economy is increasingly smaller. The final conclusion is that industrial growth in Colombia is explained by the income elasticities of demand for exports and imports and by prices (real exchange rate); similarly, the potential growth of the sector is greater than the observed, and the effect of the industrial sector on the country’s growth is very low.