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Credit, Financial Liberalization and Manufacturing Investment in Colombia

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  • Maria Angelica Arbelaez
  • Juan Jose Echavarria

Abstract

This paper evaluates the degree to which Colombian firms face credit restrictions that alter their investment decisions. It analyzes whether the evolution of the financial sector during the 1990s, characterized by an intense financial liberalization, an increase in size and a deepening of the activity, reduced the credit restrictions faced by firms and stimulated investment. The paper also explores whether, on the contrary, financial restrictions intensified during the recent 1998-2000 crisis. The paper provides empirical evidence suggesting that Colombian firms are indeed restricted by external resources and are compelled to resort to internal resources. The paper demonstrates that financial liberalization and the greater credit availability reduced such restrictions, and that the financial crisis had a strong and negative effect on investment and its financing. It compares the behavior of different groups of firms: (i) firms belonging to conglomerates vs. non-conglomerates, and (ii) firms with direct foreign investment vs. domestic firms. It shows that both groups face fewer financial restrictions and that they benefited less from financial liberalization. Finally, the paper evaluates the effects of indebtedness; the results suggest firms acquire debt before investing and/or that the acquired debt in the past serves as a sign of good credit history for the acquisition of new resources.

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Bibliographic Info

Paper provided by Inter-American Development Bank, Research Department in its series Research Department Publications with number 3145.

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Date of creation: Aug 2002
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Handle: RePEc:idb:wpaper:3145

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Citations

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Cited by:
  1. Juan Carlos Echeverry & Roberto Steiner & Leopoldo Ferguson, . "Hell, Heaven or Hedged: Debt Devaluation and Firm Investment in Colombia," DCBSLA Series 5, Inter-American Development Bank, Research Department.
  2. Arturo Galindo & Fabio Schiantarelli, 2002. "Credit Constraints in Latin America: An Overview of the Micro Evidence," IDB Publications 6498, Inter-American Development Bank.
  3. Simona Mateut & Alessandra Guariglia, . "Inventory Investment, Global Engagement, and Financial Constraints in the UK: Evidence from Micro Data," Discussion Papers 09/09, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
  4. Arturo Galindo & Fabio Schiantarelli, 2002. "Limitaciones crediticias en América Latina: panorámica general de los elementos de juicio al nivel micro," Research Department Publications 4306, Inter-American Development Bank, Research Department.
  5. Joachim Wagner & John P. Weche Geluebcke, 2013. "Credit Constraints, Foreign Ownership, and Foreign Takeovers in Germany," Working Paper Series in Economics 283, University of Lüneburg, Institute of Economics.
  6. Hasan, Syed M., 2013. "Credit Constraints, Technology Choice and Exports - A Firm Level Study for Latin American Countries," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 149742, Agricultural and Applied Economics Association.

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