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Finance, foreign (direct) investment and dutch disease: the case of Colombia

Author

Listed:
  • Alberto Botta

    (University of Greenwich)

  • Antoine Godin

    (Kingston University)

  • Marco Missaglia

    (FLACSO (Facultad Latinoamericana de Ciencias Sociales))

Abstract

In recent years Colombia has grown relatively rapidly, but it has been a biased growth. The energy sector (the locomotora minero-energetica, to use the rhetorical expression of President Juan Manuel Santos) grew much faster than the rest of the economy, while the manufacturing sector registered a negative rate of growth. These are classic symptoms of the well-known ‘Dutch disease’, but our purpose here is not to establish whether the Dutch disease exists or not, but rather to shed some light on the financial viability of several, simultaneous dynamics: (1) the existence of a traditional Dutch Disease being due to a large increase in mining exports and a significant exchange rate appreciation, (2) a massive increase in foreign direct investment (FDI), particularly in the mining sector, (3) a rather passive monetary policy, aimed at increasing purchasing power via exchange rate appreciation, (4) more recently, a large distribution of dividends from Colombia to the rest of the world and the accumulation of mounting financial liabilities. The paper will show that these dynamics constitute a potential danger for the stability of the Colombian economy. Some policy recommendations are also discussed.

Suggested Citation

  • Alberto Botta & Antoine Godin & Marco Missaglia, 2016. "Finance, foreign (direct) investment and dutch disease: the case of Colombia," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 33(2), pages 265-289, August.
    • Handle: RePEc:spr:epolit:v:33:y:2016:i:2:d:10.1007_s40888-016-0030-6
    DOI: 10.1007/s40888-016-0030-6
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    Cited by:

    1. Alberto Botta, 2014. "The Macroeconomics of a Financial Dutch Disease," DEM Working Papers Series 089, University of Pavia, Department of Economics and Management.
    2. Alberto Botta & Giuliano Toshiro Yajima & Gabriel Porcile, 2023. "Structural change, productive development, and capital flows: does financial “bonanza” cause premature deindustrialization?," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 32(2), pages 433-473.
    3. Shanika Thathsarani & Wei Jianguo & Mona Alariqi, 2023. "How Do Demand, Supply, and Institutional Factors Influence SME Financial Inclusion: A Developing Country Perspective," SAGE Open, , vol. 13(3), pages 21582440231, July.
    4. Adrián Saldarriaga Isaza, 2023. "Review of the social and economic dynamics under Colombian mining policy: Cursing the blessing?," Journal of International Development, John Wiley & Sons, Ltd., vol. 35(1), pages 127-142, January.
    5. Abreo, Carlos & Carrillo, Eduardo & Pédussel Wu, Jennifer, 2023. "Characteristics of Colombian inward foreign direct investment," IPE Working Papers 212/2023, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
    6. Thomas Goda & Alejandro Torres García, 2015. "Flujos de capital, recursos naturales y enfermedad holandesa: el caso colombiano," Revista ESPE - Ensayos sobre Política Económica, Banco de la Republica de Colombia, vol. 33(78), pages 197-206, December.
    7. Pablo G. Bortz & Annina Kaltenbrunner, 2018. "The International Dimension of Financialization in Developing and Emerging Economies," Development and Change, International Institute of Social Studies, vol. 49(2), pages 375-393, March.
    8. Betgilu Oshora & Goshu Desalegn & Eva Gorgenyi-Hegyes & Maria Fekete-Farkas & Zoltan Zeman, 2021. "Determinants of Financial Inclusion in Small and Medium Enterprises: Evidence from Ethiopia," JRFM, MDPI, vol. 14(7), pages 1-19, June.
    9. Botta, Alberto, 2018. "The long-run effects of portfolio capital inflow booms in developing countries: permanent structural hangovers after short-term financial euphoria," Desarrollo Productivo 44282, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    10. Antoine GODIN & Devrim YILMAZ & Jhan ANDRADE & Santiago BARBOSA & Diego GUEVARA & Gustavo HERNANDEZ & Leonardo ROJAS, 2023. "Can Colombia cope with a Global Low Carbon transition?," Working Paper 433ec0f8-625e-434c-bf44-3, Agence française de développement.
    11. Samuele Bibi & Sebastian Valdecantos, 2023. "The Price (and Costs) of Macroeconomic Stability in Peru: Some Lessons on the Implications of FDI‐driven Growth," Development and Change, International Institute of Social Studies, vol. 54(5), pages 1136-1168, September.
    12. Wilson Quijano & Diego Alejandro Guevara-Castañeda, 2021. "Desindustrialización: evidencias desde una mirada kaldoriana para Colombia (2005-2017)," Ensayos de Economía 19342, Universidad Nacional de Colombia Sede Medellín.
    13. William Niebles-Nunez & Leonardo Niebles-Nunez & Lorena Hoyos Babilonia, 2022. "Energy Financing in Colombia: A Bibliometric Review," International Journal of Energy Economics and Policy, Econjournals, vol. 12(2), pages 459-466, March.
    14. Lorenzo Nalin & Giuliano Toshiro Yajima, 2021. "Commodities fluctuations, cross border flows and financial innovation: A stock‐flow analysis," Metroeconomica, Wiley Blackwell, vol. 72(3), pages 539-579, July.
    15. Mbondo, Georges Dieudonné & Bouwawe, Duclo, 2023. "Transformation structurelle des pays à revenu faible et intermédiaire en Afrique Sub-saharienne : quels rôles des flux des capitaux internationaux ? [Structural transformation of low- and middle-in," MPRA Paper 117911, University Library of Munich, Germany, revised 11 Jul 2023.
    16. Antoine GODIN & Alvaro MORENO & Diego GUEVARA & Jhan ANDRADE & Christos PIERROS & Devrim YILMAZ & Sebastian VALDECANTOS, 2022. "Thinking macroeconomic vulnerabilities in the context of low-carbon transition," Working Paper f033267a-4c36-4ee0-8e3b-7, Agence française de développement.
    17. Antoine GODIN & Sakir-Devrim YILMAZ, 2020. "Modelling Small Open Developing Economies in a Financialized World: A Stock-Flow Consistent Prototype Growth Model," Working Paper 5eb7e0e8-560f-4ce6-91a5-5, Agence française de développement.

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    More about this item

    Keywords

    Colombia; Dutch disease; Balance of payments;
    All these keywords.

    JEL classification:

    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

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