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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.

Suggested Citation

  • Maria Angelica Arbelaez & Juan Jose Echavarria, 2002. "Credit, Financial Liberalization and Manufacturing Investment in Colombia," Research Department Publications 3145, Inter-American Development Bank, Research Department.
  • Handle: RePEc:idb:wpaper:3145
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    Cited by:

    1. Arturo Galindo & Fabio Schiantarelli, 2002. "Credit Constraints in Latin America: An Overview of the Micro Evidence," Research Department Publications 3165, Inter-American Development Bank, Research Department.
    2. Wagner, Joachim & Gelübcke, John P. Weche, 2013. "Credit Constraints, Foreign Ownership, and Foreign Takeovers in Germany," Working Paper Series in Economics and Institutions of Innovation 329, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
    3. 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.
    4. Guariglia, Alessandra & Mateut, Simona, 2010. "Inventory investment, global engagement, and financial constraints in the UK: Evidence from micro data," Journal of Macroeconomics, Elsevier, vol. 32(1), pages 239-250, March.
    5. Syed Hasan & Ian Sheldon, 2016. "Credit Constraints, Technology Choice and Exports: A Firm-level Study for Latin American Countries," Review of Development Economics, Wiley Blackwell, vol. 20(2), pages 547-560, May.
    6. Morales Acevedo, Paola, 2016. "Essays on banking : Various aspects of the interaction between a firm and its creditor banks," Other publications TiSEM 800e13af-aeb3-451c-8422-c, Tilburg University, School of Economics and Management.
    7. Juan Carlos Echeverry & Roberto Steiner & Leopoldo Ferguson, "undated". "Hell, Heaven or Hedged: Debt Devaluation and Firm Investment in Colombia," DCBSLA Series 5, Inter-American Development Bank, Research Department.
    8. Jesús Botero & Andrés Ramírez Hassan & Diana Gutiérrez, 2011. "La transmisión de la política monetaria en Colombia: la inversión," DOCUMENTOS DE TRABAJO CIEF 011107, UNIVERSIDAD EAFIT.

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