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

May 4, 2015

Preview Citation

Format: Chicago

Naomi N Griffin. Determinants of Firm Profitability in Colombia’s Manufacturing Sector: Exchange Rate or Structural?, (USA: International Monetary Fund, 2015) accessed November 21, 2024

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.

Subject: Economic sectors, Exports, Foreign exchange, Imports, International trade, Manufacturing, Real effective exchange rates, Real exchange rates

Keywords: Exports, Firm profitability, Firms' profitability, Global, Imports, Intensive company, Manufacturing, Profit growth, Real effective exchange rates, Real exchange rate, Real exchange rates, REER appreciation, REER depreciation, REER growth, Structural changes, Trading partner, WP

Publication Details

Pages:

26
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2015/097
Stock No:

WPIEA2015097
ISBN:

9781484364222
ISSN:

1018-5941

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