Determinants of Firm Profitability in Colombia’s Manufacturing Sector: Exchange Rate or Structural?
IMF Working Papers, May 4, 2015
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- Determinants of Firm Profitability in Colombia’s Manufacturing Sector: Exchange Rate or Structural?
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Bibliographic details
- Authors: Naomi N Griffin
- Published: May 4, 2015
- Series: IMF Working Papers
Executive summary and context
- The paper examines 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.
- Common narrative: 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.
- Core finding: While export intensive companies have suffered lower profit growth with real exchange rate appreciation, the paper finds no strong evidence that real appreciation has, on average, negatively affected the profitability of manufacturing firms.
- Counterintuitive result: Real appreciation may have increased firms’ profitability by reducing the cost of imported inputs as Colombian manufacturing firms become more domestically oriented.
- Identified structural factors: Trade disruption with Venezuela and increased trade competition from China seem to partially explain the weakness of the manufacturing sector since 2008.
Key findings (enumerated)
- Time coverage: 2000 to 2012.
- Effect of real exchange rate appreciation:
- Export-intensive companies: lower profit growth.
- Average manufacturing firm: no strong evidence of negative effect; possible profit increases via lower imported input costs.
- Structural changes partially explaining post-2008 weakness:
- Trade disruption with Venezuela.
- Increased trade competition from China.
Subject areas and keywords
- 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