Finance, Foreign Direct Investment, and Dutch Disease

Levy Economics Institute, Working Papers Series, No. 853

32 Pages Posted: 17 Nov 2015

See all articles by Alberto Botta

Alberto Botta

University of Greenwich; Mediterranean University of Reggio Calabria; University of Pavia - Faculty of Economics

Antoine Godin

Centre d'économie de l'Université de Paris Nord (CEPN); Agence Française de Développement (AFD); Hans-Boeckler-Stiftung - Macroeconomic Policy Institute (IMK)

Marco Missaglia

Facultad Latinoamericana de Ciencias Sociales (FLACSO) - Sede Ecuador

Date Written: November 2015

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 or not the Dutch disease exists, 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, particularly in the mining sector; (3) a rather passive monetary policy, aimed at increasing purchasing power via exchange rate appreciation; (4) and more recently, a large distribution of dividends from Colombia to the rest of the world and the accumulation of mounting financial liabilities. The paper shows that these dynamics constitute a potential danger for the stability of the Colombian economy. Some policy recommendations are also discussed.

Keywords: Colombia, Dutch disease, Balance of payments

JEL Classification: F21, F32, F40

Suggested Citation

Botta, Alberto and Godin, Antoine and Missaglia, Marco, Finance, Foreign Direct Investment, and Dutch Disease (November 2015). Levy Economics Institute, Working Papers Series, No. 853. Available at SSRN: https://ssrn.com/abstract=2690294 or http://dx.doi.org/10.2139/ssrn.2690294

Alberto Botta (Contact Author)

University of Greenwich ( email )

United Kingdom

Mediterranean University of Reggio Calabria ( email )

Via dei Bianchi, 2
Reggio Calabria, Reggio Calabria 89127
Italy

University of Pavia - Faculty of Economics ( email )

Corso Strada Nuova, 65
27100 Pavia
Italy

Antoine Godin

Centre d'économie de l'Université de Paris Nord (CEPN) ( email )

UMR7115
Université Paris-Nord
Paris XIII
France

Agence Française de Développement (AFD) ( email )

5, rue Roland Barthes
Paris Cedex 12, 75598
France

Hans-Boeckler-Stiftung - Macroeconomic Policy Institute (IMK) ( email )

Hans-Böckler-Straße 39
40476 Düsseldorf
Germany

Marco Missaglia

Facultad Latinoamericana de Ciencias Sociales (FLACSO) - Sede Ecuador ( email )

La Pradera 7-174 y Diego de Almagro
Quito, Pichincha 000
Ecuador

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