PRODUCTIVITY DYNAMICS OF THE COLOMBIAN MANUFACTURING SECTOR

Abstract

This paper analyzes the effects on Colombian manufacturing productivity of tax and foreign trade policy changes during the 1990s. Our results indicate that between 1977 and 1999, aggregate manufacturing productivity largely stagnates and even declines in some of the larger industries. There is little entry and exit of plants or reallocation of labor. The productivity stagnation can be explained by this lack of liquidation of unproductive plants combined with slow technological advance. Dynamics vary significantly across sub-sectors, however, and our findings attribute this variation primarily to within-sector output reallocation. The importance of industrial policy is large. Sector-level productivity declines coincide with protectionist policies in the form of import tariffs or beneficial tax treatments, while higher productivity levels are correlated with sectors’ increasing foreign exposure. Our finding of small productivity effects of preferential treatments further points to the insignificant role played by output reallocation across plants in stimulating productivity growth.

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