Revisiting Economic Growth in Colombia: A Microeconomic Perspective

Abstract

This paper revisits economic growth in Colombia using a growth diagnostics methodology to identify the most binding constraints for economic growth and the policies that, if implemented, can have the largest positive impact. The data shows economic reactivation in areas with falling violence. Results from analysis at the microeconomic level, however, give a particular spin to this conclusion by showing that investment decisions at the firm level are also explained by the restoration of some form of public order connected to the cessation of paramilitary violence. From a public policy perspective, perhaps the most relevant result is the confirmation that in Colombia, investment decisions are negatively affected by the cost of financing. Empirical results single out the provision of access to financing at fair prices as a policy priority for economic growth, independent of whether uncertainties from poor protection to property rights are resolved.