Presidential election 2014 in middle of economic downturn and middle class that calls for help

Presidential election in Colombia is close, and the president wants to get the reelection for 2014 to 2018. Nonetheless, the economic environment during elections in 2014 could be in middle of economic downturn. While some countries in the region show an upward trend in their GDP growth such as Chile and Peru, others such as Colombia shows a downward trend in GDP growth; Colombia could face in the best of cases a GDP growth of 3.8% in 2013. Many international and local agencies point this fact, but central government do not pay attention. Moreover, ministers of Finance, Labor and Trade in Colombia have not shown a proper job in terms of job creation and income distribution. Colombia has not shown advances in declining unemployment rate, it has been between 8.9% and 13.8% during these last 3 years. 

Moreover, the worst thing, the middle class is abandoned by public policies until point major degree students take their life away by themselves. Teachers from main universities have not shown changes since these events happened, some of them remain showing off the weakness of their students instead of support them. What society we hope if there are not public policies and teachers that care students and juveniles’ economic opportunities!!!.

Author: Humberto Bernal,  

Economist,

e-mail: zhumber@gmail.com

Twitter: Humberto_Bernal

It can be download @ PDF

Since 2011 Colombia has shown a poor economic growth compared with other countries in the region, and it is likely that she will face an economic downturn in 2014. Colombia showed an economic growth of 6.6% in 2011, 4.0% in 2012 and it is expected an economic growth between 3.4% and 4.2% in 2013. Government broadcast a Gross Domestic Product (GDP) growth rate forecast of 4.5% for 2013, but my forecast is 3.1%. The most accurate forecast can be the average of main economic agencies forecasts, and it was 3.8%. Table 1 shows these forecasts; for instance, International Monetary Found  (IMF) broadcasted a GDP growth rate of 4.1% in 2013; the Economist (the weekly international review) broadcasted 4.0%; the World Bank was 3.9%; and Euromonitor (international private agency) was 3.6%. 

Table 1. GDP growth rate forecast for 2013

(Foreign and local agencies, %)

Agency	World	Latin America	Colombia	Data of last publication
DNP (Colombia government)			4.5	June 2012
IMF	3.3	3.4	4.1	April 2013
The Economist	2.0	3.3	4.0	September 2013
Colombia Central Bank			4.0	September 2013
ECLAC (UN)		3.0	4.0	June 2013
World Bank	2.2	3.3	3.9	June 2013
ANIF (Colombia private firm)			3.8	September 2013
Fedesarrollo (Colombia private firm)			3.8	March 2013
Euromonitor	3.0	2.4	3.6	September 2013
Humberto’s			3.1	September 2013
Average	2.6	3.0	3.8	Sample
Standard Deviation	0.6	0.4	0.4	Sample

Source: Collecting from agency.

Other countries in the region show higher GDP growth rates and great economic advances. Peru and Chile are expected that they show a GDP growth rates above of 4.0%  in 2013 according to ECLAC and IMF. Other countries such as Argentina and Brazil show upward tendency in their economic growth; in the first case was 1.9% in 2012 and is expected 2.8% or more for 2013; in the second case was 0.9% in 2012 and is expected 2.5% or more for 2013. However, there are other countries that show a downward tendency; for instance Colombia showed a GDP growth of 4.0% in 2012 and is expected a 3.8% or less in 2013.

Likely  economic downturn from 2014 in Colombia

Colombia could face an economic downturn from 2014 because her main economic variables shows a poor dynamic. First, Colombian economic growth shows lower growth rates since 2011. Second, her main economic partners show low economic growth; for instance, the United States is expected an economic growth of 1.7% in 2013; China could face a growth of 7.6% in 2013; and the worst case is Germany that could face a negative growth in 2013 as table 2 shows. Germany is taking an important place in Colombian international trade; nowadays, Germany takes the 5th place in main Colombia economic partners. Finally, other variables that help to make a forecasts of my 3.1% for Colombian GDP growth in 2013 are a production of million of crude oil barrels per day; 8.5 million of sack of coffee through 2013; an unemployment rate of 9.4% at the end of 2013; and a Market Index of 14,492 points; it means a Market Index decline of 0.4% compared with its value in 2012.

Table 2. Colombia economic variables forecasts 2013

Variable	Forecasts
Crude Oil Colombia (Average barrels per day)	1,000,678
Coffee Colombia (Annual sacks of 60kg)	8,534,779
IGBC (Market Index Colombia)	14,492
Unemployment Colombia (Rate %)	9.4%
GDP USA (Annual growth)	1.7%
GDP China (Annual growth)	7.6%
GDP Germany (Annual growth)	-0.2%
GDP Colombia 2013 (Annual growth)	3.1%

Source: Bureau of Statistics (DANE) Colombia; Bureau of Statistics and Central Banks according to country  and own calculations VEC methodology Stata 12.1.

Colombia middle class abandoned, students take their life away by themselves

The Colombian GDP cycle could show a downward path from first quarter 2014 as figure 1 shows, so Colombia could face an economic downturn when presidential election takes place. According to my forecast, Colombia GDP cycle can change its tendency because Central Government has not paid attention to industrial development and ministers of Finance, Labor and Trade have not worked properly on job creation and income distribution. The middle class in Colombia is abandoned; graduate students feel disappointed because there are not fair job places and their returns for their study investments is low and generate losses. This neglect has generated that students that are close to get their major degrees take their life away by themselves!!!; what poor society in Colombia we have. Moreover, teachers from main universities do not understand that they have to change their teaching behavior. They have to support their students instead to show off their weaknesses. I will work on this issue in my next notes; meanwhile, both economic and social behavior point that Colombia could face economic downturn at the beginning of  2014; what critical issue for reelection.

Figure 1. Colombia GDP cycle 1977-2016

(quarterly data, forecasts from 2013:3)

Source: Bureau of Statistics (DANE) Colombia; Bureau of Statistics and Central Banks according to country  and own calculations VAR methodology Stata 12.1.

Colombia external debt default because 1929 crisis and a calling for a unique global currency

A global monetary union is called by some economist. They call it because they believe and show through economic models that global financial risk can be lower, and global financial crisis can be less deep. There are cases through economic history where a global unique currency could have avoided deep economic crisis; for instance, the international crisis in 1929 and 2008. The first crisis faced poor dollar monetary supply growth while the second one showed huge dollar monetary supply growth. Both economic policy measures brought economic costs in the World; in 1929, most of countries fell in external debt default because of lacking of Dollars and Pounds in the World; in 2008, countries faced a currency appreciation because huge volume of Dollars and other main currencies in the World. Therefore, both economic polices brought high cost for World society. When an unique global currency is working, the first problem (debt default) can be avoided through monetary supply expansion in the region who asked; this monetary expansion can go through foreign investment, therefore there are money to pay duties. The second problem is avoided because there is no place to currency appreciation, and there are not other currencies. This note shows how the external debt default took place in Colombia between 1931 and 1935 because of international crisis in 1929.

Author: Humberto Bernal,  

Economist,

e-mail: zhumber@gmail.com

Twitter: Humberto_Bernal

It can be download @ PDF.

Colombia has been a good borrower, but she delayed her external debt payments during 1931-1935 because international crisis in 1929. One can take this delay as a Debt Default agreed between local government and foreign lenders. During 1920 and 1928, Colombia faced huge volume of credit from the United States and England; Colombia reached an international debt about US$71 million in 1928 (US$791.2 million at 2012 chained prices) as figure 1 shows. 

Figure 1. Public debt*  in Colombia 1923-2012

(US$million at 2012 chained prices)

* it does not include debt in financial public sector.

Source: DNP and Central Bank Colombia.

This credit was supported by the good economic performance in Colombia. For instance, the volume of coffee exported went from 1,600 sacks of 60 kilograms in 1920 to 2,569 sacks in 1928; the coffee price went from US$0.22 per pound in 1920 to US$0.27 in 1928. Colombia began to export crude oil in 1926; the volume exported went from 5 million of barrels in 1926 to 18 million in 1928; the crude oil price went from US$3.1 per barrel in 1920 to US$1.2 per barrel in 1928. The volume of bananas exported went from 120,302 tonnes in 1920 to 223,684 tonnes in 1928; the banana price went from US$80 per tonne in 1920 to US$91 per tonne in 1928. The gold exported showed an annual average of 10.3 tonnes between 1920 to 1928; the gold price was around US$21 per troy ounce during this period. Finally, the payment from the United States because of Panama separation took place during 1923 to 1926, and it reached US$25 million. This good economic performance let that Colombia achieved international credit easily. It was not just in Colombia, during 20’s international credit was around the World, Europe countries got international credits to rebuilt their economies after WWI, and developing countries afforded their credit because of primary commodities prices were high. 

The economic meltdown in Colombia started in 30’s. Colombia reached her external debt peak in 1935 as figure 2 shows. Colombia faced a low volume of some of their exported products, and faced lower prices also. For instance, the volume of crude oil exported  declined to reach 12 million of barrels in 1933; the volume of banana exported declined to reach 136,905 tonnes in 1933. Although the volume of coffee exported increased to 3,281 sacks in 1933, its price showed a deep decline to reach US$0.10 per pound in 1933. The gold exported was the only commodity that showed an increase and its price also, but it was not enough to afford international duties.

Figure 2. Public debt* as a share of GDP 1923-2012

(%)

* it does not include debt in financial public sector.

Source: DNP and Central Bank Colombia.

The socioeconomic indicators in Colombia due to this crisis were so critical. The government saving fell dramatically as figure 3 shows; The unemployment rate increased so much; people did long lines to get a place in public projects where places were few; people were agglomerated in public squares asking for jobs. Colombian GDP growth was -0.9% in 1930 and -1.6% in 1931. People were in critical economic conditions really.

Figure 3. Central public saving as a share of GDP 1923-2012

(%)

Source: DNP and Central Bank Colombia.

Because of lacking of currencies to pay external debt, Colombia fell into external debt default. International reserves declined  from US$ 65 million in 1928 to US$ 14 million in 1934; moreover, there were poor economic performance in external sales, negative economic growth and austere local monetary supply. Therefore, Colombia had to call for international debt default. This debt default took place during 1931 to 1935; central government and local governments showed huge external debt and internal debt. Central government had to lead the talks to sort out the total external debt issue. The solution was to broadcast Scrips that showed an interest rate of 4% that were payed after 1935. Therefore, Colombia as many others countries did not pay some of their international duties between 1931 and 1935, the critical point came between 1934 and 1935 when Colombia did not pay any of their international duties, she broadcast just Scrips. The international lenders sent councils to talk to Colombian government about how she will pay her debt duties. There were two councils; one was sent by lenders from the United States; other were sent by British lenders. They make agreements about how to pay this debt after 1935.

¹ Scrip is a paper that makes the function of money when official money supply is narrow.

Free Trade Agreements as a mechanism to achieve economies of scale: The case of Make Up market in Colombia

Free Trade Agreements and economic openness bring social welfare. Few days ago, there were some colombians who complained this economic policy, but there were not solid support on them. Economic theory and evidence shows that economic openness gives social benefits, so this note shows it through Make Up market in Colombia between 1991 to 2012. This market has taken economic openness benefits through more Foreign Direct Investment (FDI) and free tariff trade. Colombia has more foreign firms in this economic sector and has exported more volume of these products. Moreover, this sector increased job places about 2.3% per year between 1991 to 2012. However,  Make Up’s prices in local market are high, so the volume exported by Colombia is cheaper than the volume supplied in local market; therefore, there is place to more firms to be efficient; it means new firms can charge low prices and get profits. 

Author: Humberto Bernal,  

Economist,

e-mail: zhumber@gmail.com

Twitter: Humberto_Bernal

It can be download @ PDF

There has been complaints on Free Trade Agreements (FTAs) signed by Colombia recently, nevertheless these complaints do not give economic support in many cases. The worst thing is society takes by sure these gossips about FTAs. Moreover, it is too early to grade FTAs signed recently with Canada, the United States and many others. FTAs take time to bring social benefits, but firms and consumers will enjoy them at the end. Colombia started her economic openness in 1991, and there are sectors that are enjoying it. This note shows economic benefits from this economic openness for Make Up market in Colombia. 

In this case, Make Up market takes two products: Eye Make Up Preparations and Solid Products for Making Up; there are others products in this market, but they are not taking into account in this note because lacking of room; however, it is easy to work on them. 

The Make Up market in Colombia is big. This market shows a real annual growth of 2.5% between 1992 and 2011. Moreover, its Added Value in Colombia economy shares between 1.2% and 2.2% of total Gross Domestic Product (GDP) as figure 1 shows. This share shows a decline trend because Colombia GDP has other products that has shown higher growth such as crude oil, coal and ferronickel, so government has to pay attention to Dutch Disease impact on sectors with strong global competitiveness such as Make Up sector. However, this market  is so important in Colombia economy still; the job places in Body Care Products increased from 38,686 places in 1992 to 62,786 places in 2011; it means an annual growth of 2.3% between 1992 and 2011.

Figure 1. Make up GDP* as a share of total GDP in Colombia 1995-2012

(annual %)

*ISIC: D2424 Rv.3.

Source: Superintendencia de Sociedades and Bureau of Statistics Colombia (DANE).

Make Up market is enjoyed by local firms and foreign firms. At the beginning of 90’s, there were 41 big firms where 33 were locals and 8 were foreigns, but the volume of firms increased to 100 in 2012; by this last year, 84 were locals and 16 were foreigns as figure 2 shows.  Some of foreign firms in Make Up market in Colombia are Henkel from Germany, Mercantil Belleza from Luxembourg, Procter and Gamble from Switzerland, Capill France based in Panama and Yanbal Colombia from Peru and based in Bermudas. Most of these firms are located in Bogotá, Barranquilla, Cali and Medellín.

Figure 2. Make Up firms by nationality 1995-2012

(annual number)

*ISIC: D2424 Rv.3.

Source: Superintendencia de Sociedades and Bureau of Statistics Colombia (DANE).

The volume of Make Up exported has shown an important increase since 1991. This volume went from 37 tonnes in 1991 to 784 tonnes in 2012 as figure 3 shows; it means an annual growth rate of 15.6% between 1991 and 2012!!!. The main countries that imported these products from Colombia were Ecuador with 21.8% of total Make Up value exported in 2012; Mexico with 19.7%; Peru with 15.2% and Chile with 12.6%, so the market for these products are medium and low medium income countries.

Figure 3. Make Up exports* from Colombia 1991-2012

(annual tonnes)

HS Code: 330420.

Source: ONU Data.

Make Up market in Colombia shows Economies of Scale

Make Up market shows Economies of Scale in Colombia. It is interesting to know why this market blasted off through these last 12 years. Economic theory and economic evidence give the answer, so this market took Colombians experience on chemical that started at the beginning of XX century and set up it during 1935 to 1960. Moreover, this market took product differentiation as mechanism to be competitive and to achieve economies of scale. In addition, the economic openness in 1991 brought foreign capitals and opportunities to export these products in easy way. In quantitative measures, its market supply curve shows a negative slope because of economies of scale as table 1 shows. This results can be taken as the price decreases in 1.0%, then volume increases in 2.22%; this result is controlled by crude oil price as raw costs. On the other hand, its market demand curve follows the Law of Demand; so its slope is negative. This results can be taken as price increases in 1.0%, then the volume demanded decreases in 0.74%; this result is controlled by GDP per capita in Colombia. 

Table 1. Make Up’s  Supply and Demand function* 

(variables in logarithm levels. 3SLS model used**)

Variable	Volume Supplied	Volume Demanded
Price	-2.22	-0.74
GDP per capita		2.84
Crude oil price	1.64
Constant	17.29	-29.42
R2	0.54	0.61

*ISIC: D2424 Rv.3.

** Nominal variables were transformed at 2012 chained prices. The total number of observations were 20 (from 1992 to 2011) and significative under 1,500 Bootstrap replications. 

Source: Bureau of Statistics Colombia (DANE) and own calculation.

The volume and price expected for Make Up products pointed above are US$91 per kilogram in 2013 and 870,398 kilograms in 2013 as figure 4 shows. These results take into account a GDP per capita growth of 3.5% and a crude oil price of US$113 per barrel; these results are for local market. However,  it is fair to point that Make Up companies charge higher prices in local market than countries where they export their products; for example, in 2012, the local price was US$80 per kilogram while they traded same volume for US$30. Moreover, the international price of these products was US$51 per kilogram in 2012. One tends to think that Colombia has economies of scale in these products, but local consumer are facing  higher prices than foreign ones, so Make Up companies could reduce their local price and gain more market; another option is to promote this sector to bring more competitiveness in order to reduce local prices. There can be other option to explain these low prices for exported Make Up products, so foreign firms can be applying transfer prices, but one tends to think that nowadays firms are fair in their international transactions.

Figure 4. Make up market expected equilibrium* in Colombia for 2013

(price in US$ dollars per kilogram)

*ISIC: D2424 Rv.3.

Source: Bureau of Statistics Colombia (DANE) and own calculation.

Japan and its contributions to colombian development

Japan has contributed to Colombian development since 1924. Japanese brought novel techniques to grow crops in Valle del Cauca in 1924. Moreover, they taught techniques to grow grain, the uses of new technology such as tractors and ceramic techniques also. Yuso Takeshima was an important Japanese in Colombia during first half of the XX century; he contributed to develop ceramic industry in Cali and translated Maria novel from Jorge Isaac colombian writer. Nowadays, there are 369 Japanese in Colombia; they settled down in Bogotá, Medellín, Cali and Pereira; most of Japanese residents in Colombia work in real estate sector and education sector. In addition, big Japanese firms are based in Colombia; they add value to vehicles sector, wholesales and retail sales sector also. Nonetheless, international trade between these two countries shows a decline because lack of competitiveness in Colombia; the trade balance has been in favor to Japan since 1962. Finally, the economic cycles between these countries is contra-cyclic, therefore there are huge economic opportunities to diversify firms’ portfolios.

Author: Humberto Bernal,  

Economist,

e-mail: zhumber@gmail.com

Twitter: Humberto_Bernal

It can be download @ PDF

Japanese started to come to Colombia in important volume since 1923. Japanese came to Colombia a bit late compared with other immigrants such as French, Germans and Americans who started to come in XIX and beginning of XX centuries. Japanese were so interested on Colombia geography because the Colombian writer Jorge Isaacs described it in detail in his book called Maria; this novel was translated to japanese by Yuso Takeshima. When Japanese arrived to Colombia, there were lot of them that settled down in Valle de Cauca region; it is close to Cali city. The volume of Japanese reached 223 in 1938 as figure 1 shows. Most of them worked in agrarian sector as farmers and others worked for La Manuelita sugar factory. Those who were independent workers taught agrarian techniques to locals such as growing rise and other types of grains. Japanese were so laborious; in few years they got the latest technology to grow grains in Colombia and set up grocery stores to keep prices affordable. The most important Japanese in Colombia was Yuso Takeshima who translated Maria novel, brought the ceramic technique called Nihon Toki and set up an important ceramic factory in Cali. There were other important Japanese such as Escipión Isoji Kuratomi, Pedro Suejoro Nakamura, Tsuchizo Yoshioka, and many others. By 1990, there were 796 Japanese in Colombia, but this group showed a strong reduction because internal conflict in Colombia; by 2006 Japanese in Colombia declined to reach 288 people.

Figure 1. Japanese in Colombia 1938-2011

(number of people)

Source: Colombia census, World Bank and Colombia migration office.

Japanese enjoy Colombia. By 2011, the volume of Japanese increased to reach 369; this increase can be explained by better security conditions in Colombian and economic opportunities. They settled down in Bogotá city mainly with 32% of total Japanese in Colombia, but there are other places where they found proper conditions to live on such as Medellín with 9% of total Japanese, Pereira with 12% and Cali with 18% as figure 2 shows. Most of Japanese in Colombia are men with 77% of total Japanese in Colombia, moreover most of them are single, separated or widower. Most of them finished secondary school and there are few that count with technical studies or university education. Japanese work as employers and employees; in the first case there are 15% of total Japanese, and most of them work in real estate sector or educational sector. Unfortunately, there are 2 Japanese in troubles with Colombia Law in 2013. This information come from Colombia census in 2005, migration office and Inpec.

Figure 2. Japanese residents current location in Colombia

(Share % of total Japanese in Colombia 2005-2011)

Source: Colombia census and Colombia migration office.

Big business between Japan and Colombia

Japan started to make important business with Colombia since second half of XX century. The volume of Foreign Direct Investment as stock (FDI) started to come since 1968; for instance, Mitsubishi Electronic Corporation opened its office in Bogotá in 1969, Mitsui de Colombia opened its office in Bogotá in 1970, Itouchu Corporation opened in 1974 and Sony Corporation opened its office at the beginning of 60’s. The volume of FDI as stock went from US$2.5 millions of 2012 in 1968 to US$523.4 million in 2012 as figure 3 shows, therefore it means an annual average growth of 12.9% between 1968 and 2012. The number of big firms went from 11 in 1995 to 14 in 2012; they are located in Bogotá mainly with 79% of total big firms; there are others located in Cotá, la Estrella (Antioquia) and Pereira. Most of these big firms are in industrial sector; for instance, by 2012, there were 6 firms in this sector where Comapañia Colombiana Automotriz S.A based in Bogotá leads the list, followed by Industria Colombiana de Motocicletas Yamaha S.A based in La Esterella, Suzuki Motor de Colombia S.A based in Pereira and Hino Motors Manufacturing Colombia S.A based in Cotá. There are other Japanese big firms in wholesales and retail sales; for instance, in 2012, one can find Sumitomo Corporation Colombia S.A; Itochu Colombia S.A and Melco de Colombia Ltda; all of them are based in Bogotá. There are others in real estate sector and transport and store sector.

Figure 3. Japanese FDI stock in Colombia 1968-2012

(US$million 2012 chained British Petroleum prices)

Source: De Lombaerde 1997;  Central Bank Colombia.

Japan and Colombia international trade took relevance since 1962. Since 1962, trade between these two countries showed an increasing trend, but this trend started to decline after 1983 as figure 4 shows. This trade behavior can be explained by the new trade partners for Japan. Japan found other countries to get primary products such as China, the United States, Australia and Saudi Arabia. However, Colombia carries exporting coffee, cut flowers, crude oil, coal and few basic chemicals, iron and steel. On the other hand, Colombia imports lot of added value products from Japan; for instance, vehicles, computers, rubber, machines for factories and others. The balance of trade between these two countries has been in favor to Japan; it reached US$1,294 million in 2012.

Figure 4. International trade Index* Japan-Colombia 1962-2012

(Japan and Colombia exports plus imports divided by total exports and imports of Colombia, % percentage)

Source: United Nations Data.

Japan and Colombia Gross Domestic Product cycle are contra-cyclical; it means when Colombia shows high economic activity, Japan shows low economic activity; the contrary way is true also. Therefore, business men can take advantage of it to diversify their portfolios; for example, Japanese can improve their investment in transport sector in Colombia (Public Transport in Cali or Bucaramanga) to mitigate their low economic activity faced in these days, and Colombians can open dairy firms (firms that produce desserts to takeaway) and chocolate firms in Japan to take advantage of good economic activity faced by Colombia. The contra-cyclical effect can be measured through correlation coefficient of -0.04.

Figure 5. Colombia’s cycle and Japan’s cycle

(1979-2013 quarterly normalized data)

Source: Bureau of Statistics Colombia (DANE), interamerican Bank of Development, Federal Reserve Bank of San Luis USA and Cabinet Office Japan.

Free international migration and its economic benefits: Colombia case

Nowadays, we live in a global World where transport is cheaper and communication is easier. One can get sales on fly tickets and internet makes international meetings easy. However, there is a big issue still, it is the international migration block. The avoidance of free human movement around the World brings high costs in economic development. For instance, if Colombia society blocks the entrance of foreigners in 1.0%, her GDP will not face an increase between 0.03% and 0.04%, and her FDI will not face an increase between 0.08% and 0.25%. Other countries such as the United States is aware of it, and they are working hard to make a country for everyone in the World. On the other hand, Colombia does not pay attention to this issue, and in some cases Colombian government blocks international immigration without fair reason. Colombian central government has to pay attention on this issue to take advantages of globalization. 

Author: Humberto Bernal,  

Economist,

e-mail: zhumber@gmail.com

Twitter: Humberto_Bernal

It can be download @ PDF

Colombia, as many other countries, has enjoyed the international immigration during XX and XXI centuries. In 1884, Colombia counted with 1,160 foreigners as residents; this volume increased to 26,821 in 1928 according to colombian census. Although Colombia has not been the main place for foreigners such as Brazil, Argentina, Paraguay and Uruguay have, Colombia has showed an important increase of foreigners since 1970. Before 1970, Colombia faced low volume of international immigration, but there were immigrations such as Chines at the beginning of XX century that contributed with Panama Canal construction, Western Europeans and Americans that contributed with local mining, trade and industrial development, Japanese that contributed with agrarian development and Jews that contributed with trade and financial development. In some cases, foreigners found fair wages rates and decided to settle down in Colombia. After 1970, the volume of foreigner in Colombia increased as figure 1 shows. This increase can be explained by better transport system such as airplane and better living conditions in Colombia. However, there were other important reasons that can explain it; for instance, the real wage increased for those who came to work, so the annual real wage growth was about 18% and 20% between 1970 and 1980. This increase was the highest that Colombia has faced ever. There were other reasons such as mining and crude oil extraction, and high FDI inflows that required knowledge that was missed by locals. 

Figure 1. Foreigners in Colombia 1925 - 2012

(thousand number of people*)

* It counts residents resisted by local authorities and travelers who decided to settle down in Colombia 

(stock of net flow of travelers).

Source: Palgrave International Historical Statistics, Bureau of Statistics (DANE), World Bank and Migration Office Colombia.

The volume of foreigners in Colombia was not smooth between 1960 and 2000, but they contributed to Colombia development indeed. Even though, the volume of foreigners showed a positive trent, there were important jumps during this period. These jumps can be explained by local internal war conflict that terrified foreigners through murders and kidnappings. Nevertheless, foreigners contributed with their knowledge to Colombia development. Table 1 shows the impact of foreigners on Colombia Gross Domestic Product (GDP) and Foreign Direct Investment inflows. For instance, as the number of foreigners increase in 1.0%, then it is expected that Colombia GDP faces an increase in 0.03%, and the foreign capital increases in 0.25%. This results come from an econometric model called 3SLS where there are 87 observations (since 1925 to 2012) and  other significative variables that contribute to get these results.

Table 1. Effect of 1.0% of more foreign people on Colombia GDP and FDI into Colombia

(increase in %)

	Gross Domestic Product	Foreign Direct Investment
Foreigners in Colombia	0.03%	0.25%

Source: Own calculations 3SLS model Stata 12.1.

Foreigners’ contribution is positive and permanent in the very long run. Foreigners’ contribution is permanent and can be calculated in 0.04% as foreigners increase in 1.0%. Figure 2 shows these results, after foreigners increase in 1.0%, the next 5 years Colombia faces an important increase in her GDP growth, until reaching 0.04% in the very long run. Same scenario is faced by FDI, as the number of foreigners in Colombia increases, in this case the very long run effect is about 0.08%. The  conclusion is Colombia can enjoy a better economic conditions as foreigners take Colombia as a home.

Figure 2. Colombia GDP increases because 1.0% of more foreign people in Colombia

(increase in the very long run %)

Source: Own calculations VEC model Stata 12.1.