Recently the Bureau of Statistics in Colombia (DANE) broadcast the quarterly data for Bogotá’s GDP; the span of this data is from year 2000 to 2012, so it is room to calculate Bogotá’s GDP cycle. This type of data is so important to take economic decisions; for instance, when public servants can take public resources to improve economic performance. It is desirable that this type of data will be calculated for other 32 regions in Colombia. This note shows the Bogotá’s GDP cycle, and it is compared with Colombia GDP cycle; the result is impressive, they move as one; it means as the Bogotá’s GDP cycle moves up, Colombian does also, and the other way around is true also. Moreover, there is an application of this result through the impact on Colombia GDP cycle due to Bogotá’s GDP cycle faces a negative shock; the impact is a decline in Colombia GDP growth rate between 0.5% and 1.0% in 2014. This negative shock can be because of Bogotá’s mayor dismissal.
Author: Humberto Bernal,
Economist,
e-mail: zhumber@gmail.com
Twitter: Humberto_Bernal
Bogotá is the capital city of Colombia with 7.7 million of inhabitants, so it is the 17% of total population in Colombia. Bogotá’s Gross Domestic Product (GDP) per-capita was US$11.3 thousand per year in 2012; it is the highest in Colombia if one takes out the regions that produce crude oil and coal. Moreover, Bogotá shows better income distribution than Colombia as a whole; its GINI coefficient was 0.497 in 2012 while Colombia had a GINI of 0.539 in 2012. However, the Bogotá’s unemployment rate has shown a tiny decline in the last year from 8.6% in 2012 to 8.3% in 2013; it is a issue that local authorities have to deal in the next months. Bogotá’s GDP has shared in Colombian GDP in 26% in the last 12 years, so it is important to pay attention to Bogotá’s economic performance to improve national performance. Recently, the Bureau of Statistics of Colombia (DANE) broadcast the quarterly data for Bogotá’s GDP; this data was calculated for the period between years 2000 and 2012. Therefore, this note shows the importance of Bogotá’s economic performance in Colombian economic performance; to make this point clear, the Bogotá’s GDP cycle is taken and compared with Colombia GDP cycle; moreover, through a randomly shock on Bogotá’s GDP cycle such as dismissal of mayor of Bogotá, one realizes that its impact in Colombian GDP cycle is negatively relevant.
Bogotá’s GDP cycle goes along Colombia GDP cycle. When Bureau of Statistics broadcast the Bogotá’s GDP data in quarterly span, it took researchers attention because of it is the first time that this type of regional data is broadcast; it is important that this data can be broadcast for other 32 regions in Colombia. Through Hodrick-Prescott filter, the Bogotá’s GDP cycle and Colombian GDP cycle is calculated as figure 1 shows. the result is impressive, the Bogotá’s GDP cycle path is so close to Colombia GDP cycle; they have same ups and downs trajectories. The main conclusion from this result is Bogotá’s GDP cycle drives Colombia GDP cycle, so if Bogotá faces a negative shock such as weakening of democracy, its impact is negatively important in Colombian economic performance.
Figure 1. GDP cycle for Bogotá and Colombia
(normalized quarterly data 2000-2012)
Source: Own calculations. Stata 12.1.
The impact of negative shock on Bogotá’s GDP cycle is a negative impact on Colombia GDP cycle. Because of Bogotá's GDP contribute in 26% in Colombian GDP, any negative shock on it will bring negative outcomes on Colombia GDP. If one takes the cycle data for Bogotá and Colombia into a VAR time series model lagged in four quarters, one can make examples of impulse response; therefore, if Bogotá’s GDP cycle faces a negative shock of US$1 million, then Colombian GDP cycle will face a decline between US$50 million and US$112 million in the next two years after the shock as figure 2 shows, this huge impact is because of multiplicative effect on Colombia GDP. Therefore, per each US$ 1 million that Bogotá miss, Colombia will face a decline in her GDP growth rate between 0.05% and 0.1%. For example, if the cost of Bogotá‘s mayor dismissal is US$10 million, so Colombia will face a decline of her GDP growth rate in about 1.0% for 2014. This US$10 million are a lower value, it can be more if one calculates the cost to go back the public programs started with his public administration.
Figure 2. Impact on Colombian GDP cycle because of negative impulse on Bogotá’s GDP cycle
(US$million, quarterly data for 16 quarters)
Source: Own calculations. Stata 12.1.
In conclusion, The quarterly data for regions lets getting important public policies. For instance, if Colombia faces antidemocratic impact such as Bogotá’s mayor dismissal, the Colombian GDP growth rate will be lower. The other statement is true also; if Colombia promote democratic actions, her GDP growth rate and economic development will be higher.
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