External Sector and Growth in Colombia, 1986-2016
A Restricted Growth Approach to the Balance of Payments
Abstract
This article estimates income and price elasticities in foreign trade and their practical application
in Thirlwall's multilateral economic growth model for six of Colombia's main trading partners from 1986 to 2016. By using error correction models, we provide elasticity estimates. The results show that Colombia has a long-term income elasticity of exports that is higher than that of imports, as well as the price elasticity of imports and exports. We conclude that the best policy to promote Colombia's economic growth is to boost exports, as the exchange rate does not offer a strong influence and the benefits of the external sector depend on the trading partner, at least with the studied countries. The empirical estimation of Thirlwall's Multilateral Law shows that balance-of-payments constraints depend on the growth rate of exports and determine the growth rate of the Colombian economy.
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