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Trade Integration in Colombia: A Dynamic General Equilibrium Study with New Exporter Dynamics

Author

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  • Alessandria, George
  • Avila, Oscar
Abstract
We study Colombia’s trade integration over a 30 year period through the lens of GE model in which non-exporters have access to a risky exporting technology and exporters must invest in accumulating a better exporting technology. Our model is calibrated to match the producer and exporter lifecycles and yields a novel estimate of the various costs of exporting. We find the upfront costs of starting to export are much lower than in previous analyses but that this technology is quite risky in that most firms that incur the cost do not end up with an export opportunity. We also find that for existing exporters, expanding exports requires sustained export-specific investments. We then examine the transition following Colombia’s 89-91 trade reform. We show that the relationship between the firm-level export intensity and aggregate export intensity disciplines the changes in technology and policy accounting for this integration. We find that a common decline in tariffs can account for about 75 percent of the growth in exports as a share of manufacturing sales. We attribute the remaining 25 percent to an increase in the success of investments in export market access. About 10 percent of the increase in trade is accounted for by the endogenous accumulation of an improved exporting technology by existing exporters. These changes in policy and exporting technology boost welfare by about 7.1 percent. The transition following the reforms is characterized by an overshooting of output and consumption, with consumption peaking 15 years after the policy. Further tariff reductions are expected to increase welfare another 6.2 percent.

Suggested Citation

  • Alessandria, George & Avila, Oscar, 2017. "Trade Integration in Colombia: A Dynamic General Equilibrium Study with New Exporter Dynamics," Research Department working papers 1101, CAF Development Bank Of Latinamerica.
    • Handle: RePEc:dbl:dblwop:1101
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    References listed on IDEAS

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    5. Alessandria, George & Choi, Horag & Ruhl, Kim J., 2021. "Trade adjustment dynamics and the welfare gains from trade," Journal of International Economics, Elsevier, vol. 131(C).
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    Cited by:

    1. David Kohn & Fernando Leibovici & Michal Szkup, 2021. "Financial Frictions and International Trade," Working Papers 2021-009, Federal Reserve Bank of St. Louis.
    2. David Kohn & Fernando Leibovici & Michal Szkup, 2023. "No Credit, No Gain: Trade Liberalization Dynamics, Production Inputs, And Financial Development," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 64(2), pages 809-836, May.
    3. Fabrice Defever & Alejandro Riano, 2017. "Twin peaks," Discussion Papers 2017-15, University of Nottingham, GEP.
    4. George Alessandria & Oscar Avila, 2023. "Trade Integration, Industry Reallocation, and Welfare in Colombia," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 71(3), pages 649-687, September.
    5. David Kohn & Fernando Leibovici & Michal Szkup, 2021. "Financial Frictions and International Trade," Working Papers 2021-009, Federal Reserve Bank of St. Louis.
    6. Hamid Firooz, 2023. "The Pro-Competitive Consequences of Trade in Frictional Labor Markets," CESifo Working Paper Series 10649, CESifo.
    7. Wang, Xiaoqing & Sun, Xing & Oprean-Stan, Camelia & Chang, Tsangyao, 2023. "What role does global value chain participation play in emissions embodied in trade? New evidence from value-added trade," Economic Analysis and Policy, Elsevier, vol. 80(C), pages 1205-1223.

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    Keywords

    Comercio internacional; Economía; Investigación socioeconómica; Productividad; Sector privado; Sector productivo;
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