Apertura e integración de Colombia a la red mundial de comercio: mucho ruido y pocas nueces.

Date01 July 2022
AuthorCepeda-López, Freddy

Colombian Liberalization and Integration into World Trade Markets: Much Ado about Nothing

Abertura e integração da Colômbia à rede mundial de comércio: muito barulho por nada

Introduction

Trade liberalization and the fragmentation of production across countries are two fundamental changes that have reshaped world trade in the last decades (Hernández et al., 2014). Regarding trade liberalization, evidence of international trade as one of the engines of economic growth is abundant (Dollar, 1992; Krueger, 1998; Edwards, 1998; Stiglitz, 1998; Frankel & Romer, 1999; Dollar & Kraay, 2004; Arora & Vamvakidis, 2005; Felbermayr, 2005; Kónya, 2006; Awokuse & Christopoulos, 2009; Beaton et al., 2017b). Likewise, there is evidence of a positive relationship between participating in global value chains (1)--that result from the transnational fragmentation of production--and higher productivity at the country and firm-level (Gereffi, 1999; Giovannetti et al., 2015; Criscuolo & Timmis, 2018; Del Prete et al., 2017; OECD, 2017).

Colombia, like many other developing countries, embraced the idea of liberalizing trade and integrating its productive sector into world markets. Consequently, in the dawn of the nineties, the country implemented a development plan called "The Peaceful Revolution" (La Revolución Pacífica) that changed the economy's growth strategy from the domestic market to foreign markets and from import substitution to exports (Cardenas et al., 2000; Villar & Esguerra, 2007). It can be claimed that Colombian trade policies, institutional changes, and outsprint of mineral products since the nineties achieved the objective of increasing exports and imports. As exhibited in Figure 1, despite some recent downturn periods (i. e., 2009, 2010, 2016, and 2017), Colombia's trade trend appears to attest that trade liberalization has delivered its most immediate goal: to increase trade and to make it more prominent for the economy.

However, when compared with Latin America or other developing countries, some authors have highlighted that Colombia's trade openness has been modest--even reversed (Villar & Esguerra, 2007; López et al., 2015). Similarly, Ospina (2013) concludes that Colombia's importance in world trade did not improve notably, whereas López et al. (2015) highlight the reduced importance of Colombia in global value chains.

The objective of this article is to study the evolution of Colombian liberalization and integration into world trade from 1996 to 2018. As emphasized by Fagiolo et al. (2010), traditional measures of openness (e. g., total trade or total trade to GDP ratios, as in Figure 1) fail to capture how each country is connected within the world trade network (WTN). Consequently, our approach departs from traditional studies that rely on analyzing a country's trade dynamics in isolation. Instead, as world trade is a complex system of countries that are interdependent as they export and import among them, we focus on assessing Colombia's importance in the WTN. As stated by Serrano and Boguñá (2003), the value of the network approach for examining and analyzing the WTN results from its ability to cope with its complexity (see also Fagiolo et al., 2010; Reyes et al., 2010; Kali & Reyes, 2007).

We measure a country's importance in the WTN through its network centrality. To gain further insights about the performance of Colombia in it, our work comprises three main features: first, we compared Colombia's centrality with a set of regional peers (i. e., Brazil, Chile, Mexico, and Peru), the median of countries in the WTN, and with China and the United States as trade leading countries. Second, we built two different WTNs, by value (in us dollars) and volume (in tons), thus, addressing issues related to price effects in our results. Third, by excluding a set of key commodities, we studied how results are dependent on minerals, fuels, and metals--which are particularly contributive to Colombia's and its peers' exports.

Consequently, this article addresses four questions regarding Colombia's liberalization and integration into world trade markets: How has the relative importance of Colombia in the WTN evolved? How does Colombia rank against a benchmark comprising some of its regional peers and other trade-leading countries? How dependent is Colombia's centrality on its key exports? Is the evolution of Colombia's importance in the WTN consistent with the policies and institutional changes implemented for about two decades?

Overall, the main finding is that Colombia increased the number of trading partners and the absolute value of exports and imports but failed to attain a more central role in the WTN. When compared with a group of regional peer countries, Colombia's centrality neither improve substantially nor deteriorated, whereas Chile and Peru improved remarkably. This is even clearer when a set of key commodities is excluded from the WTN. In general, Colombia's importance in the WTN did not increase greatly, but its peers' did manifestly.

There are several contributions from our work. First, it further exploits network analysis techniques on the WTN. Most literature regarding the WTN examines its main connective features (Serrano & Boguñá, 2003; Kali & Reyes, 2007; Fagiolo et al., 2010; Reyes et al., 2010; Cassi et al., 2012; De Benedictis et al., 2014; Xu & Qin, 2015; Cepeda-López et al., 2019). We add to the WTN literature by studying how individual countries evolve as elements of the trade network (see also Alongside Fagiolo et al., 2010; Ospina, 2013; Kastelle & Liesch, 2013; Beaton et al., 2017a; Soyyigit & Yavuzaslan, 2018).

Second, as analyzing the WTN allows for a better description of economic integration by considering the various dimensions of connectivity that arise when countries trade among them (see Fagiolo et al., 2010), the results attained an enhanced evaluation of public policies and institutional changes for Colombia's further integration into world trade markets. Third, we work on two versions of the WTN, based on the value (in us dollars) and volume (in tons) of exports and imports, related to price effects in our results. Fourth, taking into account that the emergence of global value chains has accompanied world integration (see Baldwin, 2011; Hernández et al., 2014; Fernández-Stark et al., 2014; Tinta et al., 2018), we measured to what extent Colombia is important as an exporter to (importer from) key global buyers (suppliers) in the WTN. Fifth, based on network centrality measures that capture global importance, we built a Trade Integration Index that enabled us to conveniently measure the evolution of integration. Therefore, we contribute with an enhanced framework for assessing the usefulness of past policies and for envisaging forthcoming policies' goals.

From an economic policy perspective, there is a clear message. It is essential to evaluate past policies and institutions to understand why Colombia, as well as other developing countries, has not been able to achieve a more central role in the WTN and how it can reach it. Colombia's increase in the number of trade partners and the value of trade with determinant markets has been similar or inferior to that experienced by other countries, which results in a sluggish dynamic towards liberalization and integration into world markets. As suggested by the literature on Colombian trade, public goods, such as physical infrastructure, administrative efficiency, regulatory coordination, and reduction of protectionism, are required to enhance the competitiveness of the country (Jaramillo, 2004; García et al., 2014; García et al., 2015; López et al., 2015; OECD, 2019; Garavito-Acosta et al., 2020). Furthermore, our results highlight that attaining a better centrality in world trade markets requires trade policies that enable the country to outperform competitor countries; this may be obvious to some extent, yet it may be an overlooked issue when comparing the evolution of trade policies using traditional country-centric trade and openness indicators.

This article consists of four sections aside from the introduction. The second section briefly reviews Colombian and international openness and integration trade policies. The third section describes the methodology and data. The fourth presents and analyzes the results. The last section summarizes the main findings and discusses policy implications.

  1. Colombian regional and international trade policies during the last decades

    By the end of the eighties, Colombia started changing its growth strategy from import substitution industrialization or "State-led industrialization" to an exports-oriented strategy (Cardenas et al., 2000). A generalized reduction of tariffs and the elimination of quantitative restrictions for imports at the beginning of the nineties fostered this change (Garay et al., 1998; Villar & Esguerra, 2007). As a consequence, average nominal protection decreased from 44% to 12% between 1989 and 1992. Also, export subsidies shrank from 22% in 1989 to 7% in 1994 and 4% in 2006 (Ocampo et al., 2007). (2)

    Furthermore, the Ministry of Foreign Trade was established in 1991 to modernize and promote the foreign sector. This changed the orientation of the Colombian Institute of Foreign Trade (Incomex), which, between 1962 and 2000, was in charge of preventing unfair trade practices. Besides, Bancoldex (Banco de Comercio Exterior), a bank aimed at facilitating credit access to Colombian exporters (Garay et al., 1998), was established in 1992. Moreover, trade policies came along with the liberalization of the local financial market (i. e., interest rates and the credit market) and the capital account, privatizations, and the change of the foreign exchange rate regime from crawling peg to free-floating (Ocampo, 1997; Villar & Rincón, 2003).

    Regional trade agreements became basic tools for the process of international trade integration worldwide. These agreements pursued...

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