Econometric Analysis of the Industrial Growth

Determinants in Colombia

Carolina Henao-Rodríguez1(&), Jenny-Paola Lis-Gutiérrez2,

Mercedes Gaitán-Angulo2, Luz Elena Malagón3, and Amelec Viloria4
1
Corporación Universitaria Minuto de Dios, Bogotá, Colombia
linda.henao@uniminuto.edu
2
Fundación Universitaria Konrad Lorenz, Bogotá, Colombia
{jenny.lis,mercedes.gaitana}@konradlorenz.edu.co
3
Corporación Universitaria del Meta, Villavicencio, Colombia
viceacademica@unimeta.edu.co
4
Universidad de la Costa, Barranquilla, Colombia
aviloria7@cuc.edu.co

Abstract. An econometric study is carried out using a panel data model with
fixed effects to identify the industrial development determinants in Colombia
during the term 2005–2015. The database used in the study corresponds to
World Bank and the Colombian state. The determinants of industrial growth
identified at the theoretical level that allow the enhancement of productive
capacities to face foreign competition in Colombia are: innovation; networks of
innovations and knowledge among companies and organizations; the interest
rate; the capital-product ratio, the unit labor cost; and the exchange rate. The
amount invested in scientific, technological and innovation activities by
industrial group is the only variable that is not significant in the model.

Keywords: Economic growth
Industry
Panel data
Industrial structure

Colombia
Database World Bank

1 Introduction

Economic development of in country is related to the expansion of tradable activities

such as industry, and knowledge-intensive services, since the development of these
sectors generates a series of positive externalities to accelerate the growth of the
economy [1]. The development of the industrial sector is framed in processes of
endogenous development, where the determinants of capital accumulation create an
environment conducive to the transformation processes and development of the local
economies [2, 3]. Therefore, local and regional governments must create or improve
competitive capabilities to transform their productive systems. Since these are
endogenous processes, it is imperative to detect the potentialities of the region [2]. In
this context, it is important to identify the determinants of industrial development,
which allow to enhance the productive capacities of the industry and, thus, generate
productive chains that impulse the economic growth. In this sense, this study develops
an econometric study using a panel data model with fixed effects to identify the

© Springer International Publishing AG, part of Springer Nature 2018

J. Wang et al. (Eds.): ADC 2018, LNCS 10837, pp. 316–321, 2018.
https://doi.org/10.1007/978-3-319-92013-9_26
 Econometric Analysis of the Industrial Growth Determinants 317

determinants of industrial development in Colombia during the term 2005–2015.

Among the studies conducted at an econometric level for the industrial structure in
Colombia, we can see: [4–6].

2 Methodology

The data used in the study correspond to permanent remunerated personnel, salaries,
social benefits, value added, amount invested in scientific, technological and innovation
activities, employed personnel with postgraduate studies, and industrial company
external sources where the ideas of technological innovation come from. For the
industrial groups analyzed, the statistics published by the National Administrative
Department of Statistics of Colombia (Dane) were taken from the Annual Manufac-
turing Survey and the Survey on Development and Technological Innovation. For the
purposes of the study, the splicing of the data was performed using the Classification of
Economic Activities CIIU Review 4 adapted for Colombia. The data of the real
exchange rate index and the real interest rate were based on statistics published by the
World Bank. Based on the data, an econometric exercise was carried out to analyze the
national determinants of industrial growth in the period 2005–2015. To avoid the bias
due to the heterogeneity of the industrial groups, econometric panel data techniques
were used to reduce the problems related to the identification of the models.
The individuals analyzed were the industrial groups that contributed most to the
national industrial production in Colombia [7], for example: Processing and preser-
vation of meat, fish, crustaceans, and mollusks; Preparation of coffee products; Man-
ufacture of clothing, except fur garments; among others. The dependent variable used
for the measurement of industrial growth is the value added by industrial group (va).
The explanatory variables are:
– Clup. Unitary labor cost; taken as a representation of the labor productivity, defined
as the ratio of the labor cost required for the manufacture of a product, because it
measures the relationship between production and remuneration [8], therefore, a
negative sign is expected.
– i. Real interest rate; a negative impact of this variable on industrial value added is
expected. Since an increase in the interest rate decreases, the consumption is
stimulated, and the financing of the productive activity becomes more difficult.
– Tc. Effective real exchange rate index 2010 = 100; a positive relationship of this
variable is expected with industrial growth, however, not always a devaluation of
the currency has a positive effect on the industry since a boom in resources could
have a positive effect on manufacturing. If the influence of appreciation increases,
the production of manufactures could be maintained with a greater national demand
associated with the resource boom. Therefore, the losses of competitiveness would
be compensated by the increase in national demand [9].
– fe. Participation of the companies that use external sources where the ideas of
technological innovation come from, in the total of innovative companies of the
industrial group. It is used as a proxy for networks of innovations and knowledge
between companies and organizations because the dissemination of knowledge and
skills to structure the local economy is essential to generate goods with high value
318 C. Henao-Rodríguez et al.

added, better quality, and innovators [8]. Therefore, a positive correlation between
this variable and industrial growth is expected.
– pp. Personnel employed in industrial companies, by postgraduate educational level
by industrial group; it is taken as a proxy of human capital. Since human resources
are key for the competitiveness of the industry, properly trained personnel cannot be
replaced by any technology [10]. The years of education have a positive impact on
the creation of new products and services [11]. So, it is expected that the industrial
value added will increase as the employment of trained personnel increases.
– tmi. Amount invested in scientific, technological and innovation activities by
industrial group, serves as a proxy for innovation. A positive sign is expected since
the adoption of innovations allows companies a wider range of products and work
in plants of smaller economic dimension but more efficient, which strengthens the
internal economies of scale [12, 13].
– ta. Total assets. It is used as a proxy for the product capital ratio since the con-
solidation of the industry is related to the advance in sectoral investment and is
shown when the productive sector of a region is exposed to external competition,
where a greater domestic investment is needed to achieve processes of technological
adaptation and develop dynamic competitive advantages [14]. A positive relation-
ship between industrial growth and this variable is expected.
The model is specified as follows:

lnvajt ¼ b0 þ b1 lnclupjt þ b2 ln ict þ b3 ln tcct þ b4 ln fejt þ b5 ln ppjt

þ b6 ln tmijt þ b7 ln tajt þ gj þ ejt ð1Þ

lnvajt is the natural logarithm of the value added of the industrial group j in the year t,
lnclupjt is the natural logarithm of the unit labor cost of the industrial group j in the year
t, b2 ln ict is the natural logarithm of Colombia’s real interest rate in the year t, b3 log tcct
is the natural logarithm of the effective real exchange rate index in Colombia in the year
t, b4 ln fejt is the natural logarithm of the participation of the companies that use from
external sources, where the ideas of technological innovation come from in the total of
innovative companies of the industrial group j in the year t, lnjt is the natural logarithm
of the personnel employed in the industrial companies, by the postgraduate educational
level of the industrial group j in the year t, ln tmijt is the natural logarithm of the amount
invested in scientific, technological and innovation activities of the industrial group j in
the year t, b7 ln tajt is the natural logarithm of the total assets of the industrial group j in
the year t, gj is the effects that vary with time not observed, dt captures a common
deterministic trend; ejt is a random disturbance that is supposed ejt  N ð0; r2 Þ.

3 Results

The Hausman test (Table 1) determines a chi2 of 0.87 and a Prob > chi2 equal to 0.000,
which leads to reject the null hypothesis, that is the estimator must be selected for fixed
effects, which confirms that there are previous conditions that are constant in time.
 Econometric Analysis of the Industrial Growth Determinants 319

Table 1. Test statistics conducted to the model

Hausman test Test: Ho: difference in coefficients not systematic
chi2(7) = (b − B)’[(V_b − V_B)^(−1)](b − B)
¼ 180.87
Prob > chi2 = 0.0000
Wooldridge test Wooldridge test for autocorrelation in panel data
H0: no first-order autocorrelation
F(1, 16) = 34.126
Prob > F = 0.0000
The Wald test Modified Wald test for groupwise heteroskedasticity
in fixed effect regression model
H0: sigma(i)^2 = sigma^2 for all i
chi2(20) = 3325.67
Prob > chi2 = 0.0000
Friedman test Friedman’s test of cross sectional independence = 0.800,
Pr = 1.0000
Average absolute value of the off-diagonal
elements = 1.000
Test for the joint significance test chi2(7) = 6.87
of the temporary dichotomous Prob > chi2 = 0.4421
variables

When applying tests of Wald for homoscedasticity of Wooldridge for autocorre-

lation, and Friedman for e transversal dependence on panel data models, it was
determined that there were problems of heteroscedasticity and autocorrelation in the
proposed model. To correct these problems, standard error estimators corrected for
panel were used, although fixed effects were not calculated directly, dichotomous
variables of time were not introduced since, when performing the test F for the joint
significance of these variables, it was not possible to reject the null hypothesis
g1 ¼ g2 ¼ . . . ¼ gt ¼ 0. Therefore, it is not possible to affirm that the temporary
dichotomous variables are jointly significant and belong to the model (Fig. 1).
The unit labor cost is significant in the model at a level of significance of 1%.
However, it did not show the expected sign, which indicates that the empirical evidence
does not prove that the unit labor cost has a negative relationship with the industrial
value added. The effective real exchange rate index is significant in the model at a level
of significance of 5% and has a negative relationship with the industrial value added,
which confirms that not always a devaluation of the currency has a positive effect on
the industry since a boom in resources could have a positive effect on manufacturing.
The participation of companies that use external sources where the ideas of tech-
nological innovation come from, in the total of innovative companies of the industrial
group is significant in the model at a level of significance of 6%. But, the sign is
negative, therefore, there is no empirical evidence that the networks of innovations and
knowledge among companies and organizations increase the industrial value added in
Colombia.
320 C. Henao-Rodríguez et al.

The personnel employed in the industrial companies, by postgraduate educational

level and by industrial group is significant in the model at a level of significance of 5%,
and presents a positive relationship with the industrial value added. Therefore, it can be
confirmed that human resources are key in the competitiveness of the industry [10, 11].

Fig. 1. Model for identifying the determinants of industrial growth in Colombia 2005–2015

Finally, the total of assets is significant in the model at a level of significance of 1%,
and presents the expected sign which confirms that the consolidation of the industry is
related to the advance in the sector investment [13].

4 Conclusions

When performing the econometric analysis for the determinants of national industrial
growth in the period 2005–2015 in Colombia for the industrial groups that contributed
more to the national industrial production, it was found that: the unit labor cost is
significant in the model and there is no empirical evidence to verify that there is a
negative relationship with the industrial value added. This may be because the domestic
demand that stimulates industrial growth is determined by the income of workers.
Regarding the real interest rate, the interest rate decreases, industrial value-added
increases because consumption is stimulated, and, in addition, financing of productive
activity is facilitated, as predicted by the economic theory. The effective real exchange
rate index is significant in the model and presents a negative relationship with the
 Econometric Analysis of the Industrial Growth Determinants 321

industrial value added, which shows that not always a devaluation of the currency has a
positive effect on the industry, since a boom in resources could have a positive effect on
the production of manufactures because it can be boosted through greater national
demand. Therefore, the empirical evidence does not show that there is a loss of
competitiveness of the industry derived from several years of appreciation of the real
exchange rate.

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