Policy changes that encourage private business investment in Colombia

Mansoor Dailami

No 266, Policy Research Working Paper Series from The World Bank

Abstract: Private business investment has expanded remarkably in Colombia's recent economic recovery. Sustained expansion of this investment is considered crucial to continued economic growth and increases in production. Having analyzed demand, the cost of capital, and the availability and allocation of investable funds, the paper makes the following conclusions. First, motivating firms to expand capacity is a key requirement for continued expansion. Secondly, frequent forecasting of such variables as GDP, interest and exchange rates, and credit and monetary aggregates, would tend to improve the climate for investment. Also, the real (marginal) cost of capital to the nonfinancial corporate sector is high: currently about 16 percent. Policy efforts that induce corporations to substitute equity for debt financing should lead to a more balanced corporate capital structure and possibly a lower overall cost of capital. It could also be reduced by shifting the tax treatment of depreciation allowances away from historical cost accounting system toward a replacement cost accounting system. Finally, high inflation and low savings rates keep the prevailing lending rates high in Colombia - and it is generally easier for larger firms to get capital than for small and medium-size firms.

Keywords: Economic Theory&Research; Environmental Economics&Policies; International Terrorism&Counterterrorism; Banks&Banking Reform; Financial Intermediation (search for similar items in EconPapers)
Date: 1989-08-31
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www-wds.worldbank.org/external/default/WDSC ... d/PDF/multi_page.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wbk:wbrwps:266

Access Statistics for this paper

More papers in Policy Research Working Paper Series from The World Bank 1818 H Street, N.W., Washington, DC 20433. Contact information at EDIRC.
Bibliographic data for series maintained by Roula I. Yazigi ().