Foreign Investment

in Colombia
JESSICA FOURSPRING

Colombian Economy
Background
Coffee market price crash during 1980s greatly effected
Colombian Economy
Crisis resulted in massive financial reform

Foreign investment increased

Caused shift in financial control from governmental to private sector

Why engage in Foreign Direct

Investment?
3 main reasons:
Promotes economic growth in
the host country
Profitable for companies and
have an advantage over
domestically-owned
companies
Host country benefits from
the principle of corporate
social responsibility

Promotes Economic Growth

Companies must first consider the market size, economic
growth, the exchange rate, the tax structure, financial costs and
macroeconomic stability of the possible host country
If the financial system is well-developed, it can facilitate the
introduction of new technologies and thus promote economic
growth
A well-established and profitable company has a greater
chance of receiving foreign direct investment
Characteristics of a well-established company includes but is not limited to
having: a well-established business structure, large marketing channels
and profitable market shares

Advantage over Domestically Owned

Companies
An example of foreign direct investment in a bank is
advantageous over domestically owned banks:
Foreign-owned banks have less non-performing loans, lower
overall reserve ratios, and are more productive
The quality of loans are better and have lower administrative
costs
Results in banks ability to separate their income form the cyclical
variations in the economy

When a company does not have to rely on the economy to be

profitable, this gives them an edge over other firms that do
rely on the economys fluctuations

Corporate Social Responsibility

Idea stems from the large amount of academic and social activism about the
exploitation and mistreatment of workers by foreign-owned firms

Companies feel pressure to

improve environmental and labor
standards and other national
conditions to combat this
negative image of foreign
investors
Example of corporate social responsibility

Benefit to the environment:

Want to reduce the amount of
carbon dioxide emissions released

The Benefits of Foreign Direct

Investment
Host gains economic growth
Investing company gains edge
over their competition
Host country benefits from
associated corporate social
responsibility

References
Barajas, A., Steiner, R., & Salazar, N. (2000). The impact of liberalization and foreign investment in
Colombia's financial sector.Journal of Development Economics,63, 157-196. doi:10.1016/S03043878(00)00104-8
Garavito, A., Iregui, A. M., & Ramrez, M. T. (2014). An empirical examination of the determinants of
foreign direct investment: a firm-level analysis for the Colombian economy.Revista De Economa Del
Rosario,17(1), 5-31.
Gonzalez-Perez, M. A., Riegler, S., & Riegler, F. X. (2011). Foreign direct investment (FDI) and social
responsibility networks (SRN) in Colombia.GCG: Revista De Globalizacin, Competitividad &
Gobernabilidad,5(1), 42-59. doi:10.3232/GCG.2011.V5.N1.03
Hajilee, M., & Al Nasser, O. M. (2015). The relationship between financial market development and
foreign direct investment in Latin American countries. The Journal of Developing Areas,49(2), 227245.
Oladipo, O. S. (2013). Does foreign direct investment cause long run economic growth? Evidence
from the Latin American and the Caribbean countries.International Economics & Economic
Policy,10(4), 569-582. doi:10.1007/s10368-012-0225-4