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OECD Economic Surveys: Colombia 2017

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Growth in Colombia has been among the strongest in the region, reflecting the flexible exchange rate and inflation targeting monetary policy, and fiscal rules. The strong growth and welfare programmes to the most vulnerable groups have substantially reduced poverty. Lower taxes and fees on wages have brought more people to better quality formal jobs, thereby raising both productivity and inclusiveness. Productivity and job opportunities have also been enhanced by recent reforms facilitating the opening of business, obtaining construction permits, registering property and paying taxes. However, productivity growth is still low and the gap between rich and poor among the highest in Latin America. Informality and gender gaps remain high, and social mobility low. Years of armed conflict, stringent local regulations and distortions in the tax system have created disparities in productivity and access to basic services across regions. Further simplifying procedures for company registration and the affiliation of workers to social security, improving labour market programmes, expanding early childhood education, and raising education quality would boost inclusion, social mobility and living standards. Greater and more affordable child, elderly and disability care would open the job market to more women. Raising productivity will be fundamental to continued increases in living standards for all Colombians.

SPECIAL FEATURES: PRODUCTIVITY; INCLUSIVE GROWTH

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Reigniting growth through productivity-enhancing reforms

Over the past decade sound macroeconomic policies and an improved business environment have helped generate relatively strong GDP growth. Investments in infrastructure are improving connectivity and trade integration has been facilitated by lower tariffs. Simplification in opening of businesses, getting construction permits, registering property and payment of taxes improved the ease of doing business. Nevertheless, labour productivity remains low with large differences between firms and regions, and the contribution of technological progress to growth has been negative in recent years. Low productivity growth reflects poor educational and managerial quality, still large infrastructure gaps, low investment in innovation and R&D and stringent regulations in some sectors. To raise productivity growth Colombia should focus on some key areas. First, reverse the drop in public investment and reduce high transport and logistics costs. Second, intensify trade links and participation in GVCs, by further improving trade facilitation, to encourage firms to adopt the best technologies and know how. Third, create better incentives for firms to invest on R&D, and strengthen the links between the business sector and research institutions to foster innovation. Fourth, increase competition and reduce regulation in specific sectors to promote investment and facilitate the allocation of resources towards most productive firms. And fifth, upgrade the quality of education to develop better skills and professional management to enhance the creation and diffusion of new technologies. In 2016, the government established the National Policy for Productive Development to address the impediments to increased productivity.

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