Capital Flows and Private Investment in Mexico

Carlos A. Ibarra ()
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Carlos A. Ibarra: Professor, Departamento de Economía, Universidad de las Américas Puebla. Mexico.

Economía Mexicana NUEVA ÉPOCA, 2013, vol. XXII, issue 3, Cierre de época (I), 65-99

Abstract: Based on the so-called bounds testing approach, the paper studies the long-run effect of capital flows and the real exchange rate on Mexico’s private investment from 1988 through 2008, presenting two main results. First, while capital inflows can potentially increase investment, in practice they may lower it, because, as capital flows in, the peso appreciates. Second, although both FDI and portfolio inflows can increase investment, the effect from FDI is significantly smaller —in contrast to a frequent finding in the literature for other countries. Both results help to explain the low “transfer” of capital flows to investment in Mexico, and more generally the low levels of investment observed in the country.

Keywords: Capital flows; FDI; portfolio investments; investment determinants; real exchange rate; bounds testing approach; Mexico. (search for similar items in EconPapers)
JEL-codes: C22 E22 F21 F43 O11 O54 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (1)

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