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The Effects of Foreign Direct Investment in Mexico since NAFTA

Andreas Waldkirch ()

MPRA Paper from University Library of Munich, Germany

Abstract: Foreign Direct Investment (FDI) into Mexico has increased dramatically since the inception of the North American Free Trade Agreement (NAFTA), raising questions about its effect on the Mexican economy. This paper studies the impact of FDI on industry productivity and wages over the first ten years of NAFTA, paying particular attention to the source country and destination industry of investments. It also offers a detailed description of the evolution of FDI, its components, sectoral composition, and sources from 1994-2005. There is evidence of a positive effect of FDI on productivity, particularly total factor productivity (TFP). The effect on wages is negative or zero at best, suggesting a divergence from productivity over this time period. The positive productivity effect stems largely from U.S. FDI into non-maquiladora industries, which receive over two thirds of manufacturing FDI. There is no evidence that more distant source countries have a differential effect. Consistent with theoretical expectations, FDI into maquiladoras benefits unskilled workers at the expense of skilled workers. This effect may be strong enough to dampen income inequality.

Keywords: Foreign Direct Investment; Mexico; NAFTA; Productivity; Wages; Income Inequality (search for similar items in EconPapers)
JEL-codes: F15 F23 O15 F21 (search for similar items in EconPapers)
Date: 2008-03-28
New Economics Papers: this item is included in nep-dev, nep-int and nep-lab
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Journal Article: The Effects of Foreign Direct Investment in Mexico since NAFTA (2010) Downloads
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