Abstract
This paper tests three explanations for Mexico's investment collapse in the early 1980s: the oil price decline, the termination of capital inflows, and debt-overhang/uncertainty effects, using previously ignored investment data on private sector industries. The data consistently point to the importance of the rise in the relative price of investment goods, driven in large part by falling world oil prices, but the data also allow a role for the termination of capital inflows. However, after controlling for these effects, the paper finds little evidence for debt overhang effects, heightened uncertainty, or other commonly cited explanations in the literature. (JEL F34).
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