Foreign Direct Investment In Mexico Research Articles

Foreign Direct Investment in Mexico: A Cointegration Analysis

This article addresses the important question of whether foreign direct investment enhances economic growth and labour productivity in Mexico, both from a theoretical and empirical perspective. After briefly reviewing the Mexican experience with net FDI inflows during the 1990s, the article presents a simple endogenous growth model which explicitly incorporates any positive (negative) externalities generated by additions to the foreign capital stock. Using cointegration analysis, the article estimates a dynamic labour productivity function for the 1960-95 period that includes the impact of the growth rate in the stocks of both private and foreign capital (as opposed to the flows) and the economically active population (EAP) (rather than the rate of population growth). The error correction model (ECM) estimates suggest that increases in both private ad (lagged) foreign investment spending, as well as the rate of growth in exports, have a positive and economically significant effect on the rate of labour productivity growth. In addition, the results show that increases in the EAP have a negative and statistically significant effect on the rate of labour productivity growth, while changes in the government consumption variable have a negative but marginally significant impact. The error correction terms of the estimated models are negative and statistically significant, thus suggesting that deviations of actual labour productivity growth from its long-run value are corrected in subsequent periods. Finally the article generates historical simulations from the estimated ECM's and offers some policy recommendations to enhance the positive externalities associated with FDI inflows.

Expanding the levels of analysis of fdi for improved understanding of policy issues: the case of mexico

Foreign Direct Investment (FDI) inflows are a key component of the restructuring and external integration now underway in many Latin American national economies. This paper suggests that understanding of policy issues concerning FDI can be enriched by two complementary shifts in the levels of analysis of FDI, each of which entails more detailed attention to the strategies and operations of multinational corporations (MNCs). At the macro-level, we show why it is beneficial to expand beyond the normal analytic concern with aggregate total FDI flows to focus instead on the separate, disaggregated components of those flows--that is, equity, reinvested earnings and other long-term and short-term capital flows between parent firms and their affiliates, as recorded in the national balance of payments capital account. The microlevel shift emphasizes the importance of focusing on varieties of types of FDI, not only across different foreign investors but within individual companies as well. It demonstrates the significance of switching from the usual concentration on firms as a whole to instead accentuating examination of individual projects and products--especially the dichotomy between market-access projects producing for the host country domestic market and production-efficiency projects producing for export markets, including the home country market. These two shifts in the level of analysis complement one another, and they interact in the sense that the mix of component flows can depend in part on the type of FDI. These analytic themes are developed using evidence concerning FDI in Mexico, with special reference to the automotive industry. Such improved comprehension of FDI is particularly germane for Latin American countries that are contemplating liberalization of foreign direct investment rules or have already undertaken them and witnessed the ensuing increase of inbound FDI.

The trade balance effects of U.S. foreign direct investment in Mexico

This paper examines the effect of U.S. foreign direct investment (FDI) in Mexico on U.S. exports to and imports from Mexico. The rise of intrafirm exports and imports following U.S. FDI in Mexico suggests that FDI affects trade flows. Empirical estimation proceeds with tests for stationarity and cointegration. The finding of cointegration among the variables leads to estimation of the hypothesized relationships with a vector error-correction model. Impulse response functions and variance decomposition reveal that FDI leads to increased exports and imports during the time period considered.

Do Taxes Matter for Foreign Direct Investment?

The tax sensitivity offoreign direct investment (FDI) has important policy implications. If FDI is not responsive to taxation, then it may be an appropriate target for taxation by the host country. This question is examined for Mexico by estimating the response of FDifrom retained earnings and transfers from abroad to the tax regimes in Mexico and the home country, the credit status of multinationals, country risk factors, and regulatory and trade regimes in Mexico. FDi in Mexico is found to be sensitive to the tax regimes in Mexico and the United States, the credit status of multinationals, country credit ratings, and the regulatory environment. Thus Mexico's current policies to dismantle regulations and employ a tax system competitive with the United States are expected to have salutory effects on FDI in Mexico. The 1980s have seen a remarkable growth in foreign direct investment (FDI), which has sparked a renewed interest in the effect of FDI on the economic performance of both the host and the home country and in the appropriate government policy toward FDI. Not surprisingly, a critical consideration in this discussion is the responsiveness of FDI to taxation of the income that it generates. If FDI iS not responsive to taxation, then it may be an appropriate target for taxation by the host country, which can raise revenue without sacrificing the economic benefits of FDI. If, however, the volume of FDI declines with taxation, the host country must consider the trade-off between the possible revenue gains from increased taxation and the economic costs of discouraging FDI. This issue is very important for countries in which the degree of FDI penetration is large and the revenue raised from taxing FDI represents a significant fraction of total tax revenue. For example, in Ecuador, Egypt, Indonesia, Nigeria, Peru, and Trinidad and Tobago tax payments by U.S. corporations alone as a share of host country corporate tax revenues exceed 10 percent (Alworth 1988, p. 33). Because of the ready availability of data on investment to and from the United States, most of the recent empirical literature on the tax sensitivity of FDI has focused on U.S. inward FDI. In this article we extend the standard methodology used in these studies to examine the effect of taxation on FDI in Mexico. The recent empirical literature on FDI in the U.S. is reviewed. The salient features of