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The effect of uncertainty on foreign direct investment: The case of Mexico

Author

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  • Gabriela López Noria

    (Banco de México)

  • Juan José Zamudio Fernández

    (Banco de México)

Abstract

This paper investigates the effect of uncertainty on FDI flows into the Mexican manufacturing sector during the period 2007-2015. Using a panel of manufacturing subsectors, we estimate a model by System GMM that includes domestic and external factors, as well as idiosyncratic and aggregate uncertainty measures as explicative variables. We also performsome simulations to assess the size of the uncertainty effect on FDI flows. The main results show that uncertainty discourages FDI flows into the Mexican manufacturing sector during this period. We also find that idiosyncratic uncertainty measures are more important in explaining FDI flows than aggregate uncertainty measures.

Suggested Citation

  • Gabriela López Noria & Juan José Zamudio Fernández, 2018. "The effect of uncertainty on foreign direct investment: The case of Mexico," Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, vol. 33(1), pages 117-149.
    • Handle: RePEc:emx:esteco:v:33:y:2018:i:1:p:117-149
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    File URL: https://estudioseconomicos.colmex.mx/index.php/economicos/article/view/355/358
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    Cited by:

    1. Bush, Georgia & López Noria, Gabriela, 2021. "Uncertainty and exchange rate volatility: Evidence from Mexico," International Review of Economics & Finance, Elsevier, vol. 75(C), pages 704-722.
    2. Miaozhi Yu & Na Wang, 2023. "The Influence of Geopolitical Risk on International Direct Investment and Its Countermeasures," Sustainability, MDPI, vol. 15(3), pages 1-14, January.
    3. Azzouzi Asmae & Bousselhami Ahmed, 2019. "Impact of the Exchange Rate and Price Volatility on FDI Inflows: Case of Morocco and Turkey," Applied Economics and Finance, Redfame publishing, vol. 6(3), pages 87-104, May.
    4. Abdalwali Lutfi & Maryam Ashraf & Waqas Ahmad Watto & Mahmaod Alrawad, 2022. "Do Uncertainty and Financial Development Influence the FDI Inflow of a Developing Nation? A Time Series ARDL Approach," Sustainability, MDPI, vol. 14(19), pages 1-11, October.
    5. Mario Canales & Bernabe Lopez-Martin, 2021. "Uncertainty, Risk, and Price-Setting: Evidence from CPI Microdata," Working Papers Central Bank of Chile 908, Central Bank of Chile.
    6. López Noria Gabriela & Bush Georgia, 2019. "Uncertainty and Exchange Rate Volatility: the Case of Mexico," Working Papers 2019-12, Banco de México.

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    More about this item

    Keywords

    uncertainty; foreign direct investment; expectations; manufacturing;
    All these keywords.

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General

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