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Foreign Investment and Wages: A Crowding-Out Effect in Mexico

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  • Enrique L. Kato-Vidal
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    Abstract

    The purpose of this article is to determine the impact of foreign direct investment (FDI) on a country’s overall economy rather than simply the sectors receiving such investment. The strategy consisted of adopting a crowding-in/crowding-out approach to Mexico’s total capital volume in the 1993-2010 period. The substitutability of foreign and local capital implies a lower-than-expected economic dynamism. Using a dynamic panel analysis, a negative relationship was found between FDI and the general wage. Throughout the analysis, firm size stands out as a key variable in explaining the impact of FDI.

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    Bibliographic Info

    Article provided by Instituto de Economía. Pontificia Universidad Católica de Chile. in its journal Latin American Journal of Economics-formerly Cuadernos de Economia.

    Volume (Year): 50 (2013)
    Issue (Month): 2 (November)
    Pages: 209-231

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    Handle: RePEc:ioe:cuadec:v:50:y:2013:i:2:p:209-231

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    Keywords: FDI; wage; firm size; substitutability of capital;

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    1. Manuel R. AGOSIN & Ricardo MAYER, 2000. "Foreign Investment In Developing Countries, Does It Crowd In Domestic Investment?," UNCTAD Discussion Papers 146, United Nations Conference on Trade and Development.
    2. Aitken, Brian & Harrison, Ann & Lipsey, Robert E., 1996. "Wages and foreign ownership A comparative study of Mexico, Venezuela, and the United States," Journal of International Economics, Elsevier, vol. 40(3-4), pages 345-371, May.
    3. Robert J. Barro & Rachel McCleary, 2003. "Religion and Economic Growth," NBER Working Papers 9682, National Bureau of Economic Research, Inc.
    4. Christopher Pissarides, 2007. "The unemployment volatility puzzle: is wage stickiness the answer?," LSE Research Online Documents on Economics 4460, London School of Economics and Political Science, LSE Library.
    5. César Calderón & Rodrigo Fuentes, 2006. "Complementarities between Institutions and Openness in Economic Development: Evidence for a Panel of Countries," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 43(127), pages 49-80.
    6. Petri, Peter A., 2012. "The determinants of bilateral FDI: Is Asia different?," Journal of Asian Economics, Elsevier, vol. 23(3), pages 201-209.
    7. Mihir A. Desai & C. Fritz Foley & James R. Hines Jr., 2005. "Foreign Direct Investment and the Domestic Capital Stock," American Economic Review, American Economic Association, vol. 95(2), pages 33-38, May.
    8. Commission on Growth and Development, 2008. "The Growth Report : Strategies for Sustained Growth and Inclusive Development," World Bank Publications, The World Bank, number 6507, July.
    9. Gordon H. Hanson, 2003. "What Has Happened to Wages in Mexico since NAFTA?," NBER Working Papers 9563, National Bureau of Economic Research, Inc.
    10. Robert J. Barro & Xavier Sala-i-Martin, 2003. "Economic Growth, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262025531, December.
    11. Blinder, Alan S, 1997. "Is There a Core of Practical Macroeconomics That We Should All Believe?," American Economic Review, American Economic Association, vol. 87(2), pages 240-43, May.
    12. Judson, Ruth A. & Owen, Ann L., 1999. "Estimating dynamic panel data models: a guide for macroeconomists," Economics Letters, Elsevier, vol. 65(1), pages 9-15, October.
    13. Tadashi Ito, 2010. "NAFTA and Productivity Convergence between Mexico and the US," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 47(135), pages 15-55.
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