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Analysing the determinants of US direct investment in Mexico

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  • James Love
  • Francisco Lage-Hidalgo

Abstract

In this paper a simple model of foreign direct investment is developed and tested on investment flows from the USA to Mexico between 1967 and 1994 using cointegration analysis. Domestic demand and relative factor costs are found to influence direct investment flows, suggesting support for both the 'cheap labour' and 'market size' hypotheses. The short-run dynamics of the model indicate that exchange rate movements have an effect on the timing of the investment decision.

Suggested Citation

  • James Love & Francisco Lage-Hidalgo, 2000. "Analysing the determinants of US direct investment in Mexico," Applied Economics, Taylor & Francis Journals, vol. 32(10), pages 1259-1267.
    • Handle: RePEc:taf:applec:v:32:y:2000:i:10:p:1259-1267
    DOI: 10.1080/000368400404416
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    References listed on IDEAS

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    1. Gary Clyde Hufbauer & Jeffrey J. Schott, 1992. "North American Free Trade: Issues and Recommendations," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 71, January.
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