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The Effects of Foreign Direct Investment in Mexico since NAFTA

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  • Waldkirch, Andreas

Abstract

Foreign Direct Investment (FDI) into Mexico has increased dramatically since the inception of the North American Free Trade Agreement (NAFTA), raising questions about its effect on the Mexican economy. This paper studies the impact of FDI on industry productivity and wages over the first ten years of NAFTA, paying particular attention to the source country and destination industry of investments. It also offers a detailed description of the evolution of FDI, its components, sectoral composition, and sources from 1994-2005. There is evidence of a positive effect of FDI on productivity, particularly total factor productivity (TFP). The effect on wages is negative or zero at best, suggesting a divergence from productivity over this time period. The positive productivity effect stems largely from U.S. FDI into non-maquiladora industries, which receive over two thirds of manufacturing FDI. There is no evidence that more distant source countries have a differential effect. Consistent with theoretical expectations, FDI into maquiladoras benefits unskilled workers at the expense of skilled workers. This effect may be strong enough to dampen income inequality.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 7975.

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Date of creation: 28 Mar 2008
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Handle: RePEc:pra:mprapa:7975

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Keywords: Foreign Direct Investment; Mexico; NAFTA; Productivity; Wages; Income Inequality;

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Cited by:
  1. Antonakakis, Nikolaos & Tondl, Gabriele, 2012. "Do determinants of FDI to developing countries differ among OECD investors? Insights from Bayesian model averaging," Discussion Papers 1/12, Europa-Kolleg Hamburg, Institute for European Integration.
  2. Yap, Josef T. & Aldaba, Rafaelita M., 2009. "Investment and Capital Flows: Implications of the ASEAN Economic Community," Discussion Papers, Philippine Institute for Development Studies DP 2009-01, Philippine Institute for Development Studies.
  3. Parajuli, Shanta & Kennedy, P. Lynn, 2010. "The Exchange Rate and Inward Foreign Direct Investment in Mexico," 2010 Annual Meeting, February 6-9, 2010, Orlando, Florida, Southern Agricultural Economics Association 56459, Southern Agricultural Economics Association.
  4. Jose Romero, 2012. "Inversión extranjera directa y crecimiento económico en México: 1940-2010," Serie documentos de trabajo del Centro de Estudios Económicos, El Colegio de México, Centro de Estudios Económicos 2012-12, El Colegio de México, Centro de Estudios Económicos.
  5. Escobar Gamboa, Octavio Romano, 2012. "Foreign direct investment (FDI) determinants and spatial spillovers across Mexico's states," Economics Papers from University Paris Dauphine, Paris Dauphine University 123456789/10605, Paris Dauphine University.
  6. Christian Deblock & Michèle Rioux, 2010. "NAFTA – A Model Running Out of Breath?," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, Ifo Institute for Economic Research at the University of Munich, vol. 11(4), pages 9-16, December.
  7. Chan Sok GEE & Mohd Zaini Abd KARIM, 2011. "Fdi´S Country Of Origin And Output Growth: The Case Of Malaysia?S Manufacturing Sector, 1991-2006," Applied Econometrics and International Development, Euro-American Association of Economic Development, Euro-American Association of Economic Development, vol. 11(1).
  8. Zhang, Cheng & Guo, Bingnan & Wang, Jianke, 2014. "The different impacts of home countries characteristics in FDI on Chinese spillover effects: Based on one-stage SFA," Economic Modelling, Elsevier, Elsevier, vol. 38(C), pages 572-580.
  9. Pablo Mejía-Reyes & Jeanett Campos-Chávez, 2011. "Are the Mexican States and the United States Business Cycles Synchronized? Evidence from the Manufacturing Production," Economia Mexicana NUEVA EPOCA, , vol. 0(1), pages 79-112, January-J.

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