The Effects of Foreign Direct Investment in Mexico since NAFTA
AbstractForeign 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 InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 7975.
Date of creation: 28 Mar 2008
Date of revision:
Foreign Direct Investment; Mexico; NAFTA; Productivity; Wages; Income Inequality;
Other versions of this item:
- Andreas Waldkirch, 2010. "The Effects of Foreign Direct Investment in Mexico since NAFTA," The World Economy, Wiley Blackwell, vol. 33(5), pages 710-745, 05.
- F15 - International Economics - - Trade - - - Economic Integration
- F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
- O15 - Economic Development, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
- F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-04-15 (All new papers)
- NEP-DEV-2008-04-15 (Development)
- NEP-INT-2008-04-15 (International Trade)
- NEP-LAB-2008-04-15 (Labour Economics)
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