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

  • Enrique L. Kato-Vidal
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    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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    File URL: http://www.economia.puc.cl/docs/107764_laje_502209.pdf
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    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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    1. Mihir C. Desai & C. Fritz Foley & James R. Hines Jr., 2005. "Foreign Direct Investment and the Domestic Capital Stock," NBER Working Papers 11075, National Bureau of Economic Research, Inc.
    2. 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.
    3. Manuel Agosin & Roberto Machado, 2005. "Foreign Investment in Developing Countries: Does it Crowd in Domestic Investment?," Oxford Development Studies, Taylor & Francis Journals, vol. 33(2), pages 149-162.
    4. 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.
    5. Petri, Peter A., 2012. "The determinants of bilateral FDI: Is Asia different?," Journal of Asian Economics, Elsevier, vol. 23(3), pages 201-209.
    6. Robert J. Barro & Rachel McCleary, 2003. "Religion and Economic Growth," NBER Working Papers 9682, National Bureau of Economic Research, Inc.
    7. Robert J. Barro & Xavier Sala-i-Martin, 2003. "Economic Growth, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262025531, June.
    8. Christopher A. Pissarides, 2009. "The Unemployment Volatility Puzzle: Is Wage Stickiness the Answer?," Econometrica, Econometric Society, vol. 77(5), pages 1339-1369, 09.
    9. Brian Aitken & Ann Harrison & Robert E. Lipsey, 1995. "Wages and Foreign Ownership: A Comparative Study of Mexico, Venezuela and the United States," NBER Working Papers 5102, National Bureau of Economic Research, Inc.
    10. 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.
    11. Commission on Growth and Development, 2008. "The Growth Report : Strategies for Sustained Growth and Inclusive Development," World Bank Publications, The World Bank, number 6507.
    12. Gordon H. Hanson, 2003. "What Has Happened to Wages in Mexico since NAFTA?," NBER Working Papers 9563, National Bureau of Economic Research, Inc.
    13. 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.
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