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The Impact of the Regional Trade Agreements on Inflow of Mexican Foreign Direct Investment: An Empirical Approach

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  • Tito Belchior Silva Moreira
  • Rosa Meguerian-Faria

Abstract

This article aims to empirically evaluate, based on the annual time series from 1970 to 2018, the hypothesis that regional trade agreements (RTA) had a positive impact on the Mexican Foreign Direct Investment (FDI) inflow in this period. We use the North American Free Trade Agreement (NAFTA) to evaluate its impact in Mexico, which entered into force in 1994. In this context, our interest variable is the dummy d_1994, where from 1994 to 2018 it is equal to 1. We tested several empirical approaches based on ARDL models, robust least-squares methods as well as GMM methods. We also use Granger causality tests and impulse response tests based on the VAR system. All empirical models show that the estimated coefficient from the dummy variable, d_1994, is statistically significant and presents a positive sign. Moreover, the causality tests show that the variable d_1994 granger causes FDI as a proportion of GDP, and the impulse response tests validate the tested hypothesis as well.

Suggested Citation

  • Tito Belchior Silva Moreira & Rosa Meguerian-Faria, 2022. "The Impact of the Regional Trade Agreements on Inflow of Mexican Foreign Direct Investment: An Empirical Approach," International Journal of Business Administration, International Journal of Business Administration, Sciedu Press, vol. 13(3), pages 14-33, May.
    • Handle: RePEc:jfr:ijba11:v:13:y:2022:i:3:p:14-33
    DOI: 10.5430/ijba.v13n3p14
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    References listed on IDEAS

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    1. Ivan T. Kandilov & Asli Leblebicioglu, 2012. "Trade Liberalization and Investment: Firm-level Evidence from Mexico," The World Bank Economic Review, World Bank, vol. 26(2), pages 320-349.
    2. Alfredo Cuevas & Miguel Messmacher & Alejandro Werner, 2005. "Foreign Direct Investment in Mexico since the Approval of," The World Bank Economic Review, World Bank, vol. 19(3), pages 473-488.
    3. Brunetti, Aymo & Kisunko, Gregory & Weder, Beatrice, 1998. "Credibility of Rules and Economic Growth: Evidence from a Worldwide Survey of the Private Sector," The World Bank Economic Review, World Bank, vol. 12(3), pages 353-384, September.
    4. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
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