External Shocks, Structural Change, and Economic Growth in Mexico 1979–2006
This paper finds that shocks to net financial inflows, world oil prices, the U.S. growth rate, and the lagged real exchange rate explain most of the fluctuations in Mexico’s annual growth since 1979. The paper also estimates how the effects of these external constraints have changed since Mexico’s liberalization policies of the late 1980s and the formation of NAFTA in 1994. Estimates of an investment function and other tests show that growth drives investment but not conversely, in the short run. Inflows of foreign direct investment have positive effects on investment, but the coefficients are small and not always significant.
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