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Financial Liberalization, Credit Constraints, and Collateral: Investment in the Mexican Manufacturing Sector

  • Gaston Gelos
  • Alejandro M. Werner

This paper examines the impact of financial liberalization on fixed investment in Mexico, using establishment-level data from the manufacturing sector. It analyzes changes in cash-flow sensitivities and uses an innovative approach to explore the role of real estate as collateral and deal with a potential censoring problem. The results suggest that financial constraints were eased for small firms but not for large ones. However, banks’ reliance on collateral in their lending operations increased the importance of real estate. The results provide microeconomic evidence consistent with the role attributed to “financial accelerator” mechanisms during lending booms and during recessions that stem from financial crises.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 99/25.

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Length: 41
Date of creation: 01 Mar 1999
Date of revision:
Handle: RePEc:imf:imfwpa:99/25
Contact details of provider: Postal: International Monetary Fund, Washington, DC USA
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  9. Bernanke, Ben & Gertler, Mark & Gilchrist, Simon, 1994. "The Financial Accelerator and the Flight to Quality," Working Papers 94-24, C.V. Starr Center for Applied Economics, New York University.
  10. Huntley Schaller, 1993. "Asymmetric Information, Liquidity Constraints and Canadian Investment," Canadian Journal of Economics, Canadian Economics Association, vol. 26(3), pages 552-74, August.
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  14. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
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  17. Dailami, Mansoor & Giugale, Marcelo, 1991. "Reflections on credit policy in developing countries: its effect on private investment," Policy Research Working Paper Series 654, The World Bank.
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  27. Nabi, Ijaz, 1989. "Investment in Segmented Capital Markets," The Quarterly Journal of Economics, MIT Press, vol. 104(3), pages 453-62, August.
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