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

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  • R. G Gelos
  • Alejandro M. Werner

Abstract

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.

Suggested Citation

  • R. G Gelos & Alejandro M. Werner, 1999. "Financial Liberalization, Credit Constraints, and Collateral; Investment in the Mexican Manufacturing Sector," IMF Working Papers 99/25, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:99/25
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    Keywords

    Investment; Mexico; financial constraints; collateral; real estate; lending booms; panel data; fixed-effects tobit; cash flow; financial liberalization; equation; bond; statistics;

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