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Is Foreign Direct Investment Beneficial for Mexico? A Cointegration Analysis, 1958-2010

  • Miguel Ramirez

    ()

    (Department of Economics, Trinity College)

This paper examines the question of whether foreign direct investment (FDI) enhances labor productivity growth in Mexico. Using cointegration analysis, a dynamic labor productivity function for the 1958-2010 period is estimated that includes, inter alia, the impact of changes in the stock of private and foreign capital per worker. The vector error correction model (VECM) estimates suggest that increases in both private (lagged) and foreign (lagged) investment per worker have a positive and economically significant effect on the rate of labor productivity growth. However, after taking into account the growing remittances of profits and dividends, there is a marked decrease in the economic effect of foreign capital per worker on the rate of labor productivity growth. The paper assesses the short-term interactions of the relevant variables via impulse response functions (IRFs) and variance decompositions (VDCs) based on a decomposition process that does not depend on the ordering of the variables.

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File URL: http://internet2.trincoll.edu/repec/WorkingPapers2013/WP13-11.pdf
File Function: First version, 2013
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Paper provided by Trinity College, Department of Economics in its series Working Papers with number 1311.

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Length: 41 pages
Date of creation: Sep 2013
Date of revision:
Handle: RePEc:tri:wpaper:1311
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Web page: http://www.trincoll.edu/Academics/MajorsAndMinors/Economics/Pages/default.aspx

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  1. Brian Aitken & Gordon H. Hanson & Ann E. Harrison, 1994. "Spillovers, Foreign Investment, and Export Behavior," NBER Working Papers 4967, National Bureau of Economic Research, Inc.
  2. Luiz de Mello, 1997. "Foreign direct investment in developing countries and growth: A selective survey," Journal of Development Studies, Taylor & Francis Journals, vol. 34(1), pages 1-34.
  3. Waheed, Muhammad & Alam, Tasneem & Ghauri, Saghir Pervaiz, 2006. "Structural breaks and unit root: evidence from Pakistani macroeconomic time series," MPRA Paper 1797, University Library of Munich, Germany.
  4. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
  5. Ramirez, Miguel D., 2003. "Mexico under NAFTA: a critical assessment," The Quarterly Review of Economics and Finance, Elsevier, vol. 43(5), pages 863-892.
  6. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
  7. Paul M. Romer, 1987. "Crazy Explanations for the Productivity Slowdown," NBER Chapters, in: NBER Macroeconomics Annual 1987, Volume 2, pages 163-210 National Bureau of Economic Research, Inc.
  8. Magnus Blomstrom & Edward N. Wolff, 1989. "Multinational Corporations and Productivity Convergence in Mexico," NBER Working Papers 3141, National Bureau of Economic Research, Inc.
  9. Blomstrom, Magnus & Persson, Hakan, 1983. "Foreign investment and spillover efficiency in an underdeveloped economy: Evidence from the Mexican manufacturing industry," World Development, Elsevier, vol. 11(6), pages 493-501, June.
  10. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
  11. Robert J. Barro, 2013. "Inflation and Economic Growth," Annals of Economics and Finance, Society for AEF, vol. 14(1), pages 121-144, May.
  12. Chandana Chakraborty & Parantap Basu, 2002. "Foreign direct investment and growth in India: a cointegration approach," Applied Economics, Taylor & Francis Journals, vol. 34(9), pages 1061-1073.
  13. Pesaran, H. Hashem & Shin, Yongcheol, 1998. "Generalized impulse response analysis in linear multivariate models," Economics Letters, Elsevier, vol. 58(1), pages 17-29, January.
  14. Feder, Gershon, 1983. "On exports and economic growth," Journal of Development Economics, Elsevier, vol. 12(1-2), pages 59-73.
  15. Ram, Rati, 1986. "Government Size and Economic Growth: A New Framework and Some Evidencefrom Cross-Section and Time-Series Data," American Economic Review, American Economic Association, vol. 76(1), pages 191-203, March.
  16. Miguel Ramirez, 2000. "The impact of public investment on private investment spending in Latin America: 1980–95," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 28(2), pages 210-225, June.
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