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Foreign Capital and Economic Growth in Mexico: Further Time-Series Evidence, 1970-2020

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  • Miguel D. Ramirez

Abstract

This paper tests whether changes in the accumulated stocks of gross FDI and net FDI (after subtracting net payments of profits and interest) have a positive or negative effect on Mexican economic growth over the 1970-2020 period. The novelty of the paper resides in the fact that it is one of the few in the extant literature to examine the effect of changes in the stock of net FDI on economic growth as opposed to changes in the stock of gross FDI. The focus on Mexico is based on the availability of time series data for a sufficiently long period of time (51 years) and on its strategic economic and geopolitical importance to the United States stemming from its membership in the USMCA. The first section examines the relevant literature and motivates the discussion of the economic importance of reverse flows in the Mexican case. This is followed by a presentation of the conceptual model and its empirical counterpart. The fourth section presents the results for an error correction model during the 1970-2020 period along with actual and in-sample (historical) forecasts generated by the model. Tests for reverse ¡°causality¡± or precedence are undertaken via the VECM Granger Causality/Block Exogeneity test and they suggest that FDI flows lead economic growth rather than the reverse. The last section is the conclusion.

Suggested Citation

  • Miguel D. Ramirez, 2024. "Foreign Capital and Economic Growth in Mexico: Further Time-Series Evidence, 1970-2020," Research in Applied Economics, Macrothink Institute, vol. 16(2), pages 37-48, December.
    • Handle: RePEc:mth:raee88:v:16:y:2024:i:2:p:37-48
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    1. Anil Kumar, 2007. "Does foreign direct investment help emerging economies?," Economic Letter, Federal Reserve Bank of Dallas, vol. 2(jan).
    2. Brian J. Aitken & Ann E. Harrison, 2022. "Do Domestic Firms Benefit from Direct Foreign Investment? Evidence from Venezuela," World Scientific Book Chapters, in: Globalization, Firms, and Workers, chapter 6, pages 139-152, World Scientific Publishing Co. Pte. Ltd..
    3. KH Zhang, 2001. "Does Foreign Direct Investment Promote Economic Growth? Evidence From East Asia And Latin America," Contemporary Economic Policy, Western Economic Association International, vol. 19(2), pages 175-185, April.
    4. 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.
    5. 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.
    6. Zeb Aurangzeb & Thanasis Stengos, 2014. "The role of Foreign Direct Investment (FDI) in a dualistic growth framework: A smooth coefficient semi-parametric approach," Borsa Istanbul Review, Research and Business Development Department, Borsa Istanbul, vol. 14(3), pages 133-144, September.
    7. Miguel D. Ramirez, 2023. "Do Remittances Promote Labor Productivity in Mexico? A DOLS and FMOLS Analysis, 1970-2017," Bulletin of Applied Economics, Risk Market Journals, vol. 10(1), pages 115-131.
    8. Ramirez, Miguel D., 2006. "Is foreign direct investment beneficial for Mexico? An empirical analysis, 1960-2001," World Development, Elsevier, vol. 34(5), pages 802-817, May.
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