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

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  • Miguel Ramirez

    (Department of Economics, Trinity College)

Abstract

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.

Suggested Citation

  • Miguel Ramirez, 2013. "Is Foreign Direct Investment Beneficial for Mexico? A Cointegration Analysis, 1958-2010," Working Papers 1311, Trinity College, Department of Economics.
    • Handle: RePEc:tri:wpaper:1311
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    File URL: http://www3.trincoll.edu/repec/WorkingPapers2013/WP13-11.pdf
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    More about this item

    Keywords

    vector error correction model; foreign direct investment; Gregory-Hansen cointegration single-break test; impulse response functions; Johansen cointegration test; KPSS (no unit root) stationarity test; labor productivity growth; variance decompositions; Zivot-Andrews single-break unit root analysis.;
    All these keywords.

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • F10 - International Economics - - Trade - - - General
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • O54 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean

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