Foreign direct investment and its determinants in Mexico from 1992 to 2003. A special approach in the exchange rates

In recent years (from 1990 to nowadays) there has been a significant increase in Foreign Direct Investment (FDI) flows and multinational enterprises in all the economies. The aim of this paper is to analyse the determinants of FDI from eleven countries in the mexican economy in the period 1992-2003, with a special emphasis on the exchange rates. To do so, we use a panel data technique and we demonstrate empirically that the FDI host country’s (in this case Mexico’s) wage, the FDI host country’s GDP, the FDI investor country’s GDP, the host country’s foreign trade (trade openness), the host country’s foreign exchange rate and its volatility are variables that determine the behaviour of the FDI in Mexico.

Inversión Extranjera Directa, tipo de cambio

Banco de Mexico (2004), “Economic and financial indicators“, .

Blonigen, B., 1997, “Firm-specific assets and the link between exchange rates and foreign direct investment”, American Economic Review, 87, 3, 447-465.

Campa, J. M., 1993, “Entry by foreign firms in the United States under exchange rate uncertainty”, Review of Economics and Statistics, 75, 4, 614-622.

Chakrabarti R. and Scholnik B. 2001, “Exchange Rate Expectations and Foreign Direct Investment Flows”, Weltwirtschaftliches Archive (Review of World Economics), Volume 138, No. 1. http://www.prism.gatech.edu/~rc166/Ex-FDI.pdf.

Cushman D., 1985, “Real exchange rate risk, expectations, and the level of direct investment”, Review of Economics and Statistics, 67, 2, 297-308.

Edwards S., “Capital flows, foreign direct investment, and debt equity swaps in developing countries”, NBER, working paper no. 3497.

Froot, K. and J. Stein, 1991, “Exchange rates and foreign direct investment: An imperfect capital markets approach”, Quarterly Journal of Economics, 106, 1191-1217.

Goldberg, L. and C. Kolstad, 1995, Foreign direct investment, exchange rate variability and demand uncertainty, International Economic Review, 36, 4, 855-873.

Greene W., 2003, Econometric Analysis, 5th edition, New York: Prentice Hall.

Halliwood C. and MacDonald R. 2000, “International Money and Finance”, 3rd edition, Oxford: Blackwell Publishing.

Hein, S. 1992, “Trade strategy and the Dependency Hypothesis: A comparison of policy, foreign investment, and economic growth in Latin America and East Asia”, Economic Development and Cultural Change, 40 (3): 495-521.

IMF, 2004, International Financial statistics, .

Instituto Nacional de Estadística, Geografia e Informatica, 2004, Banco de Informacion Economica. .

Klein, M. and E. Rosengren, 1994, “The real exchange rate and foreign direct investment in the United States: relative wealth vs. relative wage effects”, Journal of International Economics, 36, 3-4, 373-389.

Lucas, R. 1993, “On the Determinants of Direct Foreign Investment: Evidence from East and Southeast Asia”, World Development, 21 (3): 391-406.

Lim E., 2001, “Determinants of, and the relation between, foreign direct investment and growth: a summary of the recent literature”, IMF, working paper 01/175.

Lunn J., 1980, “Determinants of US direct investment in the E.E.C.”, European Economic Review, 13: 93-101.

Secretaria de Economia 2004, Direccion General de Inversion Extranjera Directa .

Singh and Jun, 1995, “Some new evidence on determinants of Foreign Direct Investment in Developing Countries”, World Bank, Policy research working paper 1531.

Swenson D., 1993, “The impact of US tax reform on foreign direct investment in the United States”, Journal of Public Economics, 54, 243:266.

UNCTAD (1993), World Investment Report, “Transnational Corporations as Integrated International Production”, .

UNCTAD (1999), World Investment Report, “Foreign direct investment and the challenge of development”, .

UNCTAD (2002), World Investment Report, “Transnational Corporations and export competitiveness”, .

Wheeler, D. and Moody A., 1992, “International Investment Location Decisions, the Case of U.S. Firms”, Journal of International Economics, 33: 57-76.

Wilhelms S. and Witter S. 1998, “Foreign Direct Investment and its determinants in Emerging Economies”, African Economic Policy Paper, Discussion paper number 9.

Wooldridge, J. M. 2002, Econometric Analysis of Cross Section and Panel Data, Cambridge, MA: MIT Press.