Investment, credit constraints and exports: Evidence from the Mexican manufacturing industry, 1970-1990

This dissertation addresses three macroeconomic issues in the context of the Mexican manufacturing industry; the impact of the foreign "debt crisis" of 1982 on the investment decisions, the relationship between investment decisions and exports, and the formation of backward linkages in vertically integrated industries. Following the Mexican government's declaration of inability to service interest payments on the country's outstanding external debt, investment declined substantially in Mexico. Chapter 2 analyzes the impact of the foreign debt crisis on the rate of investment in the Mexican manufacturing industry, and considers whether a foreign credit constraint contributed to a decline in investment rates. A model of investment with borrowing constraints is developed and employed to test the impact of the foreign debt crisis. The analysis shows that there is no strong evidence supportive of foreign debt related credit constraints on investment activity in the case of Mexico. Rather, causes of decline in the manufacturing industry are found to be the change in the exchange rate regime and higher world interest rates.; Chapter 3 considers the links between investment decisions and exports. The main argument of the model is that exports help by diversifying risk, and operate as insurance against adverse domestic demand shocks. Growth of exports increase sectoral investment for these reasons. The implication of the model is tested with data from Mexico between 1970-1990. Following 1982, Mexico went through economic adjustment, and manufacturing exports increased substantially while domestic demand was stagnant. The econometric results do not provide evidence supportive of the hypothesis that export-oriented sectors had higher investment rates. Several different model specifications yielded the robust result that export competing sectors, on average, had higher investment levels, but they did not grow faster.; Chapter 4 investigates the effects of industrial policies and investment decisions on sectoral linkages in the context of the Mexican automobile industry. It is found that backward linkages between the automobile assembly sector and autoparts industry have been weak, if existing at all. The main determinant of the growth of these individual sectors is the global market conditions, and the investment decisions of the transnational corporations. It is shown that total output, export and capital stock growth rates of these two sectors have been quite independent of each other.