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ACKNOWLEDGEMENTS
I would like to first pay tribute to my family who have supported me throughout my time here at Lancaster University,
they have always believed in me and have encouraged me to the best I possibly can. I would particularly like to thank
my mother and father who have worked tirelessly to provide for us and ensure my sisters and I have the very best
opportunities in life.
I also wish to thank Dr. Robert Read for the opportunity to undertake the Msc in International Business. It was he
who had faith in me and gave me the chance to prove myself at masters level. I would also like to thank him and the
Economics department at Lancaster, who have taught me over the past four years, Im most certainly better as a result
of being at this fantastic institution.
May I also express my gratitude to my colleagues on the course from whom I have learnt so much over the past year.
I would especially like to thank Luiza Speranskaya , George Wilds, Frankie Xue, Crystal Chan, Pushkar
Agarwal, Arthi & Sundhir Madaree and Kwabena Addo for their support throughout my studies, Im extremely
grateful to have such good people around me who are always there to help.
Finally I would like to pay my upmost respect to Vudugari Balasubramanyam, who I have had the honour of
assisting in research over the past year. His guidance on the course and throughout my dissertation has been superb and
I cannot praise him highly enough for the effort he makes to help us in Msc International Business.
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ABSTRACT
This paper investigates some of the key factors in spurring Mexican economic growth, analysing the impact and
significance of Foreign Direct Investment, Diaspora Remittances & various forms of aid on GDP per Capita and
Human Development at a national and state level, as well as other influential factors such as Mexicos membership of
NAFTA. We find that Remittances has a significant impact on development at a national level where as opportunity
aid is most significant at regional level with 29 of the 32 Mexican states showing signs of significance at a 99%
confidence interval.
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CONTENTS
CONTENTS
I. INTRODUCTION.............................................................................................................................. 6
PURPOSE OF STUDY...........................................................................................................................................6
HYPOTHESIS .....................................................................................................................................................7
STRUCTURE OF STUDY ......................................................................................................................................8
II. PREVIOUS STUDIES ......................................................................................................................10
INTRODUCTION ............................................................................................................................................... 10
HOW CAN FDI BE HARNESSED FOR GROWTH? .............................................................................................. 10
ANALYSING REMITTANCE EFFECTS ............................................................................................................... 13
AID & ENCOURAGING ECONOMIC GROWTH .................................................................................................. 15
OTHER FACTORS FOR MEXICAN DEVELOPMENT ........................................................................................... 16
KEY ISSUES FOR OUR STUDY........................................................................................................................... 18
III. THE MEXICAN ECONOMY: AN OVERVIEW ..........................................................................19
INTRODUCTION ............................................................................................................................................... 19
PREFACE ........................................................................................................................................................ 19
BACKGROUND ................................................................................................................................................. 21
Stagnation, Deception & Liberalisation (1980-1994) ..................................................................................... 21
Entering NAFTA (1994-2008) ................................................................................................................ 22
Global Financial Crisis & Beyond (2008- Present Day).................................................................................. 23
Development in Mexico .............................................................................................................................. 24
IV. METHODOLOGY ......................................................................................................................... 26
INTRODUCTION ............................................................................................................................................... 26
DATA ACQUISITION ........................................................................................................................................ 27
SELECTING THE MODEL(S)............................................................................................................................. 28
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CONTENTS
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I. INTRODUCTION
Purpose of Study
The aim of this paper is to investigate the impact of Foreign Direct Investment, Diaspora
Remittances and other forms of Aid within Mexico to determine which factors are significant to its
continued growth. Recently Mexico has started to develop at a significant pace, with growth rates of
3.9% in 2012, an impressive return comparative to the stagnating economies of its North American
Neighbours and European counterparts. The outlook currently is reasonably good but Mexican
fortunes havent looked so good in the past, with a history of economic stagnation and continuous
crisis from the late 1970s onwards.
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Economic growth may be starting to rise now but Mexico has been lagging behind as this graph
comparing Mexico to developing economies shows us. The linear line in red is average growth for
developing countries whilst the linear line in green is average Mexican development. How can this
be? Foreign Direct Investment (FDI) has increased significantly, with inflows of FDI soaring from
$17 Billion in 1994 to $66 Billion in the next decade. On the surface this should be ideal to the
Mexican economy as it would help bring more trade and more capital into the country. Another
aspect for review will be the volume of remittances and how they tend to grow in relation to trade.
Mexico has a huge amount of remittances, with $22.4 Billion received in 2012 alone (Multilateral
Investment Fund, 2012). How can these remittances help growth in Mexico, can these funds being
much more beneficial than the returns from aid for Mexicos poorest citizens?. These variables
along with Mexicos large oil revenues and NAFTA member should mean growth is possible, this is
why we are going to test the significance of each variable to see how Mexico can encourage
development in the future.
Hypothesis
Our hypothesis is that the increases of FDI over the past 30 years, no matter how large, have been
insignificant in inspiring economic growth in Mexico, as studies using other countries have
demonstrated (Alfaro, 2003; Carkovic et al., 2002).We believe that remittances have a greater effect
on development within Mexico because the money sent isnt going to the multinationals or rich at
the top of the system, but those in poverty who need it most. With FDI most of the profits never
see those at the bottom of the basin because of corrupt officials, greedy managers and ineffective
methods of distributing such wealth as to actually benefit those in need. One can argue that it brings
benefits to infrastructure but this is seen mostly in lower-income developing economies where the
infrastructure is primitive so any investment would likely see great improvements. Mexico differs
from these countries and is at a stage in development where the infrastructure, whilst still poor, is
not a primary concern in most areas. With poverty estimates at nearly 50% by Mexican standards
(Cohen, 2013), the primary focus should be in helping to lift people out of poverty by providing key
essentials such as education, health and employment. The benefit of diaspora remittances is that
they dont take into account skilled or unskilled labour because the person receiving the money
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doesnt need any qualifications, so in theory everyone can benefit. One problem with FDI is such
that workers need a certain type of education, with others either going into non-skilled labour or
highly skilled labour which has been diminishing in Mexico recently (Waldkirch, 2008).
We will also look at the impact of various types of aid within Mexico, first with a examination of
foreign aid on Mexico at a national level, and then with government aid at a regional level. Whilst aid
should normally be beneficial to development, we believe that the amount of aid given is too small
to truly make an impact on development.
Structure Of Study
This study will have nine chapters consisting of an introduction, a review of previous studies,
contextual chapter, methodology, empirical analysis at national level, empirical analysis at state level,
conclusions, references and appendices. This structure will make it easier to explain our thesis and to
analyse our results accordingly. We will now give a brief breakdown of the contents of each chapter
and its purpose to the study. Chapter one is self-explanatory so I have not chosen to explain the
introduction any further.
Chapter two will focus on previous studies, primarily within the field of our chosen variables FDI,
remittances and aid. This type of study where our three chosen topics are analyse together is rare,
especially when said analysis involves empirical work. For this reason our research into previous
studies may consist of more theoretical studies, with the majority of research on how we can analyse
this empirically coming from our methodology chapter later on. This chapter is vital because it
provides an outline for our study, using previous works to formulate new ideas and incorporate
existing methods which may prove effective to evaluating development in the Mexican economy.
Chapter three will provide a context into the Mexican economy over the past thirty years, the period
to which we are analysing national development. This will give us background of development
specifically related to Mexico, factors that may be important to consider later on when analysing
particular trends that surface from our regressions. This chapter should have all the information
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needed to understand the materials within our study, so the reader will have a preliminary
understanding of significant events within recent Mexican history.
Chapter four will discuss the approach to our empirical analyse, providing insight into how different
variables were selected, how data itself was collected and the method to which we will run our
regressions to investigate how significant our variables are to economic development in Mexico. The
chapter will provide rational behind our model selection, regression techniques and the expected
outcomes we hope to gather from the study. Its important because it explains our hypothesis in
greater detail and what aspects of development we are specifically looking for.
Chapters five and six will follow with the results from our regression analysis. Chapter five will focus
on our results at national level, using data taken from 1983-2011. These time series regressions using
GDP per capita and HDI (Human Development Index) will show two different aspects of
development, one on a monetary basis and one of a social economic basis. These results will be
explained using other forms of data in the shapes of tables and graphs to apply context to our
results and help formulate conclusions for our study. Chapter six will be similar in vain but will
consist of individual time series regressions for each state within Mexico with panel regressions for
the all thirty-two states combined. These regressions will differ from chapter five as they use
quarterly data from 2003-2012, providing insight into more recent developments within Mexico. Our
results for our panel regressions will be analysed against our national regressions to see if the effects
of FDI, remittances and aid have changed over time, with further analysis into the effects on each
state with insight into with methods perform best statistically. Both these chapters will end with an
appendix section displaying supplement material which are vital to the chapters.
Chapter seven will summarise the conclusions of our study, reflecting upon our original hypothesis
and comparing our research to our expected results and other works. The chapter will also include
limitations to our study and possible areas for future discussion. Chapters eight and nine will be
references any other appendix material which wasnt used in chapters five and six, but was deemed
necessary for this paper.
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per capita is used as their control variable with a variety of different explanatory variables. These
included data such as the technology gap between home and host countries, number of patent
applications, and research and development expenditure within host economy, economic freedom of
host economy and the spillover effects on education. The data used for these regressions was
collected via the EconLit database and the Internet, searching terms such as spillovers from
technology transfer and productivity FDI spillovers to acquire data from previous cross-sectional
& panel data studies. Their analysis found that a curvilinear relationship between spillovers and the
host countrys level of development in terms of income, institutional framework and human capital.
Early studies use cross-sectional data, yet as panel data techniques have become more available,
most recent studies use panel data, in total 43 of 66 studies this is something to be aware of when
analysing previous studies as empirical approaches can change constantly, with the data available for
such regressions also constantly increasing in availability.
Anghel (2005) hypothesises that countries whose governments are highly ranked according to
various indices of the quality of institutions tend to do better in attracting foreign direct investment.
In an empirical analysis of cross-section data, the paper nds that dierent aspects of the quality of
institutions from a country (corruption, protection of property rights, policies related to opening a
business and maintaining it, etc.) are almost always signicant, regardless of the other control
variables that are used in the least-squares and instrumental variables estimation. While there is
evidence of institutions being a catalyst when attracting FDI, there is little research that investigates
the effectiveness of foreign investment or that links institutions to the quality of development from
FDI or diaspora remittances.
Foreign Direct Investment for Development: Maximising Benefits, Minimising Costs, a paper
published by the OECD (2002) clarified the overall benefits of FDI for developing country
economies. It stated that given the appropriate host-country policies and a basic level of
development, a preponderance of studies shows that FDI triggers technology spill overs, assists
human capital formation, contributes to international trade integration, helps create a more
competitive business environment and enhances enterprise development. These triggers are
important to analyse as they can contribute to relieving poverty and improving social conditions
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within a country, with Mexico being a primary example of how FDI can lead to improved social and
environmental conditions.
As mentioned before Mexican inward FDI has increased primarily because of the opening of the
Mexican economy in the late 1980s, as stated by Jordaan & Rodriguez-Oreggia (2012). They also
speculate that the increase of investments is partly down to a changes in the location pattern of
economic activity within Mexico.
Nunnenkamp et al. research into Mexican industry from 1994-2006, taking a sample of over 200
different industries to investigate whether FDI has had a profaned effect on employment within
Mexico. They found that there was some form of a link although there was evidence to suggest that
multinationals had forced smaller local employers to lose trade and consequently go out of business.
Robert Lucas (1988) discussed On The Mechanics Of Economic Development and looked into
how the accumulation of human capital lead to a rise in per capita growth. He stated that schooling
could have a positive effect on growth, which whilst being theoretically correct is difficult to prove
using statistical analysis. He also studied the advancement of technology and noted the rapid
physical capital growth associated with countries which used advanced equipment. In my study I
will be relating this research to FDI and remittances, indicating how the money has possibly aided
Mexico and technological development since joining NAFTA.
Weiss and Rosenblatt (2010) explore regional growth in Mexico from 2001-2005, looking at key
variables such as economic growth, good governance and corruption. The panel dataset is applied to
a OLS regression which demonstrates a correlation between corruption and higher levels of poverty.
This case is interesting because it shows that FDI taxes might not be fully utilised in Mexico.
FDI benefits can vary across sectors as shown by Alfaro (2003). He examines the effects of foreign
direct investment on growth in the primary, manufacturing, and services sectors. He used crosssectional data on countries from 1981 until 1999 and found that the effects of FDI on growth were
ambigous. He did however find that FDI has different effects on certain regions, with a negative
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effect on growth within the primary sector, positive growth within the manufacturing sector, and
negligible impact on the services sector.
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looking into how people can break the poverty trap, and how Mexico itself can become more
productive, more growth, one along the lines of BRIC Economies.
As explained previously with FDI, remittances are not being used to full effect with unattractive
investment environments and restrictive immigration policies which interrupt circular migration
patterns prevent the high development potential of migration from being fully realised (Haas,
2005) Although he finds evidence to suggest that specific policies have an impact can enhance
development potential, Haas believes the key underlying factor is circular migration where
population have the opportunity to move territories freely. Instead of trying to stop what he labels
inevitable migration, immigration policies allowing for freedom of movement would enhance the
contributions of migrants to the development of their home countries.
Our study on diaspora remittances and NAFTA doesnt have freedom of movement written into
the original agreement due to the understandable reluctance of the US to freely allow Mexican
labour to flood there economy. In more recent times however, there has been data () that suggest the
amount of Mexicans trying to enter America has declined, with the global financial crisis of 2008
being one of the reasons why Mexicans are heading home in search of opportunities. Freedom of
movement within NAFTA alike that of the European Union would mean more diaspora have the
opportunity to send remittances back, but the argument itself doesnt hold as the effectiveness of
the use of these remittances wouldnt change.
Adams and Page (2005) is a relatable study as it looks for the effect of remittances in the decline of
poverty, the only difference from my proposal being that they do this over a cross section of 71
developing countries, using household surveys to gather information. These surveys are an option
for my research although I believe that the results from such methods are sometimes unreliable,
whilst its somewhat unfeasible to garner such results for Mexico the limited timeframe available as it
can take years to collect. Adams & Page used instrument variables in their study to allow for the
control of reverse causality. They found that a 10 percent increase in international remittances in a
developing country will lead to a 3.5 percent decline in poverty. Also there results showed that a 10
percent increase in the share of international migrants from a developing country will lead to a 2.1
percent decline in poverty on average.
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Goldring (2004) makes two arguments in a study of Family and Collective Remittances to Mexico,
the first being the importance of extra-economic dimensions of remittances, looking into social
and political meanings of remittances. The second is the impact of the money being sent and how
remittances are reinvested into families and the local community. He looks at how the remittances
are received and the social norms of with remittances are used. In this respect remittances are used
not simply as a means of survival through the purchase of food, but can be used as a tool for
investment, in construction as we have seen, or even for political purposes. Goldring concludes that
policy and programme interventions need to distinguish between types of remittance. He states that
while initiatives to expand the share of remittances allocated to savings are a good idea, that and the
amount of remittance used on other ventures such as investments in business require a wider range
of intervention, or more incentives for those to used there remittance for investments.
The effects of the global financial crisis is omitted from some of the work I have discussed so far,
possibly because some might see it as an outlier in the grand scheme of growth, with the aftermath
only directly harming developed economies. Many economists agree on the fact that the current
financial crisis may have stronger negative repercussions on economic growth in Africa because of
the potential reduction in foreign capital flows. Although, the literature bonds on papers that study
the causal link and relationship between FDI and economic growth, the key basic assumption
common to these papers is that economic growth is a good proxy for welfare Gohou & Soumare
(2009). This will have to be assed in our work because the global financial crisis had a heavy impact
on Mexico with gdp growth of negative 6.3% in 2008. The variables in this study are also interesting
and will be discussed in the methodology section, in particular the use of FDI per capita and the
Human development index as dependent variables.
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They analyse the situation of developing countries using a series of cross-sectional analysis, creating
a distinction between types of developmental and non-developmental aid.
The Minoiu & Reddy study analyses the effects of aid by using time lags over the course of three,
five and ten years to see long term effects with results showing that development aid promotes longrun growth. Overall there main findings were inconclusive with some forms of aid being effective
and others less so. This was put down to some regions having more efficient administrations,
operating with lower overhead cost, or being less bureaucratic which resulted in more aid per US
dollar reaching its intended recipients.
While this research and others (Riddell, 2007; Hansen & Tarp, 2000) may have been shown the
positive of aid on development there is substantial evidence of the waste of such revenues. Rajan &
Subramanian (2008) found when applying cross sectional and panel data that there was little
evidence of a relationship between aid inflows into a country and economic growth. They
concluded that there was no certain form of aid which was particularly effective and that the
concept of aid, or at least its apparatus, would have to be rethought in the future. Aid is a big issue
for many developing economies and will be discussed briefly with relation to Mexico. This being
said, the amount of aid received in comparison to FDI and remittances is small, so when I look at
poverty in regions of Mexico, this may have to be taken into consideration.
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institutions within developed economies such as the United States and Canada will greater than
Mexico which is still developing. This could be one of the reasons why Mexico cant harness the
spill over effects from overseas investment or NAFTA itself.
It proves that countries that improve their institutional framework, especially by establishing a
predictable framework for economic policies and enforcement, can increase the amount of FDI
into the country, and improve the effectiveness of the distribution of FDI taxes. The development
strategies also have positive spillovers to other economic activities concerning economic growth and
development with findings showing that Government Stability increases FDI by seventeen percent.
Whilst we are not looking at increases in FDI but the effectiveness of the revenues gained, the
matter of institutions could be a factor which we will discuss through qualitative means. This paper
is also significant as it uses OLS estimates with a lag on the dependent variable of the model. This
along with the application of the Arellano-Bond GMM estimator will be discussed further in the
methodology chapter.
One of the many text to refer to in the instance of NAFTA and Mexico is the work by Angeles
Villarreal who specialises in the processes of NAFTA. In NAFTA & The Mexican Economy
(2010) he states about the difficulties involved in carrying out tests about the effects of NAFTA in
the early days because of the position of the Mexican economy comparative to their American and
Canadian counterparts. The effects are difficult to isolate from other factors that affect the
economy, such as economic cycles in the United States (Mexicos largest trading partner) and
currency fluctuations. In addition, Mexicos unilateral trade liberalization measures of the 1980s and
the currency crisis of 1995 both affected economic growth, per capita gross domestic product
(GDP), and real wages.
He notes that while NAFTA may have brought economic and social benefits to the Mexican
economy, these benefits have not been evenly distributed throughout the country. He cites the
example of the agricultural sector which experienced a high amount of worker displacement after
NAFTA, in part because of increased competition from the United States.
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Preface
Mexico is the largest speaking Spanish nation and the second largest economy in Latin America after
Brazil. Hence the influence of Mexico within the region is great, with its close cultural ties with the
South America combined with its economic relationship the US and Canada to the north. The
country is a developing economy with an annual growth rate of 4%, putting it in a bracket just
below the BRICS economies (Most prominently China, India & South Africa). It is predicted to be
one of the largest economies in the world within the next 40 years, with Pricewaterhousecoopers
(2013) predicting it to be the worlds 7th largest economy in 2050. At the present moment in time,
the economy is 11th in the world with an annual GDP of $ 1.153 trillion with a GDP per capita of
$ 10,047 according to the World Bank (2012). With the many ties Mexico has, and the substantial
investment into the country, its somewhat a mystery why so many people are in poverty, estimated at
47% from the latest INEGI figures.
The country is traditionally a religious one, with just under 94% following Christianity with 82.7%
Roman Catholic and 9.7% comprising of other Christian religions according to the 2010 general
census. Its political scene was dominated by the Partido Revolucionario Institucional (PRI) which
translates into English as the Institutional Revolutionary Party. It relinquished power in 2000 when
the Partido Accin Nacional (PAN), national action party took control.
The geographical makeup of Mexico is 31 states and 1 district (District Federal) although the district
is considered a state in annual census collection and we will be considered a state for the duration of
this study. We have highlighted the areas in blue to show states which incomes come from service
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based activities. As you can see, most of Mexicos income is primarily from manufacturing based
services, as we will discuss later.
Figure 2.1: Map of United Mexican States
Table 3.1: Supplementary Key for Mexican States and Their Locations
Key For Diagram of Mexican States
1.
Aguascalientes
9.
Mexico, D.F.
17.
Morelos
25.
Sinaloa
2.
Baja California
10.
Durango
18.
Nayarit
26.
Sonora
11.
Estado de
19.
Nuevo Len
27.
Tabasco
Mxico
4
Campeche
12.
Guanajuato
20.
Oaxaca
28.
Tamaulipas
Coahuila
13.
Guerrero
21.
Puebla
29.
Tlaxcala
Colima
14.
Hidalgo
22.
Quertaro
30.
Veracruz
Chiapas
15.
Jalisco
23.
Quintana Roo
31.
Yucatn
Chihuahua
16.
Michoacn
24.
32.
Zacatecas
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Background
Stagnation, Deception & Liberalisation (1980-1994)
During the 1970s the Organization of Petroleum Exporting Countries (OPEC) began to effectively
manipulate the price of petroleum, limiting supply and driving up prices by seven hundred percent.
Mexico and the Soviet Union were the only large exports not to join OPEC, thus Mexico was
considered a vital to the United States and Western Europe who channelled money into the country.
With such a large influx of funds and readily available loans, Mexico took advantage of the situation
and borrowed heavily to fund large public investment projects. While investment was considered
necessary (citation needed) the projects undertaken were ill-conceived, failing to make any returns
and failing to relieve long term problem (Watkins, 2008).
One instance was the water shortages in Mexico City where development projects were made to
transport water from other regions instead of sorting out the actual problem. As Watkins (2008)
states The real problem is that residential water use in Mexico City was not metered. Residents paid
a flat fee and the fee did not go as they used more and more water. There was nothing to discourage
middle and upper income families from creating landscaping that required vast amounts of water
hence water was wasted in some respect and no returns were made from the initial investment. In
fact electronic pumps had to be used to dispose of excess water in the hills of the city.
With petrol prices falling in the early 1980s due to a combination of surplus oil supply and Western
economies transferring energy resources to coal, nuclear and renewable energies, Mexico was in
trouble. President Jos Lpez Portillo announced he intended to defend the peso like a dog
against speculative attacks (Haufbauer & Schott, 2005) and tried a series of methods to raise oil
prices, even firing the director of the state oil company Pemex for reducing the price of Mexican
crude oil when prices were plummeting on international markets (Porter, 2013).
The measures were ineffective and the peso was devalued to help improve the bleak economic
situation. In August of 1982 and about to default on its debt, Mexico had to be bailed out by the
IMF with loans of $3.9 billion (Farnsworth, 1982) being given in exchange for austerity cuts and
liberalisation of the economy, an offer given to most Latin American countries during this crisis.
The following years were tough for the country with extreme poverty at 28.4% and large periods of
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negative growth. There was even scandal in 1988 when PRI representative Carlos Salinas de Gortari
was elected as president in what was later announced as a rigged election by his predecessor Miguel
de la Madrid (Thompson, 2004).
Corruption allegations aside, Mexico was starting to show signs of recovery by the late 1980s with
real wages starting to rise and liberalisation policies were well and truly being implemented. The
Gotarti presidency was stringent with budgets (partly down to the IMF terms several years
previously) and held tight controls on currency. The economy was seen as unstable by some and
upon the election of Ernesto Zedillo, policy decisions were re-written within the PRI party, with a
sudden devaluation of the Peso which led to the 1994 Peso crisis. Mexico had previously operated
under a fixed exchange regime and the sudden depreciation meant that it didnt have enough foreign
reserves to maintain the pegged rate (Mankiw & Taylor, 2007).
Entering NAFTA (1994-2008)
The North American Free Trade Agreement was signed in 1994 between Canada, Mexico & the
United States of America with the primary importance in providing investor protections to foreign
direct investment (Maurer, 2006). The agreement was sold on the promise of access to a market of
over 400 million people, with the opportunity of increased cross border investments. Mexico saw its
proposed benefits and coming off the end of protectionist policies in the early 1980s, it had been
warming to the concept of trade organisations, joining GAAT in 1986.
At the beginning of the decade Carlos Salinas de Gortari approached then US President George
H.W. Bush with the proposal of forming a free trade agreement between the two countries. The aim
for Gortari was to try to increase growth via foreign direct investment in the expectation that the
new jobs created and an increase in exports would stimulate Mexicos flagging economy. He believed
that free trade would lead to an increase in export diversification, with FDI creating new jobs,
increasing real wages of workers, and reducing high poverty levels in Mexico which were.. at this
point in 1994. With NAFTA coming into effect, many believed the agreement would have a positive
impact on the Mexican economy, with the perceived downside being mostly an American problem
(Villarreal, 2010). Commentators in the US feared that lower wags south of the border would drive
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jobs away from America and destroy the domestic economy (an accusation which in fact has been
thrown at China more recently). Mexicans feared that the technological superiority of the US would
mean that jobs would be lost, with labour intensive manufacturing being replaced by capital intensive
production (Blecker & Esquivel, 2010). The proposal itself had advantages in the reduction of trade
tariffs (direct & indirect) between member countries. This would help lift Mexican trade with more
inward investment as well as the advantages from increased competitiveness through dealings with
American and Canadian firms (Bertrab,1997).
During this time Mexico was still experiencing economic crisis, with inflation spiralling out of
control and peaking at 52% in 1995. Poverty was escalating, peaking at 20% (headcount ratio at $2 a
day, PPP) in 1996 and a new peso was brought in to rebalance the situation. Emergency funds were
given from the IMF and the United States which helped with the balance of payments problems.
The problems soon eased whilst FDI was increasing considerably in part to NAFTA, relieving any
change of another major Mexican crisis.
At the turn of the millennium, the PRI party which had dominated the Mexican political landscape
for so long, was ousted from power with the PAN breaking seventy years on uninterrupted PRI
governance. This was significant as it saw a change in policy and the start of stable growth within
Mexico, with the economy not being hit with crisis until the 2008 global recession.
Global Financial Crisis & Beyond (2008- Present Day)
In 2008 Mexico was badly affected by the global financial crisis as its main trading partner (United
States) saw a huge downturn which had negative consequences for FDI and remittances to the
country. The peso saw an appreciation in value due to firms within Mexico trying to cover dollar
demanded debt. This increase in the value led to the Mexican central bank having to use 11% of its
dollar reserves within a 72 hour period and increased interest rates on public debt to maintain
confidence in the peso and avoid speculative runs on the currency. (Munoz-Martines, 2008). Mexico
experienced negative growth of nearly six percent in the aftermath of the crisis (graph 1.1) but has
since started to recover with exports to the US increasing in 2012.
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Development in Mexico
As we have mentioned in the introduction chapter, Mexico has received large quantities of FDI and
diaspora remittances, with Mexico being the second largest receiver of remittances in the world after
India, with the money being Mexicos second largest foreign source of income after oil revenues
(BBC, 2009).
Figure 3.1: Percentage of Population in Poverty within Mexico
As you can see from the graph above, poverty in Mexico started to decline up until 2006 where
Felipe Calderon took office. The Green line represents the percentage of people within Mexico who
would fail to purchase a basic food basket if the entire household disposable income was devoted
only to buy these goods, this is known as food poverty or extreme poverty within Mexico. The
second line in blue denotes Capability poverty, when a family income cannot supplement the
purchase of food and essential expenses such as healthcare and education. The red line indicates
these measures plus other expenses such as clothing, housing and transportation costs and is
estimated at $189 a month for a household of four (Botello, 2013).
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The fact that extreme poverty held steady since 2008 is attributed to targeted social protection
programs such as the Oportunidades which offers conditional cash transfer initiative for education
and the Seguro Popular universal health insurance. Opportunades (opportunity) is the aid program
which we will be looking at in our regional analysis, this form of aid is given through cash and food
to provide nutrition and help young people into education.
Page | 25
IV. METHODOLOGY
Introduction
To investigate the development of Mexico we will split our analysis into two areas, first concerning
the development on a national basis, and secondly analysing different regions of Mexico to assess
how various factors of growth such as FDI & Remittances can differ from state to state, giving
insight of more recent developments over the past decade.
Before we begin, let remind ourselves of our hypothesis:
(1)
We believe that FDI has been ineffective in aiding Mexican development, and any
significant windfalls of FDI have been wasted, with diaspora remittances being a more
effective way of reducing poverty within the region and helping to improve development
within Mexico because it reaches those who need it most.
(2)
NAFTA has not had a significant effect on the Mexican economy in terms of
development and growth, with growth rates being negligible for a developing economy
since 1994. This assumption is made on the basis of FDI not being significant on
development in Mexico
(3)
Aid will also be insignificant although it will demonstrate a positive relationship with
GDP and human development. This will become more evident in our regional analysis
where opportunity aid only accounts for a small percentage of GDP.
To define each of these theories we will run a series of different regressions to determine the
credibility of the original hypotheses with the first section focusing on the national Mexican
economy whilst the second section focused primarily on different states within Mexico. This will
allow for a thorough examination of the factors that have plagued the Mexican economy with an
analysis of the results also given briefly within this chapter. Chapter six then follows with further
analysis combined with a theoretical approach to aide our empirical analysis.
Lancaster University Management School
Page | 26
Since this is an investigation into certain development factors and the effect of certain variables such
as oil and NAFTA on the Mexican economy we need to analyse a significant time period to give
some insight of where Mexico was previously and how it has developed over the past few decades.
To do this we used data from 1983 onwards in an attempt to give a reasonable view of growth
within Mexico without having considerable outliers which could affect the final result. This being
said, we still have to take into account other economic factors which have been explained before,
primarily the crises that plagued Mexico in 1982 and 1994, both which caused serious damage to the
strength of the Peso with the later leading to rapid hyperinflation and the introduction of the New
Mexican Peso and a default on Mexican debt (Feridun, 2007). It is for that reason that all monetary
variables have been measured in current US Dollar values to offset any exchange rate fluctuation as
this study will not focus on the Mexican Pesos proximity to the dollar. When analysing our results it
will be important to take into account financial crises and other outliers which could influence our
independent variables, the United States in particular because of its savings & loans crisis in the late
1980s, the dot.com bubble burst of 2001 and the global financial crisis of 2008, all of which had
serious consequences on the US economy, and would naturally have knock on effects on the
Mexican economy, FDI into the country and Remittances sent from the United States.
Data Acquisition
The data sources used for the first set of regressions came primarily from The IMF and World Bank
statistic websites. This provided most of the information from FDI to foreign aid provided from
other countries. The data on remittances was retrieved from Instituto National De Estadistica y
Geographia (INEGI) and was manually converted into current US Dollars, as are all the variables
apart from our NAFTA Dummy. The oil price variable was devised using data of barrels sold per
day (INEGI) multiplied by 365, this was then multiplied by the average cost of oil each year in
current US Dollars, with this information being acquired from the World bank (2013).
= 1 + ( 1 )
2 1
1 1
Page | 27
The formula above will be applied to interpolate data when trying to determine missing entries for
variables such as the human development index, where some information for a small number of
years may not be available. This should not impact significantly on our results and we have taken the
stance of not using variables such as the Gini coefficient or Poverty rates because of the lack of
information available and to keep a element of integrity to our results.
Our first regressions will be a times series model based studies by Polaski (2004) And Weiss &
Rosenblatt (2010). Whilst this method may mean sacrificing an element of accuracy when running
our regressions, it will allow for a model which can analyse both remittances and FDI, giving an
insight into which has been more effective in terms of Mexican development.
Our dependent variables will be GDP per capita and the human development index. This has been
done to give greater insight into the possible merits FDI and Remittances because as we have
discovered in chapter two, development cant simply be measured in monetary terms. Whilst we
would have liked to have use Gini coefficients or poverty rates, both datasets were inadequate due to
the amount of missing entries for years. One could use interpolation but this wont help as there are
not enough original entries available for this to be a fair study.
= 0 + 1 () + 2 ( ) + 3 () + 4 () + 5 +
= 0 + 1 (
)+
2 (
)+
3 (
)+
4 (
)+
5 +
(1)
(2)
These models will provide the reference for our future studies into regional development and will
give us an insight into development including pre-NAFTA conditions where Mexico was less
dependent on FDI and more so on oil.
Page | 28
Description
Independent Variables
Foreign Direct Investment / GDP (FDIG)
Description
NAFTA
The panel regressions and individual state regressions use variables that mirror those of models one
and two with one significant difference being the replacement of our NAFTA dummy variable with
ones concerning manufacturing states and drug related crime within Mexico. The NAFTA dummy
was dropped because this analysis only begins in the first quarter of 2003, thus the issue of NAFTA
cannot be fully determined from these regional regressions although our dummy variable for
manufacturing does link back to NAFTA, with NAFTA promoting increased industrial performance
in some states. The variable for drug related crime is used for seven states (Baja California,
Chihuahua, Guerro, Michoacan, Nuevo Leon, Sinaloa & Tamaulipas) starting from the final quarter
of 2006 (the official start of Mexicos war on drugs), as taken from the Stratfor annual report of drug
crime in Mexico (Stewart, 2010).
Lancaster University Management School
Page | 29
Another change of significance is the replacement of our foreign aid variable with that of
opportunities aid. This was because foreign aid itself doesnt have any data for individual states
where as the Mexican opportunities programme (Oportunidades in Spanish) follows the same lines of
aiding those in poverty, but for different states and is issued by the Mexican government for each
state. This anti-poverty program has come to prominence is the past decade, starting life as
progressa in 1997 and taking on its current form in 2002. It focuses on helping poor families in
rural and urban communities, with government investment being invested in human capital, aiming
to improve education, health and nutrition of children, with the intended effect of reducing poverty
in the future (Braine, 2006). The calculation of this variable was taken from INEGI, and averaged
over a quarterly basis. The currency of this variable and GDP per capita were given in Mexican
pesos (current values) and had to be converted to US dollars to match our other data. Whilst this
may lead to some minor discrepancies over different exchange rates over the course of a quarter, it
should not have any significant impact on our results.
= 0 + 1 () +2 ( ) +3 () 4 + 5 +
= 0 + 1 () +2 ( ) +3 () 4 5 +
= 0 + 1 () +2 ( ) +3 () 4 +
= 0 + 1 () +2 ( ) +3 () 4 +
(3)
(4)
(5)
(6)
Models three, for, five, and six dont differ too much from our original analysis of Mexico in the first
part of this chapter, this is intended to keep some sort of continuality so that we can compare our
panel regression results to our previous results to highlight any contrasts and possible discrepancies.
The only difference from our panel regions and state by state time series regressions are that the
Page | 30
variable of manufacturing has been removed because it would hold no significance for a regression
of one individual state.
Table 4.2: Variables For Regional Analysis
Description
Independent Variables
Description
Drugs (DRUG)
When running our model, it is important that we run test to maintain the integrity of our data and
our study. One such problem we should be aware of is whether our model demonstrates signs of
Lancaster University Management School
Page | 31
multicollinearity. Multicollinearity is where two or more variables are highly correlated with each
other, so in theory we could be using the same information twice unknowingly with the model
(Pindyck and Rubinfeld, 1998). This could be problematic as we need to obtain least square
estimates later in our analysis and even thought we could still obtain these values with
multicollinearity, they would prove to be statistically insignificant as there is little or no variance in
the variable used. Variance inflation factor (VIF) asses the severity of multicollinearity in our OLS
Regression (Koop, 2005). We will calculate the VIF using Stata and we will be looking for a number
greater than the formula of: VIF= 1/(1- R^2 ) We will also have to check the mean VIF to discount
serious multicollinearity, this value has to be smaller than 5.
As we are using cross sectional time series data (panel) we must also look for Heteroskedasticity in
our models. This could be a key issue for our research because heteroskedasticity normally indicates
that while the smaller values of the model may be correct (those at the beginning of the scatter plot)
as the value of Y (GDP Per Capita) increases, the accuracy of the plot is becoming weaker as the
constant variance of the coefficients cause OLS to calculate inaccurate estimates of standard error
of coefficients (Studenmund, 2010, P99). So while our model might be performing well at
generating coefficients for smaller GDP growth, it could be experiencing large problems for those
with proportionately larger GDP growth. This shouldnt be a problem with our results as we have
taken the measure of using natural logarithms for our GDP per capita variable with our other
variables being divided by GDP to reduce the difference between higher and lower values between
our variables.
We will also have to perform checks for serial correlation within that model. Serial Correlation is
when there is a violation of the classical assumption IV that different observations of an error term
are uncorrelated with each other. If we find serial correlation, it means that our error term is not
independently distributed across the observation and that the error term may not be truly random.
One of the most likely causes of serial correlation within time series data is data misspecification,
where a statistically significant variable has been omitted from the model, thus there is a disturbance
in the error term which would skew our results significantly. Our datasets are complete using the
interpolation formula and I dont foresee any problems with misspecification although we will run a
Durbin-Watson test to confirm this.
Page | 32
Page | 33
The expectation of our regressions remains similar to our original models, with FDI/GDP not
expected to be significant for human development but significant in per capita GDP growth. We
expect our remittance variables to be significant in both regressions whereas opportunities aid isnt
expected to be significant although it would be expected to have a positive effect on both
independent variables if proven significant. We expect the manufacturing variable to not be
statistically significant because 26 out of the 32 states in Mexico have the majority of their income
come from manufacturing, although we expect it to have a positive impact on GDP per capita but
not when regressed against HDI. This is because we expect a positive relation between those states
who are primarily service economies as they tend to have a greater population who can speak
different languages and have more investment which should lead to further development.
The drug variable was included to highlight the perceived negative impact in those states and to
allow us to gain an understanding as to why those states may perform differently to other states who
are not significantly affected by the drugs war.
Summary
In summary we are going to run six different regressions, two for the national outlook of Mexico
from 1983-2011 using annual data from the IMF & World Bank. The other four consisting of two
time series analysis and two panel data regressions. We will run tests to ensure that the model if free
Lancaster University Management School
Page | 34
of problems before analysing the results. Some of these test will be included in our appendix
although we wont go into detail about testing because this paper is focused solely on economic
development and not statistical analysis. We expect that remittances will have a positive effect on
both GDP per capita and Human Development at any significance level. We expect FDI to be
insignificant along with both forms of aid. We expect NAFTA to have a positive effect, due in part
to the turmoil Mexico experienced in the late 1980s before, something that will be accounted for
statistically in our regressions.
Page | 35
Page | 36
-1
-3
-5
FDI/GDP
-14.9553
(9.820412)
0.141
-7.997087
(6.456046)
0.229
5.193079
(3.934721)
0.202
12.04939
(3.319858)
0.002***
REM/GDP
34.21856
(12.27946)
0.010***
42.74582
(8.701649)
0.000***
48.29255
(5.549673)
0.000***
39.13357
(5.441009)
0.000***
AID/GDP
-325.0232
(137.2048)
0.027**
-394.8432
(105.8229)
0.001***
-280.0921
(68.98461)
0.001***
-194.4469
(69.85991)
.012**
OIL/GDP
-3.049623
(1.785398)
0.101
-3.599569
(1.46695)
0.023**
-5.73973
(1.094112)
0.000***
-5.314414
(1.248704)
0.000***
NAFTA
.5444573
(.2489141)
0.039**
.2831049
(.1645945)
0.099*
-.0065067
(.105105)
0.951
-.1828395
(.11501)
0.129
Constant
8.217101
(.3140097)
0.000***
8.187477
(.2331728)
0.000***
8.153194
(.1649399)
0.000***
8.319176
(.2091093)
0.000***
0.7473
0.8438
0.9304
0.9155
2.89
2.31
2.16
2.36
29
28
26
24
Adjusted R2
VIF
Observations
First results indicate Coefficients of our variables, with the second results (in brackets) indicating standard error
of our variables. The third result (labelled with *) indicates the p values are significant at 90% confidence level,
(labelled with **) indicates significance at 95% confidence level, and (labelled with ***) indicates significance at
99% confidence level.
FDI was statistically insignificant throughout until a lag of five years was applied, this indicating that
it would take five years for net FDI to have any significant effect on GDP per capita. We shouldnt
take this result as fact however because of the suspicion of over fitting within our model, so five
years ma possible be an outlier in our study due to the data that was dropped for said regression.
Page | 37
Model 2: National Time Series Regressions For Human Development (1983-2011, Annual)
The results of our second regression model achieved a greater accuracy than our first, with an rsquared of 0.8801 or 88%, meaning 88% of all squared deviations from the mean could be explained
from our model, meaning a more accurate result. The only concern was when lags were applied as
the r-squared increased to 92% (0.9188) with a 1 year lag, 97% (0.9702) after a 3 years and then
down to 95% (0.9544) after a 5 year lag. As a rule of thumb any result with accuracy greater than
95% is dubious and could show any number of different traits. We tested for multicollinearity using
Variance inflation factors (VIF) and concluded after testing we can assume the model doesnt have
any substantial errors which leads to the proposition that the model is subject to over-fitting, where
the dataset in one instance is suited to a regression against our dependent variable where as another
dataset may not experience such high r-squared values (Hand, 1998).
Page | 38
-1
-3
-5
FDI/GDP
-1.23489
(.6225473)
0.059*
-.284484
(.4231754)
0.508
.3448383
(.2228774)
0.137
.9142499
(.2304157)
0.001***
REM/GDP
3.550653
(.7784343)
0.000***
3.924752
(.5703682)
0.000***
3.65419
(.3143543)
0.000***
3.366546
(.3776348)
0.000***
AID/GDP
-13.75798
(8.697851)
0.127
-19.57667
(6.936387)
0.010***
-18.81878
(3.907547)
0.000***
-12.64142
(4.848647)
0.018**
OIL/GDP
-.2635065
(.1131821)
0.029**
-.2361169
(.0961544)
0.022***
-.1469965
(.0619746)
0.028**
-3620.171
(.0866667)
0.016**
NAFTA
.0625401
(.0157795)
0.001***
.0394679
(.0107887)
0.001***
.0349781
(.0059535)
0.000***
.0217269
(.0079823)
0.014**
Constant
.6542782
(.0199061)
0.000***
.6451658
(.0152838)
0.000***
.638262
(.0093428)
0.000***
.6491868
( .0145133)
0.000***
0.8801
0.9188
0.9702
0.9544
2.89
2.31
2.16
2.36
29
28
26
24
R2
VIF
Observations
First results indicate Coefficients of our variables, with the second results (in brackets) indicating standard error
of our variables. The third result (labelled with *) indicates the p values are significant at 90% confidence level,
(labelled with **) indicates significance at 95% confidence level, and (labelled with ***) indicates significance at
99% confidence level.
The results themselves show that the remittance and oil variable were statistically significant at a 5%
level, meaning that both could be factors for Mexican development. This is only possible under the
assumption that those revenues have been passed down to the working classes of Mexico,
something we will have to analyse further in the discussion chapter. Oil seems to have a negative
impact on GDP per capita which indicates that oil revenues must harm per capita income, possibly
because of the Mexican economys heavy gearing towards oil as a source of revenue in the 1980s.
Lancaster University Management School
Page | 39
Our NAFTA dummy was also significant with a p value of 0.001, so statistically it has had some
impact on Mexican development although however much of this is through globalisation and not
NAFTA itself remains to be seen.
Discussion of Findings
Our analysis indicates to us on a national level that remittances do have a significant positive effect
on GDP per capita, whereas FDI doesnt. The real surprise is the statistical significance of aid,
which was not predicted in our analysis. HDI also showed similar trends with remittances and aid
again being significant. One should also mention our NAFTA dummy which was also significant in
both regressions, although one has to be sceptical about these results as Mexico was coming out or
stagnation in the 1980s, so any results after that would look statistically significant.
Whilst we have seen in this chapter is that diaspora remittances have had a significant effect on both
GDP per capita and the Human development within Mexico, these results dont truly tell the story
of development within Mexico as there are many different factors of influence. Take for instance
GDP Per Capita, we know that remittances has a strong positive relation to growth, but this doesnt
necessarily mean that real wages are increasing, nor does it mean that poverty is being eradicated
within the country.
Page | 40
To look into our findings we have a graph showing remittances and poverty rates for selected years.
Whilst we couldnt use this data for our regressions because of missing time periods, the results can
still show us that remittance have a negative correlation with poverty, hence one could assume it has
a positive relationship with GDP per capita, as was the case with our study.
Page | 41
V. Appendix
Graphs 5.1: Relationship Between GDP Per Capita and Independent Variables (No Lag)
10000
8000
4000
2000
.01
.02
.03
FDI/GDP
Fitted values
.04
.05
.015
.02
REM/GDP
Fitted values
.03
6000
4000
4000
6000
8000
8000
.025
10000
10000
.01
2000
2000
6000
6000
4000
2000
8000
10000
.0005
.001
AID/GDP
Fitted values
.0015
GDP per cap
.002
.05
.1
OIL/GDP
Fitted values
.15
.2
Page | 42
2000
4000
6000
8000
6000
4000
2000
.02
.03
FDIGDP1
Fitted values
.04
.015
.02
REMGDP1
Fitted values
.025
.03
6000
4000
2000
2000
4000
6000
8000
8000
10000
.01
.05
10000
.01
8000
10000
10000
Graphs 5.2: Relationship Between GDP Per Capita and Independent Variables (1 Year Lag)
.0005
.001
AIDGDP1
Fitted values
.0015
GDP per cap
.002
.05
.1
OILGDP1
Fitted values
.15
.2
Page | 43
2000
4000
6000
8000
6000
4000
2000
.02
.03
FDIGDP3
Fitted values
.04
.015
.02
REMGDP3
Fitted values
.025
.03
6000
4000
2000
2000
4000
6000
8000
8000
10000
.01
.05
10000
.01
8000
10000
10000
Graphs 5.3: Relationship Between GDP Per Capita and Independent Variables (3 Year Lag)
.0005
.001
AIDGDP3
Fitted values
.0015
GDP per cap
.002
.05
.1
OILGDP3
Fitted values
.15
.2
Page | 44
8000
4000
6000
6000
4000
2000
2000
.02
.03
FDIGDP5
.05
.01
.015
.02
REMGDP5
Fitted values
.025
.03
6000
4000
2000
2000
4000
6000
8000
8000
10000
Fitted values
.04
10000
.01
10000
8000
10000
Graphs 5.4: Relationship Between GDP Per Capita and Independent Variables (5 Year Lag)
.0005
.001
AIDGDP5
Fitted values
.0015
GDP per cap
.002
.05
.1
OILGDP5
Fitted values
.15
.2
Page | 45
Graphs 5.5: Relationship Between HDI and Independent Variables (No Lag)
.75
.6
.6
.65
.7
HDI
.7
.65
HDI
.75
.8
.8
.01
.02
.03
FDI/GDP
Fitted values
.04
.05
.01
.02
REM/GDP
Fitted values
.025
.03
HDI
.6
.6
.65
.7
.7
HDI
.75
.75
.8
.8
.65
HDI
.015
HDI
.0005
.001
AID/GDP
Fitted values
.0015
HDI
.002
.05
.1
OIL/GDP
Fitted values
.15
.2
HDI
Page | 46
Graphs 5.6: Relationship Between HDI and Independent Variables (1 Year Lag)
.75
.6
.6
.65
.7
HDI
.7
.65
HDI
.75
.8
.8
.01
.02
.03
FDIGDP1
Fitted values
.04
.05
.01
.02
REMGDP1
Fitted values
.025
.03
HDI
.6
.6
.65
.7
.7
HDI
.75
.75
.8
.8
.65
HDI
.015
HDI
.0005
.001
AIDGDP1
Fitted values
.0015
HDI
.002
.05
.1
OILGDP1
Fitted values
.15
.2
HDI
Page | 47
Graphs 5.7: Relationship Between HDI and Independent Variables (3 Year Lag)
.7
HDI
.65
.7
.6
.6
.65
HDI
.75
.75
.8
.8
.01
.02
.03
FDIGDP3
Fitted values
.04
.01
.05
.02
REMGDP3
Fitted values
HDI
.025
.03
HDI
.6
.6
.65
.7
.7
HDI
.75
.75
.8
.8
.65
HDI
.015
.0005
.001
AIDGDP3
Fitted values
.0015
HDI
.002
.05
.1
OILGDP3
Fitted values
.15
.2
HDI
Page | 48
Graphs 5.8: Relationship Between HDI and Independent Variables (5 Year Lag)
.75
.7
HDI
.6
.6
.65
.65
.7
HDI
.75
.8
.8
.01
.02
.03
FDIGDP5
Fitted values
.04
.05
.01
.015
HDI
.02
REMGDP5
Fitted values
.03
HDI
.75
.7
.65
.6
.6
.65
.7
HDI
.75
.8
.8
.025
.0005
.001
AIDGDP5
Fitted values
.0015
HDI
.002
.05
.1
OILGDP5
Fitted values
.15
.2
HDI
Page | 49
Overview of Results
Models 3 & 4: Panel Regressions For Combined Regions Of Mexico (2003-2012, Quarterly)
The results below are from the panel regressions taken for regional development from the first
quarter of 2003 to the final quarter of 2012. Due to the data not being available at this current time,
the HDI & opportunities variables have extrapolated values for all 4 quarters of 2012. The panel
regressions were run using stata and were taken using pooled ordinary least squares instead of the
standard ordinary least squares (OLS) regression because of the mixture of time series and cross
sectional data. The regression was performed using fixed effects as we wanted to evaluate previous
data where fixed effects would be more appropriate compared to random effects used for
forecasting (Andrews et al., 2012).
-.1379252
-.0091234
(.1295119)
(.0065486)
0.287
0.164
Page | 50
REM/GDP
OPP/GDP
DRUGS
MANU
Constant
R2
Observations
-5.573431
-.3639291
(.436649)
(.0219566)
0.000***
0.000***
22.45607
1.105248
(2.254293)
(.1124111)
0.000***
0.000***
.2088757
.0092069
(.0190277)
(.0009616)
0.000***
0.000***
.170477
.0021176
(.1800885)
(.0080391)
0.344
0.792
7.415804
.8222961
(.1593007)
(.0071481)
0.000***
0.000***
0.3123
0.3580
1280
1280
First results indicate Coefficients of our variables, with the second results (in brackets)
indicating standard error of our variables. The third result (labelled with *) indicates the p
values are significant at 90% confidence level, (labelled with **) indicates significance at 95%
confidence level, and (labelled with ***) indicates significance at 99% confidence level.
The accuracy of a model always maintains a great importance in any regression, however for the
panel regressions of models 3 & 4, the r-squared was 31% (0.3123) when regressed against GDP per
capita and 35% (0.3580) when regressed against the Human development index of all Mexican states
combined. Considering the amount of variables and the differences between Mexican states when
using our quarterly data, the results are necessarily terrible but we would expect greater accuracy
from a normal times series or cross sectional analysis. These models was used to chart recent
Mexican development and primarily as a possible comparison for individual states later on, so the rsquared of those individual regressions hold greater significance in our analysis.
Page | 51
The results show that FDI and opportunities aid are both significant when regressed using GDP Per
Capita as the independent variable. FDI has a positive effect on GDP per capita as expected, with a
coefficient of .1388157, so with an increase of one million US dollars in net FDI would lead to a .14
increase in the log of GDP per capita. Opportunities aid on the other hand had a negative effect
with a coefficient of -.620129 which indicates that increases in aid would lead to a decrease of GDP
per capita over time. This result can be explained partly by the calculation used for providing such
aid in the first place, as an area in poverty will be given more aid to improve human capital, whereas
once growth occurs the funding to GDP ratio will decrease and so might the amount of aid given to
a certain state.
When Human Development is used as a dependent variable, we see that three variable are
significant, those of remittances, opportunity aid & our dummy variable for drugs. Remittances are
found to have a negative effect on human development (-.3639291), which contradicts our second
models results. This could mean that remittances have a diminishing effect over time and that our
model from 1983 onwards showed the variable as positively significant due to the stagnation of the
late 1980s where remittances would be a more significant factor to growth and development. It
could also mean that there is evidence that remittances have diminishing returns over time to a point
where it harms productivity and stunts development.
The results for opportunity aid and drugs highlighted a positive effect on human development. This
was to be expected from the opportunity aid programme because it targets those from poor
backgrounds, helping them by providing education and nutrition which would be factored into our
HDI indicator.
Page | 52
both being significant at a 99% level. The national analysis is in line with our hypothesis that
remittances have had a positive effect on GDP per capita and Human development because the
beneficiaries of these payments are those most in need, with a high propensity to consume because
they need to buy essentials such as food instead.
The regional panel analysis suggested that remittances had a negative effect on GDP per capita, a
result which conflicts with our hypothesis and raises questions as to what has change over the course
of the past 30 years to suggest such a trend. Naturally one would jump to the conclusion that the
financial crisis of 2008 caused outliers within our results, and that these discrepancies would become
more obvious in regressions over a shorter period of time. While that may be true, the amount of
remittances entering Mexico did not alter significantly and the trend concerning Mexican growth
rates were only negative between 2008 and the start of 2010.
Model 5: Regional Time Series Regressions For GDP Per Capita (2003-12, Quarterly)
These time series regressions were ran under the same conditions as our original regression using
OLS instead of GLS as there was no fear of heteroskedasticity within our individual state models.
The results were surprising in that the Opportunity aid program was found to have a significant
impact on GDP per capita growth in all but 4 states, indicating that the programme was effective
statistically. While this may be the case, one has to remember that the amounts invested in each
country from the opportunities programme is nominal, normally less than 2% of GDP so it may not
have a significant effect on development in real terms.
The individual regressions were relatively accurate with an average of 75% (0.7522) which was
slightly higher than our original analysis of Mexico (Nationally) in model 1. The results tended to
range from the highs of Guerrero (0.9220) to the lows of Quintana Roo (0.4083) and Sonora
(0.4851). When analysing certain groupings of our results such as the 8 states whose income derives
primarily from services, we found most (with the exception of Quintana Roo) had a high r-squared,
so a greater perceived fit to our model, this is in contrast to the remaining 26 states whose
manufacturing based economies found mixed results.
Page | 53
7.5
8.5
.002
.004
GDPPCap
.006
REM/GDP
.008
.01
Fitted values
The results were somewhat surprising as many states exhibited behaviour which contradicted our
original predictions. Only three states were found to have FDI as a significant factor in GDP per
capita growth, with a handful of others showing p values ranging between 0.054-0.080, indicating
that within some states the variable was bordering upon significance. I believe there are two reasons
for this, firstly being the increase in account manipulation over the past 10 years, with many
companies being able to disguise their accounts, thus showing less direct inflows as time has
progressed, something that has been discussed in great detail in relation to NAFTA by The
second reason is the global financial crisis of 2008 which saw some states have negative net FDI in
the next 6 quarters. Obviously these factors were outside our control but have to be taken into
account when analysing our final results, especially for the major manufacturing economies where
output decreased significantly after the crisis.
One interesting result was the state of Tabasco which demonstrated a statistically significant result
with Remittances having a negative impact on GDP. This could be down to increasing income
inequalities or an increase in the amount one is willing to work for due to the amount of remittances
received, a diminishing return to scale.
Lancaster University Management School
Page | 54
7.2
7
6.8
7.4
-.002
.002
FDI/GDP
GDPPCap
.004
.006
Fitted values
FDI on the other hand was only statistically significant in 3 states when regressed against GDP per
capita, but all were positive results which provided theory that net FDI can be a factor in increased
household incomes.
Page | 55
The state of Tabasco is interesting again in this analysis because both remittances and aid average
around 1-2 % of GDP with FDI averaging around 3%. With all this taken into account, the rsquared still is quite high at .7587, so this could either indicate a problem in our model for certain
types of state economies, or that aid and remittances both have negative effects on the economy.
Discussion of Findings
Upon comparing our regional panel results to our national regressions in chapter 6, one can notice
that remittances are acting differently. This negative trend in recent times is reminiscent of an
inverse demand curve (below) where productivity (a microeconomic driver for GDP) is positively
related to remittances up until a certain point. Once that point is reached, productivity will begin to
decrease.
Page | 56
As you can see, we begin at point A where remittances are helpful and are encouraging productivity
and growth. Then we reach a point where ones benefit from remittances is starting to diminish,
possibly due to an overflow of disposable income available. People have been lifted out of poverty
in this instance but dont appreciate the value of remittances any longer. This isnt necessarily a bad
thing as extra disposable income will see benefit by being pumped back into the Mexican economy.
When looking at our regional results, it becomes obvious that one variable has demonstrated its
significance to both human development and GDP per capita. Opportunity aid was found to be
significant at a 99% level in 29 states for both GDP per capita and HDI. This is further highlighted
by the maps below (Figure 6.4). The striking thought of this result is that the other three states so
no sign of significance, not even at a 90% confidence. These states were not service economies, or
embroiled in drugs conflicts so the only reasoning behind this result is that aid formed a large part
of GDP, which meant it was less likely to be significant in development. We most also note there are
exceptions to these results, an example being the state of Colima which showed aid as highly
significant, even though large amounts of people dont have a basic primary school education.
We must also take caution with these results as an influx of aid might not lead to the same
conclusions as our regression analysis. The Mexican governing body should also use caution when
distributing this aid because a scenario could unfold where this aid is continuously spent in a state
which runs at a high deficit and can never pay back. An example could be Kerala in India where the
same occurrence happened in the 1960s, with government fund being continuously invested in
education without the necessary jobs to take full advantage of this human capital. This would mean
a state with a high HDI but low incomes because workers have to go elsewhere, so the state can
never truly develop.
The results for FDI is poor in truth with only 6 cities showing any sign of significance. This
supports of hypothesis that FDI has been ineffective as a factor for development within Mexico.
The reasons behind this are unclear, although it does raise the question of how Mexico can continue
to squander the gift of NAFTA when they could be utilising FDI to help pull many out of the
poverty trap. Remittances overall were significant to development throughout our study and this is
reflected in Figure 6.3. This result is dubious as we still cannot determine what incomes the families
Lancaster University Management School
Page | 57
who are receiving remittances are currently earning. This means we cannot say for sure that
remittances, along with any other variable, are helping development and the elimination of poverty.
Figure 6.2: Map of FDI confidence levels for different states in Mexico
GDP Per Capita
90% Confidence
95% Confidence
99% Confidence
Figure 6.3: Map of Remittance confidence levels for different states in Mexico
GDP Per Capita
90% Confidence
95% Confidence
99% Confidence
Page | 58
Figure 6.4: Map of opportunity aid confidence levels for different states in Mexico
GDP Per Capita
90% Confidence
95% Confidence
99% Confidence
Page | 59
VI. Appendix
Table 6.1: Time Series Regressions for Individual Mexican States using GDP Per Capita
Model 5
State
VIF
Aguascalientes
FDI/GDP
REM/GDP
AID/GDP
DRUGS
Constant
-.0322354
1.300042
370.5893
6.967354
.6532975
2.806103
57.82559
.1910012
0.961
0.646
0.000***
0.000***
0.8327
-
4.33
-
Baja California
FDI/GDP
REM/GDP
AID/GDP
DRUGS
Constant
-.0806348
13.49374
7.697512
.1272284
7.376226
.4036359
4.60504
46.12504
.0255602
.0537503
0.843
0.006***
0.868
0.000***
0.000***
0.7796
-
1.97
-
Baja California
Sur
FDI/GDP
-.539862
.3297852
0.110
0.4929
1.07
REM/GDP
AID/GDP
DRUGS
Constant
FDI/GDP
REM/GDP
AID/GDP
DRUGS
Constant
FDI/GDP
REM/GDP
AID/GDP
DRUGS
Constant
FDI/GDP
REM/GDP
AID/GDP
DRUGS
Constant
FDI/GDP
REM/GDP
AID/GDP
DRUGS
Constant
FDI/GDP
REM/GDP
AID/GDP
DRUGS
.2374464
267.3326
7.428507
-53.10448
-375.1629
-1285.747
11.05468
1.59139
19.91298
1296.575
7.186702
-.1223928
-2.470858
13.68548
6.781671
-5.614691
.9854881
48.06418
5.854692
-.6010619
17.22099
156.2692
.1660802
23.69323
52.30323
.1621506
16.31722
35.13242
144.217
.1078864
.8829563
8.492279
138.2504
.1094493
2.049975
3.240631
2.62191
.2558704
9.369682
1.169507
6.235715
.1561526
.3323188
3.904363
37.14504
.0269833
0.992
0.000***
0.000***
0.002***
0.000***
0.000***
0.000***
0.080*
0.025**
0.000***
0.000***
0.953
0.451
0.000***
0.000***
0.553
0.405
0.000***
0.000***
0.079*
0.000***
0.000***
0.000***
0.8648
0.7200
0.5891
0.7445
0.8819
-
1.02
1.18
1.39
1.68
1.94
-
Campeche
Coahuila
Colima
Chiapas
Chihuahua
Page | 60
Distrito Federal
Durango
Estado de
Mxico
Guanajuato
Guerrero
Hidalgo
Jalisco
Michoacn
Morelos
Nayarit
Constant
FDI/GDP
REM/GDP
AID/GDP
DRUGS
Constant
FDI/GDP
REM/GDP
AID/GDP
DRUGS
Constant
FDI/GDP
7.068935
.1722834
8.262112
6040.667
7.815955
.1526939
-4.731006
177.2388
6.959868
-.076514
.0744617
.2340385
7.496392
562.5171
.0996289
.2860055
1.65207
14.16105
.0971166
.3586961
0.000***
0.466
0.278
0.000***
0.000***
0.597
0.007***
0.000***
0.000***
0.832
0.8670
0.8699
0.8569
1.91
1.15
1.52
REM/GDP
AID/GDP
DRUGS
Constant
FDI/GDP
REM/GDP
AID/GDP
DRUGS
Constant
FDI/GDP
REM/GDP
AID/GDP
DRUGS
Constant
FDI/GDP
REM/GDP
AID/GDP
DRUGS
Constant
FDI/GDP
REM/GDP
AID/GDP
DRUGS
Constant
FDI/GDP
REM/GDP
AID/GDP
DRUGS
Constant
FDI/GDP
REM/GDP
AID/GDP
DRUGS
Constant
FDI/GDP
REM/GDP
AID/GDP
DRUGS
1.743725
765.1622
5.900495
-.562585
-.0121943
162.898
6.503032
.0934523
1.744943
54.55699
.1232776
6.148249
25.11969
-.6651964
107.7622
6.574347
-.7340517
3.698378
158.1313
6.801841
-.0284629
-1.916359
17.75055
.2548311
7.058043
.4304866
3.907992
151.8377
6.337975
-1.905587
-.1206634
208.5388
-
2.653504
67.50014
.1577979
1.188757
1.376356
21.07675
.1807446
1.45399
.5778335
7.313551
.023008
.1033243
11.68029
1.315296
16.44915
.1705672
.4191852
2.099887
11.00667
.1073849
.2967891
.9443602
19.18537
.0491402
.1598636
.2256071
1.180634
12.30403
.1081984
1.862226
2.623381
52.62434
-
0.515
0.000***
0.000***
0.639
0.993
0.000***
0.000***
0.949
0.005***
0.000***
0.000***
0.000***
0.038**
0.616
0.000***
0.000***
0.088
0.087**
0.000***
0.000***
0.924
0.050**
0.361
0.000***
0.000***
0.064*
0.002***
0.000***
0.000***
0.313
0.964
0.000***
-
0.7230
0.9220
0.7543
0.9104
0.8123
0.8220
0.5835
-
1.38
2.49
1.75
1.73
2.12
1.30
1.97
-
Page | 61
Nuevo Len
Oaxaca
Puebla
Quertaro
Quintana Roo
Sinaloa
Sonora
Tabasco
Tamaulipas
Constant
FDI/GDP
REM/GDP
AID/GDP
DRUGS
Constant
FDI/GDP
REM/GDP
AID/GDP
DRUGS
Constant
FDI/GDP
REM/GDP
AID/GDP
DRUGS
Constant
FDI/GDP
REM/GDP
AID/GDP
DRUGS
Constant
FDI/GDP
REM/GDP
AID/GDP
DRUGS
Constant
FDI/GDP
REM/GDP
AID/GDP
DRUGS
Constant
FDI/GDP
REM/GDP
AID/GDP
DRUGS
Constant
FDI/GDP
REM/GDP
AID/GDP
DRUGS
Constant
FDI/GDP
REM/GDP
AID/GDP
DRUGS
Constant
FDI/GDP
REM/GDP
AID/GDP
DRUGS
Constant
6.12579
-.3465224
23.13848
1033.203
.1799986
7.635261
38.07071
2.750189
7.973019
5.192358
.2038838
.5548598
81.78498
6.491127
5.156939
-17.13629
-94.89465
8.346145
.878483
-18.75861
127.4324
7.669643
.7295155
6.144005
208.4831
5.675681
5.930816
-2.004519
198.7549
.1847469
6.495934
-.8163522
11.01587
839.8402
6.223908
-7.523127
-106.185
-469.6861
10.18256
-2.191964
9.195909
2.943603
.1959378
7.411064
.4101828
.1854574
12.58286
179.5786
.0331439
.0922439
19.96285
1.538518
1.270442
.3183429
.2931132
1.508434
6.101468
.101767
1.971196
3.532825
99.58735
.3275878
.6850524
14.52759
40.09513
.1774364
1.047956
2.69537
21.3283
.2277278
4.283649
2.757853
28.33008
.0295268
.1539627
1.124149
9.731232
170.5902
.327029
6.917142
14.0759
95.3037
.3063416
2.059782
4.348489
3.554735
.0303003
.085145
0.000***
0.070*
0.074*
0.000***
0.000***
0.000***
0.065*
0.082*
0.000***
0.000***
0.491
0.715
0.000***
0.000***
0.013**
0.000***
0.347
0.000***
0.208
0.205
0.003*
0.000***
0.491
0.029**
0.000***
0.000***
0.175
0.472
0.000***
0.000***
0.000***
0.472
0.265
0.000***
0.000***
0.284
0.000***
0.000***
0.000***
0.295
0.042**
0.413
0.000***
0.000***
0.8940
0.5725
0.8587
0.5943
0.4083
0.7505
0.9231
0.4051
0.7587
0.7758
-
2.19
1.33
1.18
1.72
1.53
1.29
2.01
1.13
1.11
1.87
Page | 62
Tlaxcala
Veracruz
Yucatn
Zacatecas
FDI/GDP
REM/GDP
AID/GDP
DRUGS
Constant
FDI/GDP
REM/GDP
AID/GDP
DRUGS
Constant
FDI/GDP
REM/GDP
AID/GDP
DRUGS
Constant
FDI/GDP
REM/GDP
AID/GDP
DRUGS
Constant
.1097984
.6839461
47.54334
6.55333
-.3684609
5.446016
23.62958
5.117013
2.947038
32.66333
205.53127
5.78895
.2054724
-3.345046
-388.3293
10.43118
.7480525
.9523919
4.744049
.0733485
5.123888
4.055321
4.193741
.4640648
3.724659
8.610387
17.23948
.1614404
.1545721
1.220479
53.03125
.3474496
0.884
0.477
0.000***
0.000***
0.943
0.188
0.000***
0.000***
0.434
0.001***
0.000***
0.000***
0.192
0.009***
0.000***
0.000***
0.7656
0.6920
0.8028
0.8433
-
1.15
2.97
1.20
1.78
-
Page | 63
Table 6.2: Time Series Regressions for Individual Mexican States using HDI
Model 6
State
VIF
Aguascalientes
FDI/GDP
REM/GDP
AID/GDP
DRUGS
Constant
-.0464843
.173312
19.95501
.80786
.0347346
.1491953
3.074481
.0101552
0.189
0.253
0.000***
0.000***
0.9291
-
4.33
-
Baja California
FDI/GDP
REM/GDP
AID/GDP
DRUGS
Constant
.0137765
.9886432
-3.310631
.0014256
.839007
.0171781
.1959834
1.96301
.0010878
.0022875
0.428
0.000***
0.101
0.199
0.000***
0.5703
-
1.97
-
Baja California
Sur
FDI/GDP
-.0223379
.0141517
0.123
0.8611
1.07
REM/GDP
AID/GDP
DRUGS
Constant
FDI/GDP
REM/GDP
AID/GDP
DRUGS
Constant
FDI/GDP
REM/GDP
AID/GDP
DRUGS
Constant
FDI/GDP
REM/GDP
AID/GDP
DRUGS
Constant
FDI/GDP
REM/GDP
AID/GDP
DRUGS
Constant
FDI/GDP
REM/GDP
AID/GDP
DRUGS
Constant
FDI/GDP
REM/GDP
1.418911
31.67066
.8163632
2.318403
16.50562
-2.984522
.8113138
.0349991
.8621006
56.94151
1.016723
2.244435
.0069582
.90238
1.942904
7.975532
.0059664
.032657
.3140957
5.113334
0.171
0.000***
0.000***
0.014**
0.000***
0.710
0.000***
0.291
0.009***
0.000***
.8225708
-.0240385
-.2603094
0.506109
.806641
.0799728
.0286626
2.898547
.6830201
-.0264192
1.116712
8.473192
.0058018
.8245351
.0054906
.1875781
.0040481
.0913835
.1444604
0.116879
.0114062
.497327
.0620755
0.330981
.0082883
.0199524
.2344183
2.230192
.0016201
.0044707
.0112997
.361935
0.000***
0.794
0.080*
0.000***
0.000***
0.873
0.647
0.000***
0.000***
0.194
0.000***
0.001***
0.001***
0.000***
0.630
0.607
0.6879
0.7824
0.5797
0.7997
0.7985
0.8953
-
1.02
1.18
1.39
1.68
1.94
1.91
-
Campeche
Coahuila
Colima
Chiapas
Chihuahua
Distrito Federal
Page | 64
Durango
Estado de
Mxico
Guanajuato
Guerrero
Hidalgo
Jalisco
Michoacn
Morelos
Nayarit
Nuevo Len
AID/GDP
DRUGS
Constant
FDI/GDP
REM/GDP
AID/GDP
DRUGS
Constant
FDI/GDP
319.199
.8894049
.0065299
-.1463213
8.092223
27.15902
.0048102
.0089329
.0515996
0.442297
0.000***
0.000***
0.470
0.007***
0.000***
.7970187
-.0149567
.0030333
.0192495
REM/GDP
AID/GDP
DRUGS
Constant
FDI/GDP
REM/GDP
AID/GDP
DRUGS
Constant
FDI/GDP
REM/GDP
AID/GDP
DRUGS
Constant
FDI/GDP
REM/GDP
AID/GDP
DRUGS
Constant
FDI/GDP
REM/GDP
AID/GDP
DRUGS
Constant
FDI/GDP
REM/GDP
AID/GDP
DRUGS
Constant
FDI/GDP
REM/GDP
AID/GDP
DRUGS
Constant
FDI/GDP
REM/GDP
AID/GDP
DRUGS
Constant
FDI/GDP
REM/GDP
.1277119
34.84336
.7536644
-.0426329
-.079865
12.43905
.7405488
-.0481661
-.0075547
3.921322
.0045688
.7204557
.896292
-.0952214
5.601221
.7613161
-.013591
.0287066
8.32945
.7923585
-.0032795
-.1779326
-2.215006
.0094655
.8069663
.0297055
.2324545
11.11538
.7611385
-.0663824
-.2629048
16.03505
.7377308
-.0125383
-.0317009
.142401
3.622413
.0084683
.0489146
.0566339
0.86726
.0074372
.0835927
.0332208
0.42047
.0013228
.0059403
.3806544
.0428648
0.536069
.0055587
.0237365
.1189066
0.623256
.0060807
.0153937
.0489817
0.995099
.0025488
.0082917
.0189533
.0991852
1.033663
.0090898
.0931161
.1311758
2.631351
.0205102
.0099208
.6731041
0.000***
0.442
0.9298
0.8092
1.15
1.52
0.376
0.000***
0.000***
0.389
0.167
0.000***
0.000***
0.568
0.821
0.000***
0.001***
0.000***
0.024**
0.033**
0.000***
0.000***
0.570
0.811
0.000***
0.000***
0.833
0.001***
0.033**
0.001***
0.000***
0.126
0.025**
0.000***
0.000***
0.481
0.053*
0.000***
0.000***
0.215
0.963
0.9096
0.9418
0.9009
0.9101
0.8220
0.7845
0.8055
0.9054
-
1.38
2.49
1.75
1.73
2.12
1.30
1.97
2.12
Page | 65
Oaxaca
Puebla
Quertaro
Quintana Roo
Sinaloa
Sonora
Tabasco
Tamaulipas
Tlaxcala
AID/GDP
DRUGS
Constant
FDI/GDP
REM/GDP
AID/GDP
DRUGS
Constant
FDI/GDP
REM/GDP
AID/GDP
DRUGS
Constant
FDI/GDP
REM/GDP
AID/GDP
DRUGS
Constant
FDI/GDP
REM/GDP
AID/GDP
DRUGS
Constant
FDI/GDP
REM/GDP
AID/GDP
DRUGS
Constant
FDI/GDP
REM/GDP
AID/GDP
DRUGS
Constant
FDI/GDP
REM/GDP
AID/GDP
DRUGS
Constant
FDI/GDP
REM/GDP
AID/GDP
DRUGS
Constant
FDI/GDP
REM/GDP
AID/GDP
DRUGS
Constant
FDI/GDP
REM/GDP
AID/GDP
74.69602
.0056591
.8466771
1.657442
.1352867
4.391635
.6691053
.0126111
-.0638152
4.677738
.7632081
.2098955
-1.046266
-7.168741
.8796754
.058809
-.0736328
6.800038
.8287121
.0416707
.1974714
9.731416
.7320315
.3275129
-.1093347
14.11641
.0059238
.7574942
-.0527379
.5969762
41.22219
.7780361
-.223461
-4.312526
-7.850829
.8548208
-.0330059
.4176732
6.791915
.0058302
.818677
.0119566
.0856839
2.804318
9.606334
.001773
.0049345
1.080661
.0832855
0.687736
.017233
.0157665
.0811382
0.328196
.005474
.1134884
.2033966
5.733578
.0188603
.0264289
.5604656
1.546846
.0068454
.0450704
.1159223
0.917286
.0097941
.2171648
.1398128
1.436228
.0014969
.0078053
.0531377
.4599883
8.063675
.0154584
.2355446
.4793168
3.24531
.0104316
.0849435
.1793276
1.465939
.0012496
.0035113
.0287634
.0366205
0.182414
0.000***
0.003***
0.000***
0.134
0.113
0.000***
0.000***
0.429
0.437
0.000***
0.000***
0.073*
0.000***
0.219
0.000***
0.032**
0.896
0.000***
0.000***
0.361
0.097*
0.000***
0.000***
0.140
0.439
0.000***
0.000***
0.000***
0.328
0.203
0.000***
0.000***
0.349
0.000***
0.021***
0.000***
0.700
0.026**
0.000***
0.000***
0.000***
0.680
0.025**
0.000***
0.5787
0.8796
0.5684
0.4600
0.7900
0.9315
0.4226
0.7634
0.8196
0.8819
-
1.33
1.18
1.72
1.53
1.29
2.01
1.13
1.11
1.87
1.15
Page | 66
Veracruz
Yucatn
Zacatecas
DRUGS
Constant
FDI/GDP
REM/GDP
AID/GDP
DRUGS
Constant
FDI/GDP
REM/GDP
AID/GDP
DRUGS
Constant
FDI/GDP
REM/GDP
AID/GDP
DRUGS
Constant
.7689315
-.1271933
.0251829
9.112936
.7063402
.1152872
1.13162
10.59421
.0028203
.1824161
.1443739
1.493018
.0165212
.1903758
.4400964
0.881149
0.000***
0.490
0.863
0.000***
0.000***
0.549
0.014**
0.000***
.7317256
.0085237
-.2206787
-16.51617
.948319
.0082516
.0077841
.061462
2.670595
.0174972
0.000***
0.281
0.001***
0.000***
0.000***
0.7967
0.8139
0.8319
-
2.97
1.20
1.78
-
Page | 67
VII. CONCLUSIONS
At the beginning of this paper we discussed our objective as determining the significance of FDI,
remittances and aid within Mexico. We believed that remittances would be a more effective
method of development within Mexico because the money went directly to the families of the
poor without any criteria (such as education) needed to be a receiver of remittances. This was in
contrast to FDI which only developed infrastructure in urban areas and provided jobs to those
already educated, so it was useless for those who were stuck in the poverty trap. Aid was also
discussed but dismissed as too small to be statistically significant.
Our hypothesis was
(1)
We believe that FDI has been ineffective in aiding Mexican development, and any
significant windfalls of FDI have been wasted, with diaspora remittances being a more effective
way of reducing poverty within the region and helping to improve development within Mexico
because it reaches those who need it most.
(2)
NAFTA has not had a significant effect on the Mexican economy in terms of
development and growth, with growth rates being negligible for a developing economy since
1994. This assumption is made on the basis of FDI not being significant on development in
Mexico
(3)
Aid will also be insignificant although it will demonstrate a positive relationship with
GDP and human development. This will become more evident in our regional analysis where
opportunity aid only accounts for a small percentage of GDP.
Our tests showed that FDI was mostly insignificant at any confidence level over the course of the
national and regional regressions. We put this factor down to FDI being a net figure which means
it accounts for fund that are taken out of Mexico too. We found that remittances were more
significant, proving our hypothesis that remittances had a greater significance on development.
The only other question concerning remittances was the negative correlation when quarterly data
was used from 2003-2012. This suggests that remittances might be increasing inequalities within
the country or that a mass influx of remittances have left some with large disposable income
which means they dont have to work, and thus lowers state output.
Lancaster University Management School
Page | 68
When we delve deeper into the different regions of Mexico, we find that Aid is the only factor
that is helping development almost universally throughout the country. Remittances and FDI are
for the most part insignificant, except for our panel regressions which show Remittances as
significant and having a negative impact on GDP per capita, contradicting our first regression.
Opportunaties aid perform well in our regressions but this should not be a basis for increased
investment as spending money on non-tradable goods whilst there arent jobs available for
skilled labour could lead to the forming of dutch disease, like Kerala which we mentioned
earlier.
Other factors such as Oil and manufacturing sectors were not that important overall with our
variable for drug inflicted states defying our hypothesis and having a positive effect on Human
development. One accounts this down to natural progression over time and we believe that a
regression without drug war inflicted states would show even greater signs of development.
NAFTA itself was significant at a 95% level and then 90% for our National regression with a one
year lag. This again gives us an indicator that NAFTA might be significant to growth but it
doesnt prove anything, all it does it demonstrate that we CANNOT discount NAFTA as a
significant variable. The lagged models on a whole demonstrated that the peak time for
remittances and FDI to be significant was three years, although there was a worry of over-fitting
within our model, so further test may be needed on another country to prove its credentials.
It is important to remember that this study was only a brief overview into FDI, remittances &
aid, with there still being a lot of unanswered questions. It is clear there is a need for more
research, as we have seen instances such as the negative impact of remittances on GDP per capita
where only theory and not empirics could indicate that there was a point where the marginal
utility of remittances becomes negative. That is why a future study should look less into the
empirical analysis and more on theoretical steps to explaining Mexicos development issues.
Page | 69
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Page | 75
IX. APPENDIX
Graph 10.1.1: FDI, Remittances & Opportunity Aid as a percentage of GDP for
Aguascalientes
Graph 10.1.2: FDI, Remittances & Opportunity Aid as a percentage of GDP for Baja
California
Page | 76
Graph 10.1.3: FDI, Remittances & Opportunity Aid as a percentage of GDP for Baja
California Sur
Graph 10.1.4: FDI, Remittances & Opportunity Aid as a percentage of GDP for Campeche
Page | 77
Graph 10.1.5: FDI, Remittances & Opportunity Aid as a percentage of GDP for Coahuila
Graph 10.1.6: FDI, Remittances & Opportunity Aid as a percentage of GDP for Colima
Page | 78
Graph 10.1.7: FDI, Remittances & Opportunity Aid as a percentage of GDP for Chiapas
Graph 10.1.8: FDI, Remittances & Opportunity Aid as a percentage of GDP for
Chihuahua
Page | 79
Graph 10.1.9: FDI, Remittances & Opportunity Aid as a percentage of GDP for Mexico,
D.F.
Graph 10.1.10: FDI, Remittances & Opportunity Aid as a percentage of GDP for Durango
Page | 80
Graph 10.1.11: FDI, Remittances & Opportunity Aid as a percentage of GDP for Estado
de Mexico
Graph 10.1.12: FDI, Remittances & Opportunity Aid as a percentage of GDP for
Guanajuato
Page | 81
Graph 10.1.13: FDI, Remittances & Opportunity Aid as a percentage of GDP for Guerrero
Graph 10.1.14: FDI, Remittances & Opportunity Aid as a percentage of GDP for Hidalgo
Graph 10.1.15: FDI, Remittances & Opportunity Aid as a percentage of GDP for Jalisco
Lancaster University Management School
Page | 82
Graph 10.1.16: FDI, Remittances & Opportunity Aid as a percentage of GDP for
Michoacan
Graph 10.1.17: FDI, Remittances & Opportunity Aid as a percentage of GDP for Morelos
Lancaster University Management School
Page | 83
Graph 10.1.18: FDI, Remittances & Opportunity Aid as a percentage of GDP for Nayarit
Page | 84
Graph 10.1.19: FDI, Remittances & Opportunity Aid as a percentage of GDP for Nuevo
Leon
Graph 10.1.20: FDI, Remittances & Opportunity Aid as a percentage of GDP for Oaxaca
Graph 10.1.21: FDI, Remittances & Opportunity Aid as a percentage of GDP for Puebla
Lancaster University Management School
Page | 85
Graph 10.1.22: FDI, Remittances & Opportunity Aid as a percentage of GDP for
Queretaro
Graph 10.1.23: FDI, Remittances & Opportunity Aid as a percentage of GDP for Quintana
Lancaster University Management School
Page | 86
Roo
Graph 10.1.24: FDI, Remittances & Opportunity Aid as a percentage of GDP for San Luis
Potosi
Graph 10.1.25: FDI, Remittances & Opportunity Aid as a percentage of GDP for Sinaloa
Page | 87
Graph 10.1.26: FDI, Remittances & Opportunity Aid as a percentage of GDP for Sonora
Page | 88
Graph 10.1.27: FDI, Remittances & Opportunity Aid as a percentage of GDP for Tabasco
Graph 10.1.28: FDI, Remittances & Opportunity Aid as a percentage of GDP for
Tamaulipas
Graph 10.1.29: FDI, Remittances & Opportunity Aid as a percentage of GDP for Tlaxcala
Page | 89
Graph 10.1.30: FDI, Remittances & Opportunity Aid as a percentage of GDP for Veracruz
Graph 10.1.31: FDI, Remittances & Opportunity Aid as a percentage of GDP for Yucatan
Page | 90
Graph 10.1.32: FDI, Remittances & Opportunity Aid as a percentage of GDP for
Zacatecas
Page | 91