MEXICO INVESTMENT COLLAPSE - DEBT OR OIL

This paper tests three explanations for Mexico's investment collapse i n the early 1980s: the oil price decline, the termination of capital i nflows, and debt-overhang/uncertainty effects, using previously ignore d investment data on private sector industries. The data consistently point to the importance of the rise in the relative price of investmen t goods, driven in large part by falling world oil prices, but the dat a also allow a role for the termination of capital inflows. However, a fter controlling for these effects, the paper finds little evidence fo r debt overhang effects, heightened uncertainty, or other commonly cit ed explanations in the literature.