Mexico’s Finance-Growth Nexus with Trade Openness, FDI and Portfolio Investment
This paper investigates the causal linkage between financial development and economic growth for Mexico by controlling for the “globalization” variables of trade openness, foreign direct investment (FDI)and portfolio investment together with the structural break dummy. Financial development is proxied by two indicators of size and efficiency. Using the data sets from 1970 to 2016, we conduct the cointegration and Granger causality tests―in the framework of the vector error correction model (VECM)―and detect that financial size is positive for economic growth with no feedback, whereas financial efficiency and economic growth are in a negative bilateral relationship. A country-specific analysis is appropriate to empirically look at the issues of the finance-growth which is largely determined by the nature of institutions and policies pursued by each country.
Keywords - Finance-growth nexus, Globalization, Cointegration, Mexico