Did the debt crisis or declining oil prices cause Mexico's investment collapse?

| Policy Rerch v4Ps ) 2 WORKING PAPERS Intemational Economic Analysis and Prospect. International Economics Department The World Bank February 1993 VPS 1102 Did the Debt Crisis or Declining Oil Prices Cause Mexico's Investment Collapse? Andrew M. Warner Commodity price shocks (such as the decline in oil prices) have been underestimated as a direct cause of declining investment in the 1980s. Pol;cyRceachWoikingPapedisunatedfindinpge cawoinpp aDdcnoouagetheexchangeofideasamogBankasuffand othaes intiebred in tevelopBnkirssuLadoecpctobutedbytheRes adaAdvistor Stafficanythennnesofotheauthors.f:crt adlytheirviews,andshoWdbeuy and itedacoorndingly.Thefindings.intiptons,atdcwlsi rteathciors'own.Thcyshoald not be anuted to the Wodd BaEn, its Board of Dixm, its mmagaentn, or cany of its member countries.  Policy Re rc ~~~~~~~~~~~~~~- ' htondloc Prospok y WPS 1102 This paper - a product of the Intemational Economic Analysis and Prospects Division, Intemational Economics Department - is part of a larger effort in the department to examine the impact of extemal shocks on low and middle-income countries. Copies of the paper are available free from the World Bank, 1818 H Street NW, Washington, DC 20433. Please contact Mila Divino, room S8-013, extension 33739 (February 1993, 31 pages). Wamer proposes and estimates a microeconomic The decline in Mexico's international terms investment model to determine the relative of trade was probably the most important ulti- importance of three explanations for Mexico's mate cause of the increased relative cost of investment decline in the early 1980s: machinery, but the reversal in net capital inflows to Mexico probably also played a role in increas-