Financial Liberalization, Credit Constraints, and Collateral: Investment in the Mexican Manufacturing Sector

41 Pages Posted: 3 May 1999

See all articles by Gaston Gelos

Gaston Gelos

International Monetary Fund

Alejandro M. Werner

International Monetary Fund (IMF)

Multiple version iconThere are 2 versions of this paper

Date Written: March 1999

Abstract

This paper examines the impact of financial liberalization on fixed investment in Mexico, using establishment-level data from the manufacturing sector. It analyzes changes in cash-flow sensitivities and uses an innovative approach to explore the role of real estate as collateral and deal with a potential censoring problem. The results suggest that financial constraints were eased for small firms but not for large ones. However, banks' reliance on collateral in their lending operations increased the importance of real estate. The results provide microeconomic evidence consistent with the role attributed to financial accelerator mechanisms during lending booms and during recessions that stem from financal crises.

Keywords: investment, financial constraints, collateral, real estate, lending booms, panel data, fixed-effects tobit

JEL Classification: E44, E22, G14, O16

Suggested Citation

Gelos, R. Gaston and Werner, Alejandro M., Financial Liberalization, Credit Constraints, and Collateral: Investment in the Mexican Manufacturing Sector (March 1999). IMF Working Paper No. 99/25, Available at SSRN: https://ssrn.com/abstract=157910

R. Gaston Gelos (Contact Author)

International Monetary Fund ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Alejandro M. Werner

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

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