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

Author/Editor:

Gaston Gelos ; Alejandro M. Werner

Publication Date:

March 1, 1999

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

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 financial crises.

Series:

Working Paper No. 1999/025

Subject:

Collateral Credit Currencies Econometric analysis Estimation techniques Financial crises Financial institutions Money

English

Publication Date:

March 1, 1999

ISBN/ISSN:

9781451844245/1018-5941

Stock No:

WPIEA0251999

Pages:

41

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