Contribution of Foreign Direct Investment to Mexico’s Economic Growth during NAFTA Years (1994 -2019)

This paper analyses the impact of foreign direct investment on labor productivity for the period 1994-2019 in Mexico. It proposes a production process with labor and three types of capital: private national, public national and foreign, and uses a human capital index, which we estimate through a vector error correction model. The estimation finds a long-run joint positive causality for the three types of capital on labor productivity. The contribution of private capital to economic growth is 2.6 times greater than that of foreign capital. If we add private and government capital, the contribution of national capital to economic growth is 3.2 times greater than that of foreign capital. The different contributions to growth of the three types of capital suggest the need for a change of strategy to one that relies less on FDI, and focuses more on domestic producers, making them more competitive and stimulating local private investment.