Mexico's investment collapse: debt or oil?

Potential causes for the investment collapse experienced by Mexico during the early 1980s were examined using data from a sector-level investment survey conducted between 1981 and 1985. Results gave little support to the role of debt-overhang or uncertainty effects. Instead, evidence was obtained supporting the possible roles of factors underemphasized by previous studies. These include the increase in the relative prices of investment goods, mainly machinery caused by declining oil prices worldwide, the drop in Mexico's international terms of trade and and the reversal of net capital inflows to Mexico.