Savings-investment dynamics in Mexico

This study examines the savings-investment relationship and the adjustment of the current account for Mexico over the period 1960-2002. Though savings and investment are cointegrated, the error correction model exhibits structural instability with the onset of the LDC debt crisis in the early 1980s. The inclusion of interactive dummy variables reveals that the current period-pass through of savings to investment is negative and statistically significant in the post-1982 period. This result parallels the results reported by Dooley, M., Frankel, J., & Mathieson, D. J. (1987). International capital mobility: What do saving-investment correlations tell us? IMF Staff Papers, 34, 503-530 and Jansen, W. J., & Schulze, G. G. (1996). Theory-based measurements of the saving-investment correlation with an application to Norway. Economic Inquiry, 34(1), 116-132.