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

We examine the impact of financial liberalization on fixed investment in Mexico using establishment-level data from the manufacturing sector. In addition to analyzing changes in cash-flow sensitivities, an innovative approach explores the role of real estate as collateral and addresses a potential censoring problem. The results suggest that financial constraints were eased for the smallest firms, but not for larger ones. However, the importance of real estate as collateral increased, given banks' reliance on collateral in their lending. The results also provide microeconomic evidence consistent with the role attributed to "financial accelerator" mechanisms during lending booms and post-crisis recessions