Total factor productivity (TFP) falls markedly during financial crises, as we document with recent evidence from Mexico and Asia. These falls are unusual in magnitude and present a difficult challenge for the standard small open economy neoclassical model. We show in the case of Mexico’s...

We account for the appreciation of the real exchange rate in Mexico between 1988 and 2002 using a two sector dynamic general equilibrium model of a small open economy with two driving forces: (i) differential productivity growth across sectors and (ii) a decline in the cost of borrowing in...

In recent research on financial crises, large exogenous shocks to total factor productivity (TFP) are used as the driving force accounting for large output falls. TFP fell 3% after the Korean 1997 financial crisis. We find evidence that the large fall in TFP is mostly due to a sectoral...

Total factor productivity (TFP) falls markedly during financial crises, as we document with recent evidence from Latin America and Asia. We study the ability of various versions of the small open economy neoclassical growth model to account for the behavior of inputs, output, and aggregate...

The standard argument says that in the presence of positive spillovers foreign direct investment should be promoted and subsidized. In contrast, this paper claims that the very existence of spillovers may require temporarily restricting FDI. Our argument is based on two features of spillovers:...

We study the relation between credit conditions, misallocation of resources, and total factor productivity (TFP) using sectoral data from Mexican manufacturing industries between 2003 and 2010. Our analysis uses a theory-based framework to account for TFP changes in the Mexican manufacturing...

In 1950 Mexico entered an economic takeoff and grew rapidly for more than 30 years. Growth stopped during the crises of 1982-1995, despite major reforms, including liberalization of foreign trade and investment. Since then growth has been modest. We analyze the economic history of Mexico...

The last twenty years have witnessed periods of sustained appreciations of the real exchange rate in emerging economies. The case of Mexico between 1988 and 2002 is representative of several episodes in Latin America and Central and Eastern Europe in which countries opening to capital flows...

We study the relation between misallocation of resources, TFP and credit conditions using sectoral data from Mexican manufacturing industries between 2003 and 2010. We use a theory-based framework to account for TFP changes in the Mexican manufacturing sector due to changes in distortions in the...