Equity Valuation and Current Cost Disclosures: the Case of Mexico

This study uses an accounting-based valuation model to investigate the relation between the market value of publicly traded Mexican firms and their disclosures of price-level adjusted accounting information. The model is estimated on a sample of Mexican companies during 1987–1990, when annual inflation rates in Mexico decreased from 130 per cent to 20 per cent. The results indicate that general price level-adjusted and current cost disclosures explain a significant portion of the cross-sectional variation in the market-to-book ratios of the sample firms. Further, the explanatory power of holding gains is robust to decreases in the general level of inflation, which suggests that current cost and constant peso disclosures are relevant for determining firm value over a wide range of inflation rates. These results are particularly important now since the Mexican Institute of CPAs has proposed eliminating the measurement of holding gains in order to make Mexican financial statements more comparable to US and Canadian GAAP.     

Crucial exchange rate parity. Evidence for Mexico

Through a structural vector error correction model, one restricted cointegrating relationship for monthly data (1999.01–2012.04) was found between three exchange parities of great relevance for the Mexican economy: US Dollar–Euro, Mexican Peso–US Dollar, and Mexican Peso–Euro. The data's structure revealed endogeneity of the last one, but the first is the one that adjusts the long run (cointegrating) relation. A unitary elasticity of MxP–Euro parity to the other two parities was found, which validates PPP condition in absolute terms. These results are crucial to analyze the possible long run exchange effects on the Mexican real and financial variables because of the possible intensification of the Euro crisis and the currency war.     

The weak linkages between processing exports and the internal economy. The Mexican case

The aim of this paper is to show the internal linkages of manufacturing exports and the rest of the economy. We take the Mexican economy as the case of study. Manufacturing exports constitute the most of exports and processing exports (maquiladora) represent an important part of them. We consider the indirect domestic value added contained in Mexican manufacturing exports, dividing them into exports from the internal economy and the maquiladora industry. We show that the internal backward linkages of exports are weak, that only a few sectors produce inputs for exports, and that the forward linkages are weak too because the Mexican maquiladora industry assembles imported parts and components into final goods for export. The actual picture is quite different from that presented by Hirschman [(1958) The Strategy of Economic Development. New Haven, Yale University Press], who argued that the manufacturing sector plays a key role to promote economic growth because of its dense forward and backward internal linkages.     

Regional foreclosures and Mexican remittances: Evidence from the housing market crisis

This study investigates the extent to which Mexican workers’ remittances are affected from the recent housing market decline in the United States. Results from a multivariate model reveal that an increase in the national U.S. foreclosure rate has a negative and statistically significant impact on Mexican remittances. At the regional level, foreclosure rates of the South and the West have a significant impact on workers’ remittances in the same negative direction. However, foreclosure rates from the North Central and East Central regions do not appear to have this statistically significant impact. Lastly, in contrast to previous results in the literature, real exchange rate movements and Mexican remittances seem to be insensitive to one another once the housing market is accounted for in the analysis.     

ASSESSING THE IMPACT OF THE MAQUILADORA INDUSTRY IN MEXICO: AN INTERINDUSTRY ANALYSIS

Maquiladora industries, composed of assembly plants, play a central role in Mexico's development strategy. The author establishes that current low usage of domestic inputs by the maquiladora industries prevents Mexico from enginning the rest of the economy through secondary impacts to expand the national market. Furthermore, the economy is also affected, through diminished domestic linkages, from increasing the value added in Mexico and tax collection. An interindustry input-output model for the Mexican economy with emphasis on the maquiladora industries was developed. Among the findings, it is stressed that input purchases linkages are more effective than worker spending as a way to generate secondary output, income and jobs. This implies that increasing domestic input purchases by maquiladora industries could represent important potential advantages for the Mexican economy.     

Restricted forecasting with VAR models: An analysis of a test for joint compatibility between restrictions and forecasts

A restricted forecasting compatibility test for Vector Autoregressive Error Correction models is analyzed in this work. It is shown that a variance–covariance matrix associated with the restrictions can be used to cancel out model dynamics and interactions between restrictions. This allows us to interpret the joint compatibility test as a composition of the corresponding single restriction compatibility tests. These tests are useful for appreciating the contribution of each and every restriction to the joint compatibility between the whole set of restrictions and the unrestricted forecasts. An estimated process adjustment for the test is derived and the resulting feasible joint compatibility test turns out to have better performance than the original one. An empirical illustration of the usefulness of the proposed test makes use of Mexican macroeconomic data and the targets proposed by the Mexican Government for the year 2003.     

Comprehensive Protection,Winners and Losers: A Sectoral Analysis of the Mexican Economy 1970–87

Sectors that have the highest effective protection index should have a greater advantage within an economy than those that have lower index values, and should be the likely winners over a period of years. However, this proposition may not hold, as a result of limitations in the indexes' construction, namely, not considering imperfect structures, the inclusion of non-tradables and intersectoral simultaneity. To overcome these limita-tions, a comprehensive protection (CP) index is proposed. It is based on the Leontief model to calculate market prices and uses a class of equilibrium price models developed on labor value theories. The CP index is then used in a sectoral analysis of the Mexican economy to estimate which sectors are likely to have been winners and which losers. The results of the analysis showed consistency with the instrumentation of the Mexican economic policy. The study concludes that the index formulated here is both theoretically and empirically superior to alternative protection indexes.     

International synchronization of the Mexican states business cycles: Explaining factors

The aim of this paper is to identify the explaining factors of the synchronization of the business cycles of the Mexican states and those of the US economy. The cycle indicator is obtained by de-trending the series of total formal employment (Mexican states) and nonfarm employment and industrial production (US). In general, our panel data model estimations suggest the existence of spatial autocorrelation and significant time-period fixed effects. Also, the estimates indicate a significant and positive effect of the ratio of foreign direct investment to gross domestic product (GDP), which may be supplementing the impact of international trade (driven by the most internationally integrated states) and a negative effect of the ratio of remittances to GDP (driven by less integrated states). Finally, the evidence suggests that more similar productive structures yield more synchronized business cycles.     

DO WATER-RICH REGIONS HAVE A COMPARATIVE ADVANTAGE IN FOOD PRODUCTION? IMPROVING THE REPRESENTATION OF WATER FOR AGRICULTURE IN ECONOMIC MODELS

With growing demand for fresh water and uncertain supplies, there is an increasing concern about future water scarcity. Since most freshwater withdrawals are for agriculture, reliance on water embodied in imported food (trade in ‘virtual water’) is a possible strategy to provide food to water-stressed regions while conserving their scarce supply for other purposes. To evaluate this proposition, we extend a model of interregional trade by (1) defining endowments of water that cannot be exceeded, (2) allowing simultaneous operation of rainfed and irrigated agriculture, and (3) distinguishing sub-regional endowments within a larger economic region. An application to the Mexican economy compares region-specific water abundance with economic comparative advantage under alternative scenarios. We conclude that the water-rich regions of Mexico are relatively high-cost producers of food and that they do not pick up the slack even when the lowest-cost Mexican regions are constrained by binding water constraints.     

A cost efficiency analysis of the insurance industry in Mexico

In Mexico, the low participation of insurance activity in national production, in contrast to similar Latin American economies, is a concern. Industry’s regulator promoted more intense competition at the dawn of the century. Was deregulation followed by improvements in the financial and economic performance of Mexican insurance firms? The purpose of this paper is to answer this question through a comprehensive analysis of cost variations in an intertemporal manner, by breaking them down into the economic sources that produce them, including productivity. Cost frontier estimation was grounded in a joint production technology of desirable and undesirable outputs, modeled in an input-oriented fashion. Our results demonstrate that even though some companies achieved cost reductions from technological progress or improvements in efficiency, the Mexican insurance market does not show signs of significant productivity gains.     

Economies of scale in the Mexican automotive sector

Recent growth of the Mexican motor vehicle industry has sparked a great deal of controversy on both sides of the U.S.-Mexico border regarding the potential effects of the North American Free Trade Agreement. One of the key factors affecting the future competitiveness of the Mexican motor vehicle industry relative to U.S. producers is whether the Mexican firms can exploit economies of scale as their output expands. This article investigates that possibility as well as the direct and cross-price elasticities of demand for the inputs by estimating translog cost functions for the Mexican motor vehicle and autoparts industries. The results are consistent with the hypotheses that substantial economies of scale remain to be exploited by the Mexican motor vehicle industry, but that the autoparts industry is operating with diseconomies of scale. However, the lack of investment in new technology and X-inefficiency on the part of the autoparts firms may have been partially responsible for the latter finding.     

An empirical investigation of U.S. bank risk and the Mexican peso crisis

This paper examines two pairs of hypotheses about the effect of the Mexican Peso crisis on U.S. bank stock returns. We use a three-index market model as our empirical methodology because bank stocks are influenced more by both interest rate risk and foreign exchange risk than other non-banking stocks. The results show that the market reacted to each event promptly, supporting semi-strong market efficiency. To find out whether these effects created a domino effect in the U.S. banking system, a set of cross-sectional regressions were run. In general, the empirical results support the investor-contagion hypothesis, which indicates that the market penalized or rewarded banks without regard to their ecposure to the market for Mexican loans.     

Energy and CO2 emission relationships in the NAFTA trading bloc: a multi-regional multi-factor energy input–output approach

The North-America Free Trade Agreement (NAFTA) has brought together the economies of Canada, Mexico, and the US into forming one of the largest trading blocs worldwide (within the top CO₂ emitters). However, the current global protectionist discourse threatens the agreement. This paper analyzes the energy and energy-related CO₂ emission relationships between NAFTA countries in 2014 to gain insights into the climate change implications of current integration and the possible cancelation of the agreement. The analysis is performed with a multi-regional version of the multi-factor energy input–output model. The results show that NAFTA has not built a single integrated energy system, though it has helped reduce energy-related CO₂ emissions. Moreover, if NAFTA is not revoked, further integration would depend on the capacity of the Mexican energy sector to converge to the performance of its trade partners’ energy sectors. Conversely, a broken deal would induce negative environmental externalities.     

Discrimination in Employment Provisions in the Mexican Federal Labor Law

The discrimination in employment provisions in employment provisions in the Mexican Federal Labor Law (FLL) are surveyed in a general overview. Employment discrimination in Mexico under the FLL is generally proscribed but is mandated in a limited number of instances. Discriminatory violations can induce various sanctions against transgressing Mexican employers.     

Mexican women managers: An emerging profile

There is a striking absence of information on women managers in Latin America despite the fact that, in the past decade, studies of women managers in non-English speaking countries have proliferated. This study offers a preliminary analysis of Mexican women managers. Our exploratory study locates women managers within the context of gender relations and managerial ideology in Mexico and analyzes several factors that enable a select group of senior-level Mexican women to hold influential positions. The findings suggest that women have a nontraditional Mexican management style and successfully manage the work–family interface. Nevertheless, women still encounter obstacles to their advancement such as discrimination and stereotyping. © 1997 John Wiley & Sons, Inc.     

Cultural boundaries of self-justification and prospect theories in escalation of commitment: a US–Mexico comparison

The interplay among managers' cultural origin (i.e. Mexican vs. the USA), decision context and framing was investigated to test the cultural boundaries of self-justification and prospect theories in escalation of commitment. An experimental design indicated that, although a negative decision frame had a greater impact on escalation of commitment among Mexican managers, a positive frame had a greater impact on escalation of commitment among American managers. Moreover, a pattern indicating that framing had an opposite effect in each country emerged when the decision context was negative. Specifically, when the incoming information is positive, US decision-makers escalate their commitment to a failing course of action, whereas it is negative incoming information that leads to escalation for Mexican decision-makers.     

FISCAL DECENTRALIZATION AND INTERGOVERNMENTAL RELATIONS: AN ANALYSIS OF FEDERAL VERSUS STATE EDUCATION FINANCE IN MEXICO

While decentralization is on the forefront of the reform agenda of many developing countries, few studies have performed empirical analysis to provide a holistic picture of the important fiscal, efficiency, and equity issues. Specifically, decentralization nearly always involves fiscal and administrative decisions by both national and sub-national governments, as well as intricate intergovernmental relations. Here, two empirical models are presented for the Mexican primary and secondary education sector. The first analyzes the efficiency-equity trade-off implicit the Mexican Federal Government's educational fiscal transfers to states. Unlike most similar analyses, this model analyzes the distribution of outcomes not simply expenditures. The second model analyzes the relative productivity of separate expenditures by the Federal and state governments before Mexico's recent educational decentralization legislation. The findings show that before the decentralization, the Federal Government exhibited some concern for equity, but that in doing so also treated states unequally according to criteria that have little to do with either efficiency or equity. In addition, the results show that the Federal Government may indeed have been the more efficient provider of primary and secondary education, raising concern for the fiscal and administrative relationship set up by the decentralization legislation: the Federal Government will continue to pay, while the states have gained relative autonomy over expenditures.     

Mexico under NAFTA: a critical assessment

This paper assesses the evolution and performance of several key economic and social variables in Mexico following the passage of NAFTA. The evidence shows that under NAFTA Mexican trade and foreign direct investment inflows have risen at rapid rates, particularly in the export-oriented assembly-line sector. However, the evidence also suggests that it is hard to disentangle the effects of NAFTA from the other non-NAFTA factors such as demand in the U.S. in explaining the dynamism of the Mexican export sector (and economy). This has been attested by how the Mexican economy has been dragged into a severe recession over the past two years as a result of the relatively mild downturn in the U.S. business cycle.Insofar as employment growth, real wages in manufacturing, and productivity performance is concerned, the evidence presented indicates that the record has been lackluster at best and disastrous at worst. Manufacturing employment fell dramatically after the peso crisis, and remains stagnant. Real wages have plunged since the peso crisis and have yet to recover levels attained in the mid-1980s. In terms of productivity performance, no strong conclusions can be reached given the conflicting estimates in the extant literature. At best, the data show that productivity rose at healthy rates in the tradeable sector, but stagnated in the non-tradeable sector.Finally, the paper presents evidence which shows that both the functional and size distribution of income have become more skewed during the period of trade and investment liberalization (JEL 040,054).     

Trade and factor intensity,and the transmission of the global shock to labor: A panel analysis of the fall of the labor income share in the Mexican manufacturing sector

The paper studies the fall of the labor income share in Mexico, contrasting the role of trade and factor intensity as transmission channels of the China shock of 2001. It finds that, while the skill, technological and —more surprisingly— trade intensity of Mexican industries were largely irrelevant, capital intensity played a key role: in particular, the higher was the industries’ initial capital intensity, the more vulnerable they were to the transmission of the global shock to labor. The finding is consistent with the proposition that industrial integration, concentrated in industries that are capital-intensive from the perspective of developing countries, facilitated the transmission of the shock. Results come from the estimation of panel equations for the annual change in the labor share across Mexican manufacturing industries, where transmission is measured by the correlation between changes in the United States and Mexican industry labor shares.     

Technology and quality improvements in Mexican companies: some international comparisons

This paper focuses on selected initiatives oriented towards technological improvements of performance in Mexican companies and betterment of the quality of Mexican products. These aspects are examined quantitatively and qualitatively. Data on research and development (R&D) and education expenditures, indicators of infrastructure development, technology adoption rates, and level of skills, and features of corporate and national cultures are used in analyses. Two restructuring approaches—Business Process Reengineering (BPR) and Total Quality Management (TQM)—are explored from the perspective of their applicability to Mexican conditions. It is observed that substantial problems can be expected when implementing them in Mexico when trying to improve quality and technological indicators of performance. Some suggestions regarding restructuring procedures are outlined.