%A Isidro, Victor %D 2017 %T Trade Balance, Capital Flow, and Real Interest Rate in Mexico from 1950 to 2014 %K Capital Flows, Interest Rate, Trade Deficit, and Mexico %X This article shows that the inflow of capital does not contribute to growth and tests the hypothesis that countries with trade balance deficits need to set high interest rates to attract capital flows. In a series of papers, A. Shaikh has put forth this hypothesis based on Marx, classical economists, and post-Keynesians such as Harrod. In order to test our hypothesis, we take Mexico as a case study using data between 1950 and 2014. To test our hypothesis, that countries with trade balance deficits need to set high interest rates to attract capital flows, we (1) show that foreign direct investment (FDI) does not have any impact on investment and growth, and (2) use econometric techniques such as cointegration and a vector error correction model (VECM). %U http://www.revistas.espol.edu.ec/index.php/compendium/article/view/197 %J Compendium: Cuadernos de Economía y Administración %0 Journal Article %P 66-83%V 4 %N 8 %@ 1390-9894 %8 2017-08-30