Subnational politics and foreign direct investment in Mexico

Focusing on Mexico, this article makes two departures from existing studies of the determinants of foreign direct investment (FDI): (1) it disaggregates investment into three types (resource-, market- and efficiency-seeking); and (2) it models variation in investment subnationally, across the 32 Mexican states. Using panel data for foreign investment between 2000 and 2009, we find that the predictors of subnational variation in investment go beyond simple geographic and economic conditions and include factors such as local political party control, social stability and the perceived effectiveness of state authorities. Moreover, the three types of investment are shaped by distinct social, political and economic dynamics. Insofar as the location and type of foreign investment can affect economic development and inequality within - and not just between - countries, the subnational distribution of investment is of consequence for both academics and policy makers.