Research

This paper investigates the outward internationalisation of Mexican subnational regions, focusing on: (i) the regional propensity to engage in OFDI; (ii) the extent of regional OFDI (extensive margin); and (iii) how (i) and (ii) change depending on the geographical destination of OFDI. The conceptual framework drawn on different literatures merges four complementary categories of regional determinants: innovation capacity and competence base; international openness; public financial support to internationalisation; and industrial structure. The empirical analysis uses data on the OFDI of 32 Mexican regions in 8 economic sectors observed over the years 2006-2017. The main findings highlight that regional financial support is key to overcome home-region disadvantages deterring local firms’ from engaging in OFDI, irrespective of its vertical or horizontal nature. Regions where firms rely on relatively higher skills show more investments in advanced high-income countries, responding to a learning region model and to a strategic resource-seeking logic. Regions highly specialised in sectors important for the local market have a higher propensity towards horizontal OFDI targeting similar economies, generally adopting new market-seeking strategies. The regional extent of engagement abroad confirms the negative association between internationalisation and local innovation and R&D systems, supporting the view of OFDI driven by home region disadvantages particularly when targeting advanced economies.

In this paper, we explore how High-Profile Political Attacks (HPAs) shape foreign direct investment (FDI) in Mexican municipalities. HPAs are attacks against political officials, usually during the campaign trail. Because these attacks signal the attempt of organized criminal groups (OCGs) to take over the social, economic, and political life of their communities; and because the constitution of regimes of criminal governance can result in a stable and secure investment environment, we argue that foreign investors need not be deterred by HPAs. Moreover, HPAs are usually intermittent and unpredictable, and therefore unlikely to shape multinationals’ strategies. Using an original dataset on HPAs and exploring their impact on sectoral FDI at a level of subnational analysis never explored before, we find that HPAs do not deter foreign investments in a number of sectors. However, we also find that this effect is moderated by whether the establishment of regimes of criminal governance happens in a climate of OCGs competition and fragmentation or rather it is a monopolistic process. In the former case, violence becomes indiscriminate, generalized, and a permanent factor that does negatively affect foreign investments, particularly in the commerce sector. Our research throws new light on the conditions under which organized crime trumps new FDI, contributing to an unsettled debate.

Domestic firms increasingly invest abroad. The relocation of economic activity is bound to have effects in the skill composition at home, with the potential consequences being either positive or negative. Outward Foreign Direct Investment (OFDI) employment effects are closely related to the motives driving firms’ internationalisation strategies and have been mainly studied for developed economies. Despite the recent surge of emerging country multinational enterprises (EMNEs) in the global investment landscape, very few studies have enquired on the OFDI skill composition in emerging home economies, particularly at the region-industry level. EMNEs motives to engage in OFDI might differ to those of their developed country counterparts, hence the home effects are likely to diverge from the extant theoretical and empirical literature. Mexico is of particular interest in the Latin American region, since the country has recently embarked in active outward-oriented investment strategies. We investigate the extent to which changes in Mexican OFDI lead to skill downgrading or upgrading in the relevant local labour markets and whether the effects on labour demand for different skills vary according to the country of OFDI destination. The sample period we used, from 2007 to 2017, includes the transformation of a significant number of Mexican firms that have engaged in a process of internationalisation by establishing affiliates abroad. The results from the analysis suggest that the level of development of the destination country has different effects on the composition of home employment: OFDI to high-income economies is associated with skill downgrading in the relevant region-industry, whereas investment towards middle-income economies has no significant effect. Implications relate to the potential technology transfers from affiliates abroad and the improvement of local learning capabilities at the regional level.