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.

Multinational Enterprise (MNE) presence may affect the degree of informality in the host economy. Whilst foreign firms generally operate within the formal sector of the economy, they may also choose to outsource some business functions in the host informal labour markets. The economic significance of these effects will depend on the labour force requirements for a given economic sector and the reliance of MNEs on certain types of labour. This paper examines the case of Mexican subnational regions. On the one hand, recent decades have witnessed changes in sectoral composition of inward foreign direct investment (FDI) along with changes in the spatial distribution at the subnational level. On the other hand, labour informality is still commonplace in the Mexican economy, though, informality rates vary markedly across subnational regions. This paper studies the heterogeneous effects of MNEs’ direct investment activities on informality in the host region and sector of destination. By exploiting cross-municipality variation in both labour informality and inward FDI stocks, we can assess the capacity of such investments to increase or decrease informal employment in the host regional economy. This paper sheds light on the link between FDI and labour informality in the context of an emerging Latin American economy. The implications on labour market outcomes are ascertained not only on individuals but regions as well.

This study examines the relationship between democratic governance and Foreign Direct Investment (FDI) inflows in emerging economies, focusing on south-south investment flows. Although extensive research has explored the economic determinants of FDI, the role of political regimes in shaping investment attractiveness remains contentious. We employ a random-effects model to analyse a panel from 47 emerging economies over the period 2010-2020, utilizing detailed measures of institutional depth alongside traditional indicators of political regimes. Our findings reveal that while broad political regime types do not significantly impact FDI inflows, the depth of institutions exhibits a strong positive association with investment attraction. Moreover, we find that globalization, economic growth, and outward FDI positively influence inward FDI, while the impact of lobbying activities is more complex than initially hypothesized. Interestingly, the effect of political regimes on inward FDI does not significantly differ between developed and emerging economy investors. These results contribute to a more refined understanding of the political economy of FDI in emerging markets, suggesting that the quality and effectiveness of institutions, rather than regime type, play a crucial role in attracting foreign investment. This study has important implications for policymakers in emerging economies seeking to enhance their attractiveness to foreign investors.