Foreign direct investment flows to Mexican states: A study of the automobile industry, 2004–2014

This study examines the subnational flow in foreign direct investment (FDI) to Mexican states, with a focus on the finished vehicle industry. Although prior studies have examined subnational FDI in Mexico, research on the automobile sector has been scant. Utilizing a framework associated with the theory of asset specificity, we examine the influence of human capital and labor conditions, infrastructure, subnational policies, and security. The study employs a data set on finished vehicle FDI across 31 states and the Federal district for the period of 2004–2014. We adopt a two‐part model. The first part, which includes all states and the Federal district, is estimated with pooled logistic and Firth logistic regressions. In the second part, we examine variation in levels of FDI among states selected for investment with pooled ordinary least squares with panel‐corrected and Driscoll Kraay standard errors. Labor conditions are significant for both state selection and levels of FDI, but education is influential only in the selection stage. In addition, states with trunk rail lines linked to the U.S. border are more likely to be selected and receive higher FDI. After controlling for these influences, murder and homicide rates, and state development have no significant effects.