International capital markets, foreign direct investment and large companies in Mexico

Abstract

In recent years there has been a notable increase in FDI income to Mexico. The entry figures from the year 2001 are notably higher than the previous years and are sustained in similar or larger amounts to date. It is not a specific fact of the transformation of the economy in the country. The adoption of an economic policy that seeks to attract foreign capital by implementing legal changes is part of government actions and transformations in different economies and the increase of international financial flows a prominent feature of the world economy.

Among the arguments that different federal administrations have held since the end of the eighties to date is that FI is an important source of financing and allows increasing export capacity. Since 1994, commercial and financial opening has been relevant, but most of the FDI income is not in new investments. The inter-company accounts and the reinvestment of profits of foreign companies are somewhat higher. In addition, in the new investments a relevant segment is destined to the purchase of companies, so it does not positively impact the increase in production. Thus, it is a minor part of the FDI that enters the country that is associated with relevant changes or the development of an export platform in the manufacturing industry.

This paper explores in detail the case of the automotive industry, which has received important amounts of new FDI, but also of reinvestment of profits and accounts between companies. It is also a highly importing industry, which allocates most of its production to the foreign market, mainly to the United States. This paper argues that these investments do not promote relevant internal production chains and result in industrial production restricted diversification. The situation is similar in the electrical and electronic equipment and appliances industry. As in the case of other highly exporting activities, the boost to the economy's growth is very limited and, in addition to other capital investments in the country and abroad, they have not achieved an outstanding positive change in the investment coefficient.