Spatial Determinants of Japanese FDI Location in Mexico

Abstract

The present research examines regional characteristics and spatial effects that determine the industrial location decision of Japanese Foreign Direct Investment (JFDI) in Mexico at a state level. Using a unique dataset, the observations showed a concentration of Japanese firms in the center, northeast and northwest regions in Mexico, with presence of a “low-low” type of clustering measured through a local spatial autocorrelation test. Results from different econometric model specifications show that Japanese firms prefer more populous areas with vast labor pools. Also, contrary to previous findings, transportation infrastructure seems to be deterrent for Japanese firm location, which might be due to a preference for greenfield location sites.Additionally, under some specifications Japanese firms seem to prefer states that are strategically located closer to the U. S., and locations with a more manageable workforce. Finally, after conducting diagnostics, a strong spatial dependence was found in the error terms meaning that either Japanese firm presence is affecting the location of other Japanese firms in neighboring states that are above of what is considered “normal” levels, or the model might be exhibiting the absence of a variable with spatial characteristics that is not accounted for in the specifications.