The Determinants of Chinese Foreign Direct Investment Flows in Mexican States, 2004–2014

Abstract

Despite the growth of scholarship on Chinese outward foreign direct investment, we still know little about the determinants of it at the subnational level within developing countries. This article seeks to fill that gap in the literature through a study of Chinese investment across 31 Mexican states and Mexico City (formerly the Federal District). Focusing on the period of 2004 to 2014, the analysis employs a two‐part estimation method to understand why Chinese firms select some Mexican states for investment, and what drives the level of investment among states selected. The first part is estimated with pooled logistic and Firth logistic regression with adjustments for serial correlation. The second stage equations are estimated with pooled OLS with panel‐corrected and Driscoll‐Kray standard errors, and adjustments for serial correlation. We find that market size, education, and partisan control in state government exhibit an influence on both the selection stage and the level of foreign direct investment. The presence of deep‐water ports in a state is also important in the selection stage. After controlling for these influences, the models suggest that mining resources, homicides, unionization, state taxes, and other factors have no significant effect in either stage.