The impact of political parties on foreign direct investment within Mexico

Abstract

Today we can identify a variety of political and economic systems in the world. A free market economic system is more likely to work if it is based on a democratic political system. According to the Democracy Index 2021, Mexico went from being an imperfect democracy to a hybrid regime, with the risk of becoming an authoritarian regime. The transition from a political system of imperfect democracy to a hybrid regime represents a great risk for domestic and foreign private investment. There is a latent political risk for investors in this type of countries, which scares away foreign direct investment. This research presents an analysis of the behavior of foreign direct investment in Mexico from 2000 to 2021 by state and political party. The results from a point biserial correlation test prove the existence of a dependence between the attraction of foreign investment and the political party in government. Mexico attracted lower capital inflows since the presence of MORENA, actual political party that is in both, the federal and some state governments. Descriptive statistics show that in most of the matches there is a dependence and also a correlation, however it is prudent to study the direction of this relationship and the strength. The findings are based on an analysis of three years of government of the MORENA political party; therefore, a longer period could be considered for future research.