The Relationship between Economic Complexity and the Pattern of Foreign Direct Investment Flows among Mexican States

Abstract

Identifying factors that explain the regional distribution patterns of Foreign Direct Investment (FDI) flows into an economy is no simple task, since they depend on a range of factors. In the case of Mexico, previous studies have documented the role of diverse characteristics in attracting FDI to the country’s states. This study shows that economic complexity - a variable that indicates the productive capabilities or productive knowledge that exist in a given economy's economic structure - can explain the distribution of FDI among Mexican states. Similar to previous studies, we document the spillover effects of economic complexity, i.e., we show how states surrounded by states with a high level of economic complexity tend to receive more FDI. Moreover, we document how FDI flows to manufacturing industries are positively correlated with their level of economic complexity. This result, to the best of our knowledge, has not been documented before in this literature.