In the 1990s Mexico was one of the world's most successful countries in attracting FDI. This chapter examines the extent of this process and its effects on the Mexican economy. I provide an overview of Mexican FDI since the early 1990s, identify the factors that led to FDI inflows, and describe the effects of FDI in terms of output, employment, trade and R&D expenditures, among other variables. Specifically, I analyze these effects using newly available data on the industry level. Finally, I make several policy proposals aimed at improving both the quantity and quality of FDI in the future.

The chapter is divided into four sections. The first briefly outlines theories of FDI and development, including an overview of the literature on the impacts of FDI in Mexico. The second section highlights the main trends in Mexican FDI since the 1990s from an aggregate perspective, as well as some major sectoral tendencies. The third section analyzes the effects of FDI in Mexico's manufacturing sector at the industry level, considering more than 25 variables. The final section outlines the main conclusions and presents various policy proposals.

Brief Conceptual Background

The debate on the determinants of FDI and its effects is still unsettled. The current process of globalization—the opening of national economies, the growing role played by multinational corporations and the increasing transfer of segments of the production chain outside these corporations' home countries-has promoted the growth of global FDI flows (UNCTAD 2006).