The economic geography of foreign direct investment and human capital in Mexican regions

Economies around the globe are increasingly interconnected. Foreign Direct Investment (FDI) has become one of the main drivers of economic interdependence among regions across the world. FDI as a flow of capital across international boundaries is bound to have distinctive effects on the human capital accumulation process in both home and host economies, with important consequences for economic development. The aim of this thesis is to improve our understanding on the geography of two interrelated economic phenomena for Mexican subnational regions: FDI and Human Capital. Mexico has been an important recipient of inward FDI, but in the last two decades the services sector has been gaining importance over manufacturing, while the country has been increasingly sending flows of outward FDI to the rest of the world. Concurrently, wage inequalities persist, educational outcomes are lagging behind, and demand for skilled workers is decreasing. These changing trends and shifting balance have important implications for wages and the incentives to develop human capital at the local and regional scale in Mexico. Moreover, the aforementioned changes in FDI patterns, wages and human capital have occurred in a country where territorial disparities are still commonplace. Against this background, these papers explore several relationships between FDI and three dimensions of human capital accumulation, namely; wages, educational attainment, and skills. The first paper examines the effect of inward FDI on the wage gap between skilled and unskilled workers. Departing from these findings, the second paper analyses the effect of higher wages offered by multinationals on youth educational choices. The third paper explores the regional determinants of the recent internationalisation of Mexican firms, with particular attention to skills, productivity and innovation. Finally, the fourth paper explores the effects of outward FDI on the relative demand for skilled and unskilled workers. In order to empirically investigate the aforementioned relationships, I deploy a wide array of econometric techniques that allow me to provide quantitative estimates of the associations at hand. Particular attention is placed on endogeneity concerns that may lead to statistical biases on the evidence provided. By adopting a regional- and industry-level perspective, the present thesis hopes to shed some light on the effects of bidirectional FDI on various Human Capital dimensions. Policy implications drawn from the findings herein, are of paramount importance. Mexico has taken significant strides towards development; however, it still has a sizeable untapped economic potential. This and other empirical evidence should be duly considered if Mexico is to escape the middle-income trap

Sending money home in times of crime: the case of Mexico

We explore at the municipality level how the climate of criminal violence has affected the flow of remittances to Mexico. Using a panel of municipalities in the years 2006 and 2010, we find that drug-related crimes and overall rates of homicides have reduced the percentage of families that receive remittances. This result is robust to controlling for net migration, political variables, and traditional socioeconomic explanations of remittance sending. It is also robust to potential threats to validity. We interpret this result as suggestive of self-interested concerns when sending money home amidst a climate of rampant violence. Nonetheless, mixed motivations to remit are evident in our analysis

Remittances and protests against crime in Mexico

The resource mobilization theory has long emphasized the role of resources in facilitating collective mobilization. In turn, recent research on crime and insecurity in Mexico has drawn attention to the role of local networks of solidarity in facilitating mobilization against crime. We rely on these two literatures to propose that remittances — that is, the resources that emigrants send to their relatives left behind — deserve attention as international determinants of this type of non-violent anti-crime mobilization. Further, relying on recent research on remittances’ impact on political behavior, we hypothesize that the relationship between remittances and contentious action is non-linear, exhibiting a positive effect at low to moderate levels of inflows and declining at higher levels of remittances. We contend that at low to moderate levels, international remittances provide the necessary resources for collective activation. At greater levels of remittance inflows, however, lessened economic and security grievances imply a decline in the probability of protesting. Overall, we show that emigrant remittances matter for organizing protests against criminality at the subnational level but that they produce both an engagement and disengagement effect, depending on the size of the inflows

FDI and the growing wage gap in Mexican municipalities

Inward foreign direct investment (FDI) has generally been linked to higher wages, but evidence remains sparse on the overall effects of FDI on average wages, the wage gap between skilled and unskilled labour, and inter-industry heterogeneity. We address these issues for Mexican municipalities and industries for a period of increasing FDI and sectoral change that saw growing wage inequality. By combining two non-experimental techniques we find that FDI in Mexico was associated with higher wages, mostly for skilled workers—but also for unskilled ones—and a widening gap between them. Effects vary both between and within industries depending on location, and they either wax or wane when the initial or incremental effects are considered

Breaking out of the innovation trap? Towards promoting private R&D investment in Kuwait

Kuwait combines rich-world national income with the Research and Development (R&D) spending of a developing country. This situation is unsustainable. This report uses the National System of Innovation (NSI) framework to investigate how the Kuwaiti government could increase private sector R&D spending. Based on a review of the existing literature and data alongside a survey of large Kuwaiti firms, we find that few of the necessary and sufficient conditions for a functioning NSI are currently in place. The most important problem for private sector R&D in Kuwait is the general lack of skills and capabilities for innovation, which means that firms have few incentives to invest in risky, long term and skill intensive R&D activity. Future efforts to increase R&D by simply investing further in public R&D risks wasting money, without the adequate institutions, skills and framework conditions required to turn R&D into commercial success. Instead, we argue the Kuwaiti government should rethink the education system at all levels, implement a bottom-up diversification strategy, strengthen the Kuwaiti Information System and carry out a thorough governance review of innovation processes

Systems of innovation, diversification, and the R&D trap: a case study of Kuwait

The relationship between R&D investment and economic development is well established. Yet at a global scale, the resource rich countries of the Gulf Cooperation Council (GCC) are consistent outliers in this relationship, combining rich-world national incomes with R&D expenditure of developing countries. This paper uses a case study on Kuwait to illustrate a particular form of developmental trap, a version of the resource curse which makes it irrational for private business firms to invest in R&D and innovation. Based on an analysis of the literature and secondary data, focus groups, and an original survey of large manufacturing firms, we argue that a narrow focus on R&D-led diversification of economic activity ignores the systemic problems faced by Kuwait, and particularly the unsuitable supply of skills and capabilities provided by the national education and training system

FDI and human capital development: a tale of two Southeast Asian economies

Middle-income economies must prioritise human capital development to ensure long-term sustainable growth and economic upgrading. While foreign direct investment (FDI) is believed to aid this endeavour, its impact on technical vocational education and training (TVET) remains understudied. This research explores the influence of FDI by multinational enterprises (MNEs) at various stages of global value chains (GVCs) on TVET graduate numbers in Vietnam and Indonesia from 2006 to 2016. Our findings reveal that greenfield FDI plays a role in shaping TVET supply, with heterogeneous effects across different GVC segments and subnational regions. Specifically, FDI in logistics, sales and marketing, and support and servicing are associated with an increase in the supply of TVET graduates in the region, whereas FDI in headquarters and production may lead to a decline in technical skills. To address these dynamics, public policies should prioritise flexible education systems capable of adapting to MNEs' evolving skill demands. By doing so, these economies can elevate local human capital levels and avoid the stagnation often associated with middle-income traps. This research underscores the importance of aligning policy with the needs of a rapidly changing global economy to foster sustainable development

Access to employment and property values in Mexico

Location is one of the main characteristics households consider when buying a property or deciding where to live, since it determines accessibility to transport and hence to jobs and employment. Using a geographicallyreferenced dataset on new housing developments, this paper estimates how households value accessibility in Mexico City. Results are shown considering road accessibility to formal employment subcenters (private accessibility) and distance to the main public transport stations in the city (public accessibility). Results suggest that accessibility to employment subcenters is valued as an amenity by households but being closer to a Metro station is perceived as a disamenity. Moreover, households located in neighborhoods with a greater proportion of informal workers and with lower education levels give a lower value to private accessibility than households located in neighborhoods with a lower proportion of informal workers or in high-educated neighborhoods. These results are evidence of the existence of spatial segregation in the city where disadvantaged households are segregated, not only because of their economic conditions, but because they are located farther away from employment opportunities. The results in this work stress the importance of thinking about integrated land use and transport policies

Family remittances and vigilantism in Mexico

We explore the role of workers’ remittances in supporting vigilante organisations in Mexico. Research on remittances posits both a positive and a negative effect on collective action from the reception of remittances. On one hand, remittances sent by relatives abroad provide extra resources for political action at home. On the other hand, the reception of remittances makes recipients less prone to protesting, through a reduction in grievances. As a result, remittances can be associated with both an increase and a decrease of collective political activity. In this paper, we claim that both effects can co-exist and that the predominance of one mechanism or the other depends on the degree of penetration of remittances at the municipal level. Using data on the existence of vigilante organisations, we find that in most remittance-receiving municipalities, through a resource effect, remittance inflows increase the probability of observing self-defense organisations, but this probability declines at high rates of remittance penetration at the local level. Nonetheless, we observe an activation effect in a majority of remittance receiving municipalities. The paper contributes both to our understanding of international social networks as determinants of civilian action and to the research agenda on how workers’ remittances shape political behaviour in home countries