International Capital and Subnational Politics: Partisanship and Foreign Direct Investment in Mexican States

• Author: Ana Carolina Garriga
• DOI: http://doi.org/10.1177/10659129211030331
• Published date: 01 December 2022
• Date: 01 December 2022
• Subject Matter: Articles

https://doi.org/10.1177/10659129211030331

Political Research Quarterly

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DOI: 10.1177/10659129211030331

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Introduction

Do foreign investors have subnational partisan prefer-

ences? Foreign direct investment (FDI) has significant

economic and political effects for recipient countries, but

investment projects especially affect the territorial entities

in which they are located (Jensen and Rosas 2007; Owen

2019). This motivates subnational entities to compete

with national peers and to enter in international bids for

FDI, especially in countries with federal structures of gov-

ernment. There are reasons to believe that explanations for

international allocation of FDI may not directly apply to

the subnational level, and a growing line of research ana-

lyzes the political economy of subnational foreign invest-

ment (Jensen et al. 2014; Jensen, Malesky, and Walsh

2015; Lu and Biglaiser 2020; Paul 2002; Samford and

Gómez 2014). Yet, we know very little about subnational

partisan dynamics that may affect investors’ decisions.

This paper tries to bridge this gap by focusing on the influ-

ence of state-level partisan politics on FDI.

I argue that in labor-abundant countries that guarantee

property rights, investors prefer left-leaning state gover-

nors because they are more likely to invest in human capi-

tal. In addition, given the close connection between party

turnover and democratic features in developing democra-

cies, I also distinguish the effect of partisan preferences

from the impact of subnational democratization. I test my

argument using the subnational allocation of new FDI

among Mexican states, between 1999 and 2017. The evi-

dence indicates that states ruled by the social-democratic

Party of the Democratic Revolution (in Spanish, PRD)

receive more FDI than states ruled by the centrist

Institutional Revolutionary Party (PRI), or by the rightist

National Action Party (PAN). This effect is robust and

independent from different proxies for subnational democ-

racy, such as party turnover and political competition.

This paper contributes to three literatures. First, it

takes a deeper look at the relationships between partisan

politics and international capital. In spite of recent

research (Camyar 2012; Hwang and Lee 2014; Leblang

and Mukherjee 2005; Pinto 2013), some scholarship on

capital flows still relies on the assumption that the right

is pro-business and pro-capital, and thus, the left should

deter investment. The analysis presented here suggests

that investors’ partisan preferences may differ for the

national and subnational levels because of the kinds of

policies enacted at different levels of governance. Thus,

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30331PRQXXX10.1177/10659129211030331Political Research QuarterlyGarriga

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1University of Essex, Colchester, UK

2Centro de Investigacion y Docencia Economicas, Mexico City,

Mexico

Corresponding Author:

Ana Carolina Garriga, Department of Government, University of

Essex, Wivenhoe Park, Colchester CO4 3SQ, Essex, UK.

Email: carolina.garriga@essex.ac.uk

International Capital and Subnational

Politics: Partisanship and Foreign

Direct Investment in Mexican States

Ana Carolina Garriga1,2

Abstract

Do foreign investors have subnational political preferences? The political economy of foreign direct investment

(FDI) involves not only choosing among host countries, but also the subnational location of the assets. However,

factors affecting investors’ decisions about subnational location likely differ from the ones affecting international

investment. This paper studies the effect of state-level partisanship on new FDI inflows to Mexican states. I argue that

investors prefer states ruled by left-wing governors because they are more likely to invest in human capital. Statistical

analyses using new data on subnational allocation of FDI in Mexican states between 1999 and 2017 support the main

hypothesis. Given the persistence of authoritarian enclaves in Mexico, I also disentangle the effects of partisanship

from subnational democratization. The partisan effect is independent from party turnover and political competition at

the subnational level, and it is robust to different model specifications and estimation strategies. Additional evidence

supports the plausibility of the argued mechanism.

Keywords

foreign direct investment, partisanship, Mexico

2022, Vol. 75(4) 1006–1020

Article