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

AuthorAna Carolina Garriga
Published date01 December 2022
Date01 December 2022
Subject MatterArticles
Political Research Quarterly
© 2021 University of Utah
Article reuse guidelines:
DOI: 10.1177/10659129211030331
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,
30331PRQXXX10.1177/10659129211030331Political Research QuarterlyGarriga
1University of Essex, Colchester, UK
2Centro de Investigacion y Docencia Economicas, Mexico City,
Corresponding Author:
Ana Carolina Garriga, Department of Government, University of
Essex, Wivenhoe Park, Colchester CO4 3SQ, Essex, UK.
International Capital and Subnational
Politics: Partisanship and Foreign
Direct Investment in Mexican States
Ana Carolina Garriga1,2
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.
foreign direct investment, partisanship, Mexico
2022, Vol. 75(4) 1006–1020

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