Volume 44, Number 174,
July-September 2013

Foreign Direct Investment in Mexico: 1980-2011, Samuel Lichtensztejn, Xalapa, Universidad Veracruzana, Library, 2012.

One of the most important processes in the globalization of the last two decades is precisely the topic of Samuel Lichtensztejn's book: flows of foreign direct investment (fdi). This book addresses this topic with a concrete analysis of Mexico, and references to Latin American dynamics. fdi flows are one of the features of the accumulation, concentration and centralization of capital present in mergers and acquisitions that absorb more than two-thirds of global flows.

In order to understand fdi in Mexico, readers must look to the economic history and policy surrounding this topic. The era of Cardenas was marked by oil expropriation, the nationalization of the railroads and the creation of the electricity state enterprise, activities that all took place in the hands of foreign capital. This policy consolidated national sovereignty over natural resources as established in article 27 of the Constitution. During the time of import substitution, activities were established as reserved for private Mexican capital with limited foreign participation. The end of this period saw the promotion of "Mexicanization," which sought a larger participation of Mexican capital in activities dominated by foreigners.

Samuel Lichtensztejn's work thus begins with this careful review of legislation from 1973 and the changes that occurred during the neoliberal stage that led to the first regulations in 1989, 16 years after its first proposal. Significant changes were also made in the realms of mining legislation, and a new Foreign Investment Law was approved alongside nafta, on December 27, 1993.

The new law eliminated fdi requirements, such as the incorporation of national parts or supplies, technology transfer, the creation of employment or a positive commercial balance, and opened up sectors that had previously been reserved for national or State capital. Following nafta and the 1995 crisis, new changes were implemented. Seven modifications were made as of 2011, "always operating in favor of greater openness of the Mexican economy to fdi." The author summarizes: "the legislation went from regulating fdi to promoting it."

The first section of the book presents a qualitative summary of legislative amendments, defining the activities that were opened as well as those reserved for the State, or to the absolute majority or minority of foreign capital.

The author also provides a quantitative reconstruction of the arrival of fdi, as well as the flows, sectors and entities where it was directed. The dynamics have shown that in Mexico, fdi not only grew and spread as a function of multinational productive restructuring, but it also participated in a process that went from opening to privatization and de-nationalization.

fdi is not only a national process, as it is also the global form of capital. That is why international indicators exist to illustrate processes of opening and the level of restriction existing between countries regarding fdi. The author shows that according to the oecd indicators, Mexico still can improve on some openness measures, in order to achieve scores similar to the average of the oecd countries.

The book estimates annual flows of fdi as a percentage of gdp, which was highest in 2001, when the greatest amounts in history were recorded, up to now, due to the sale of Banamex to Citibank (one of the first significant sales of national private companies to foreign capital), for 12 billion dollars. Because this sale was performed through the stock market, not a single dollar of taxes was paid.

On average, fdi over the first decade of this century was around 2% to 3% of gdp. In terms of the gross formation of capital, which is about one-quarter of this amount, fdi would be equivalent to between 10% and 12% of total investment. If we compare it with public and private investment, we could estimate that in 2000, there was a flow equivalent to 2.9% of gdp, which was also close to public investment (3.3% of gdp) and to 15% of private investment (17.5% of gdp). In 2011, it was equivalent to one-third of public and one-tenth of private investment.

Outlining these relationships is important, because one of the most significant questions in analyzing fdi, which this book leaves aside, is why it has not driven growth of the national economy, despite its immense public support. Of course, fdi has indeed driven unequal, sector-based and regional growth.

The book presents an organized summary of statistics about the sectors where fdi has been targeted as well as their location in the territory. fdi has been focused on manufacturing, which has been a determining factor in the export-manufacture accumulation pattern, which turned Mexico into a manufacture exporting country (80% of total exports). fdi has been key for the dependent manner in which Mexican industry has been inserted into global chains of production. The majority of manufacturing exports are made by multinational companies, and they are largely oriented towards commerce between firms.

These exports have shown growth above levels for the overall economy. Yet, despite public policy stimuli, such as exemptions for the maquiladora industry, they have not spurred growth of the Mexican economy over the past decade, which has shown some of the lowest growth of countries in Latin America in this time period.

Liberalization does not oblige foreign capital to transfer technology, and the author demonstrates this in Mexico. Although Mexico is more open than Brazil and China, the nation scores low on innovation.

Following an econometric analysis, the author concludes that unit labor costs were not significant for fdi, which is a doubtful result, because the sectors where fdi is directed, such as the automotive sector, show significant salary differences between the United States and Mexico. In addition, the maquiladora industry, where a large part of fdi has been directed and which has contributed more than half of manufacturing exports, was established in Mexico principally to take advantage of low labor costs.

The author also examines activities where foreign capital invests by level of technology, according to international classifications of high, medium and low. In general, 34% of fdi goes to activities with high or medium technological intensity, whereas 60% go to lower level activities. Although these numbers are higher than the average data for Latin America, they are somewhat similar. This can be compared with Mexico, where more than half of fdi is in high and medium levels of technological intensity work.

In a more qualitative analysis, the author summarizes how foreign direct investment flows are divided among new investments, those between companies and reinvesting profits. The author indicates that this capital is not as significant as commercial, although it does have a positive revenue balance. He also describes the comparison of these flows with remittances, which have exceeded 20 billion dollars annually over the past ten years.

Finally, foreign direct investment flows both in and out. The capital flowing out consists not only of the same original fdi, but also fdi coming from major Mexican capital. The author addresses this topic in the last section.

To summarize, the numerous flows of fdi have resulted in the restructuring of Mexican capital, industrial reorganization and a growing participation in the financial and energy sectors, although this is technically not constitutional in Mexico.

The increased dynamism of foreign investment flows and the financialization of fdi might spark readers to hope for a new book from the same author, who is one of the specialists in Latin America on this topic. Another option might be a broader collective work on the role of fdi in Latin America.

Josefina Morales
Institute of Economic Research — unam

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Published in Mexico, 2012-2017 © D.R. Universidad Nacional Autónoma de México (UNAM).
PROBLEMAS DEL DESARROLLO. REVISTA LATINOAMERICANA DE ECONOMÍA, Volume 48, Number 191, October-December 2017 is a quarterly publication by the Universidad Nacional Autónoma de México, Ciudad Universitaria, Coyoacán, CP 04510, México, D.F. by Instituto de Investigaciones Económicas, Circuito Mario de la Cueva, Ciudad Universitaria, Coyoacán,
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