Higher education and Foreign Direct Investment: A study of Mexican states

Factors that attract Foreign Direct Investment in Mexico at the state level are analyzed. Special focus is placed on how human capital promotes growth by attracting more FDI flows in a state. A model that explains the amount of FDI received in Mexico in 2012 is developed at a subnational level. The main independent variable is human capital, and it is measured using percentage of university graduates. The model controls for other possible determinant factors such as population, infrastructure, wages, fiscal incentives, geographic location, ease of doing business, and past experience in attracting FDI. It is tested using ordinary least squares regression in a cross-sectional analysis. The results support the main hypothesis that higher education is associated to the amount of foreign investment received at the state level in Mexico. The percentage of college-educated people, total population in a state, and past experience in receiving FDI flows have a strong, positive and significant association with state FDI. The results also find that the variables measuring ease of doing business, time and cost, are positively associated to inward FDI, but this might be due to spurious relationships and correlations with the variables. Infrastructure, wages, and fiscal incentives proved to be insignificant in the model