What Do We Really Learn from FDI?

Commentary by Doug Donahue

As reported in the International Business Times, Mexico’s Finance and Public Credit Secretariat says it expects the country to attract a record amount of foreign direct investment in 2013, and that in the first quarter of the year it had already attracted 40 percent of last year’s total sum.

Mexico attracted $4.9 billion in FDI in the first three months of this year compared to $12.7 billion over all of 2012. FDI is an important indicator of how confident companies are in the economy of a given country, because investments in factories, hotels, distribution centers, et cetera. cannot be quickly moved in and out. Thus Mexico’s high level of FDI this year is certainly a positive indicator. With Mexico, particularly, it’s key to note that 60% of the FDI in the first quarter was directed to manufacturing investments.

What I think is equally important to remember about FDI, is that it takes two to three decades for trends in FDI to play out and have an impact on perception with respect to investor confidence. Thus FDI growth speaks volumes over the long term about Mexico’s reputation as a platform for open trade, solid infrastructure and affordable labor

In case you’re curious, the US has been the biggest source of FDI into Mexico since 2000, with nearly half of all investments into the country, followed by The Netherlands (14 percent), Spain (13.8 percent) and Canada (4.4 percent).

Source: International Business Times

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