Economic promotion and government incentives in Jalisco: the case of direct foreign investment

Abstract

This paper analyzes the importance of foreign direct investment (FDI) in the dynamics of private investment in the state of Jalisco, in its export sector and in economic growth, as well as the role played by the state government in terms of economic promotion and the granting of incentives for foreign investment, due to the evident existence of problems of asymmetric information between the host economy and the foreign company and in a context of fierce global competition for productive capital. In this context, the governments of the host economies need to play a more active role in focusing investments and promoting, through incentives, the attractions and advantages offered by the country in relation to its competitors. An attempt is made to verify empirically, by means of a multiple regression model, the potential effect that the incentive policy may have on the flows of i e in the period 1996-2005, obtaining evidence that for the foreign company they are of little relevance in comparison, for example, with the degree of openness of the state economy itself. At the end, a series of recommendations are made to ensure greater FDI inflows and greater impact of FDI on the state economy. In particular, attention is drawn to the need to design an effective industrial policy that clearly defines the role to be assigned to FDI.