Private Investment and the Effects of Decentralisation and Regional Competition between Mexican Cities

摘要

The increasing mobility of capital raises competition between territories in order to attract it within their jurisdiction. Since 1994, the decentralisation process in Mexico has been accelerated by providing municipalities with greater funds. In parallel, Mexican municipalities have participated more actively on policymaking. Both facts should have allowed municipalities to enhance competitive advantages and increase their attractiveness. In spite of the increasing resources and local participation in policymaking, their effects on investment growth have not been tested yet. In addition, even when municipal governments cannot offer significant pecuniary incentives to firms, they use other means to boost investment. The effects of such regional policies to attract firms have not been tested either. This work is aimed to find out the extent to which the funds exerted at the local level have induced private investment growth. In addition, the effects of regional competition are tested. A panel data analysis is carried out using data for 63 Metropolitan Areas/cities for the period 1993-2008. The estimations are divided into domestic and foreign firms, and total and manufacturing firms, in turn. The results suggest that, two major spending items, namely Economic fostering and subsidies, and Public infrastructure investment, have a substantial effect on private capital. Moreover, the effects are larger over foreign firms, especially in manufacturing. In addition, competition strategies matter for private investment growth.