Mexico Falls Down

In this year’s FDI Confidence Index, published by A.T. Kearney, Mexico’s ranking plummeted from the third most attractive destination for foreign direct investment – just behind the US and China – to 22nd place. Considering Mexico’s vibrant democracy and membership in NAFTA, this is a shock. Why has Mexico fallen down? The conventional wisdom has it that Mexico and China are engaged in an epic struggle which only one can survive. And it will not be Mexico. Mexico was – with its plentiful and cheap labor – the preferred workshop for America. But Chinese labor beats Mexican labor handily on both cost and plentitude, so the American factory jobs that had headed south are now heading east. China’s rise is Mexico’s fall. There is some evidence to bear this out: over the period from 2001 to April 2004, according to A.T. Kearney, one of every four maquila manufacturing plants that had opened in Mexico – representing some 250,000 jobs in all – were shut down. And of the plants that were shut down, approximately one in three reportedly moved to China. But this explanation for Mexico’s woes makes little sense, as trade is not a zero-sum game. After all, the jobs that moved from the US to Mexico did not cause the US economy to crash. And the US, despite competition from both Mexico and China, remains one of the world’s top investment destinations. Perhaps one could claim that China ought to displace Mexico at the top of the FDI attractiveness rankings. But Mexico fell 19 places in a single year. Something more fundamental must be wrong. That something...