High-Profile Attacks, Regimes of Criminal Governance and Foreign Direct Investment in Mexico

Abstract

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This paper examines the influence of high-profile attacks (HPAs) on foreign direct investment (FDI) in Mexican municipalities. HPAs target political officials and signal attempts by organised criminal groups (OCGs) to dominate the local organisation of the communities under their influence. Such efforts to establish criminal governance controls can potentially create a stable environment conducive to FDI. Using a data set on HPAs and analysing their impact on sectoral FDI at the municipal level between 2007 and 2013 in Mexico, we find that HPAs do not discourage foreign investment. However, this effect depends on whether the establishment of criminal governance occurs amid widespread violence. Under conditions of generalised violence, the stabilising influence of HPAs has a negative effect on FDI, especially in the commerce and service sectors. Our findings offer new insights into the conditions under which organised crime affects FDI, contributing to an ongoing debate.