Foreign direct investment and small firm employment in northern Mexico: 1987-1996

This study analyses the impact of foreign direct investment on small business employment along the border in Mexico between 1987 and 1996. During this period, unprecedented levels of foreign direct investment flowed to Mexico, most notably to the northern border region. At the same time, it appears that internal migration of workers from the interior to the border occurred in response to employment generated by this investment. Utilizing 1987 and 1996 data from the Encuesta Nacional de Empleo Urbano, bivariate probit models of employment and small/ large firm employment for the border and interior regions are estimated. The results suggest that the increased employment share captured by large firms in the border may have hindered growth in the small business sector. A better understanding of the impact of FDI flows on small businesses may help policymakers in developing countries as they strive to create broad-based economic growth.