Soy is the largest export for both Brazil and Argentina. For Colombia, it’s oil. For Chile, copper.

But there is one major exception to this regional trend: Mexico, for which manufactured goods represent nearly 90% of exports. In fact, if you tripled the total manufacturing exports from the rest of Latin America (including Brazil), Mexico alone would still have more each year.

A variety of elements have helped Mexico develop its economy to escape the commodity trap facing much of Latin America today. And one big factor? Foreign investment, of which Mexico was the ninth-largest recipient in the world last year.

Foreign direct investment (FDI) refers to when a company in one country invests in another country with the aim of maintaining a controlling lasting interest. This investment can take the form of establishing a new local subsidiary abroad or buying up a significant stake of an existing foreign company.

Now, foreign investment has been a crucial source of external capital for Latin America for decades. And in the case of Mexico, there is an absolute FDI boom going on right now, one which brought in over $36B just last year.

A breakdown of foreign investment in Mexico

As expected, over a third of all foreign investment in Mexico comes from its primary trade partner, the United States. The US-Mexico trade relationship is the world’s largest and spans sectors as diverse as the auto industry to oil, insurance, and beyond.

True to form, US-based firms are investing big down south, adding to an existing $207B in national FDI stock. Adding to companies from farther-off players like Canada and Spain, there’s been a clear FDI uptick in recent years on the back of a new post-pandemic trend called nearshoring.

Nearshoring refers to a trend in which companies reduce their exposure to supply chain disruptions by bringing operations nearer the final consumer market. It’s a relatively new stage of globalization, one seeking to avoid the pitfalls of overextended supply chains by moving production centers closer to home rather than merely where labor or resources might be cheapest.

Did the pandemic shut down your factories halfway across the world? Are geopolitical tensions disrupting your shipments? Major waterways getting clogged by some rough winds? Nearshoring might just be for you.

Where is all the nearshoring money coming from?

Mexico is unsurprisingly a major benefactor of this boom, as a G20 economy with a large, educated workforce and a strategic location right on the US border. Nearshoring-linked FDI in industrial sectors (think of the motor vehicle, pharmaceutical, or beverage industries) grew by over 47% between just 2022 and 2023.

In fact, per numbers by Mexico’s Competitiveness Institute (IMCO) just about half of all US investment from last year was nearshoring in nature, reflecting American companies’ interest in relocating their production (and capital) towards a friendlier, more strategic location. Large automakers from industrial heavyweights like Germany, China, and Japan are also taking advantage of Mexico’s unique labor and trade terms to open up new assembly plants near the US consumer market.

So plenty of nearshoring money has come in, whether in the form of massive electric vehicle factories in Coahuila or multimillion pharmaceutical plants near the country’s capital. But do locals stand to benefit?

Well, foreign investment can bring a number of benefits to recipient countries, including boosting exports and productivity growth through technology transfer. It also tends to create higher-quality, higher-paid jobs and even indirectly leads to job creation in domestic-owned firms due to spillovers in other sectors.

And Mexico is seeing this play out in real time: many of the states attracting the most FDI also have the highest average wages in the country.

Is foreign investment boosting workers’ wages?

Northern border states like Baja California, Chihuahua, and Nuevo León have long stood to benefit from their proximity to the US. Foreign investment is no exception, going back to the tariff-free maquiladoras which cropped up in the mid-20^th century and have employed millions of Mexicans ever since.

Today the northernmost states lead the country in both FDI and workers’ income, joined by the tourism hotspot of Baja California Sur and of course the nation’s capital of Mexico City.

On the flip side, Chiapas, historically the least developed Mexican state, has struggled to attract FDI and grow workers’ wages. This can partly be explained by geography, but also as a result of economic activity: the agriculture-heavy state has seen less technology investment than its more industrial peers to the north.

But as always, where there’s a challenge there’s an opportunity. The Mexican digital economy is currently responsible for an estimated $60B in domestic economic value each year. In March, the federal government agreed to explore cooperation opportunities with its northern neighbor to promote the development of North American semiconductor supply chains. And above all, firms on both sides of the border are working hand-in-hand to solve complex logistical problems through technology and innovation.

One key factor to capitalizing on the nearshoring opportunities available to Mexico is boosting domestic investment. Despite its impressive industrial output and hundreds of homegrown tech firms, Mexico has long lagged even other Latin American countries when it comes to spending on research and development (R&D).

Mexico falls behind on Research and Development

Yet the soil is already fertile for changing this and boosting R&D spending in order to grow prosperity. Mexico’s IT industry saw an average annual growth rate of 10.5% between 2002 and 2018. The country has some of the greatest universities in the world and among the best entrepreneurial ecosystems in Latin America. Mexico City is the second-largest tech hub in the region, behind only São Paulo, while Guadalajara has affectionately earned the nickname of “Mexico’s Silicon Valley.”

Even the political scene offers great potential for increasing R&D expenditure, as incoming president Claudia Sheinbaum has announced the creation of a new Ministry for Science, Humanities, Technology and Innovation.