Toward a Model of Foreign Direct Investment and Development Policy for Strategic Diversification

This master’s thesis investigates whether Germany can make itself less economically dependent on China through increased foreign direct investment (FDI) into Mexico. To approach this matter, several original models are formulated, with the centerpiece of the thesis being the Comprehensive FDI Analysis Model; an eclectically constructed decision path to guide users through the process of evaluating a target country with regards to its FDI fitness. Germany and Mexico function as exemplary home and host countries in the scenario of this thesis. To confront the proposed model approaches with practical insights, 19 semi-structured interviews were conducted with a total of 21 experts in FDI and development cooperation. Qualitative content analysis of their statements yielded the following results: Increased investment into Mexico can indeed help alleviate German dependence on China by way of diversifying value chains. When evaluating a country’s FDI fitness, the state of its private sector matters most, followed by the state of its institutions. In the private sector, factor conditions, existing networks of related and supporting industries and, ideally, the presence of clusters are the most relevant to FDI fitness. As far as the institutions are concerned, they are most conducive to FDI when they ease market access and grant investors long-term planning certainty. Mexico performs well within the FDI fitness criteria established in this thesis and is a highly suitable partner country for the industry- heavy German economy, with much potential for increased cooperation in near-shoring, vocational training and political alignment. Development cooperation has untapped potential to perform a complementary function to FDI. With minor adjustments, the Comprehensive FDI Analysis Model can be subjected to a future field test.
Keywords: Economic dependence, foreign direct investment, development cooperation, diversification, Germany, Mexico