The middle-income trap and foreign direct investment: a mixed-methods approach centered on Mexico and South Korea

Anthony William Donald Anastasi ()
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Anthony William Donald Anastasi: Wenzhou Business College

Palgrave Communications, 2024, vol. 11, issue 1, 1-14

Abstract: Abstract While scholars extensively study the middle-income trap, gaps persist, particularly regarding foreign direct investment and its role in transitioning from middle- to high-income status. This mixed-methods research examines the relationship between foreign direct investment inflows and escaping the middle-income trap. Utilizing a comparative case study of the automotive industries in Mexico and South Korea during the 1960s to 2000s, alongside logistic regressions, we consistently observe a negative correlation; higher foreign direct investment inflows are associated with a decreased likelihood of escaping the middle-income trap. This confirms the World-Systems Theory’s view of the relationship between foreign direct investment inflows and the middle-income trap. The implications of this study should induce caution on the part of middle-income countries when accepting foreign direct investment in strategic, high-value-adding industries. This study recommends opting for purchasing foreign technology or for joint ventures that ensure technology transfers. This research addresses a critical gap, offering insights into the nuanced dynamics of foreign direct investment’s effects on the transition from middle to high-income status.

Date: 2024
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DOI: 10.1057/s41599-024-03662-6

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