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This paper analyzes the evolution of Spanish foreign direct investment (FDI) in Latin America in recent years (from the 1990s through 2012). Additionally, a summary of the primary explanatory factors of FDI evolution in the three countries with the highest indices of Spanish investment (Brazil, Argentina and Mexico) is performed. The study finds that of the four factors analyzed (exchange rate, inflation, risk premium and gross domestic product (GDP)), only the exchange rate offers a significant and adequate (negative) relation as an explanatory factor of FDI evolution.

Keywords: foreign direct investment; Latin America; explanatory factors JEL classification: F21, O54

1. Introduction

The last twenty years have seen rapid growth of Spanish foreign direct investment (FDI), with most growth coming after Spain’s accession to the EU in 1986. Multinational companies are the dominant corporate form in the global economy and control half a million subsidiaries worldwide.

The expansion of the Spanish economy started at the beginning of the 1990s. Investment flowed to two geographical zones: the European Union and, particularly, Latin America.

In Latin America, these investment flows came to dominate infrastructure sectors and had direct repercussions for many companies in the region because they provided credit, energy or communications. Thus, they were highly important (Toral, 2003).

The decision of Spanish companies to invest in Latin America is motivated not only by a common language and culture (with the exception of Brazil). The primary motivating factor of FDI flows is the market size of the receiving countries (Chislett, 2003). The remaining factors, such as country risk, are of vital importance because they directly affect the demand for and the supply of loan funds in the international capital market.

Additionally, the inflation rate and gross domestic product (GDP) growth are factors that are closely linked to external debt. The commercial policies of the receiving country

* Elena Martínez, e-mail: and Francisco Jareño, e-mail:, Department of Economic Analysis and Finance, Department of Economic Analysis and Finance, Castilla-La Mancha University Economic and Business Science Faculty, Plaza de la Universidad, 1, 02071, Albacete (Spain).

Acknowledgement :We acknowledge the financial support provided by Junta de Comunidades de Castilla-La Mancha grant PEI11-0031-6939 and Ministerio de Ciencia e Innovación grant ECO2011-28134, which is partially supported by FEDER funds.


represent an additional factor because these policies are used by governments to regulate the flow of commerce with the rest of the world.

This paper aims to study the factors that directly affect Spanish FDI in Latin America and focuses on the countries with the highest rates of flows received from Spain: Brazil, Argentina and Mexico.

This paper includes an initial theoretical section, which includes a definition of FDI, its classification, advantages and disadvantages, as well as the factors that determine it. In section two, we determined from a general perspective the sectors and countries in Latin America that have attracted Spanish investment flows. In section three, we conduct a comparative analysis of the countries in question (Brazil, Argentina and Mexico) in terms of the factors analyzed. Last, we offer conclusions.

2. Definition of foreign direct investment (FDI): Advantages, disadvantages and determining factors

FDI is considered to be the most important vehicle for conducting international transactions. In the empirical literature, FDI is defined as an investment aimed at creating a durable interest with economic or corporate goals in the long term by a foreign investor in the receiving country.

Table 1: Summary of the pros and cons of FDI


 Generates more jobs  Forms a local monopoly

 Increases tax revenue  Decreases domestic savings

 Increases productivity  Capital flight

 Increases technological transfer  Political interests

 Higher income of the population

 Favors the process of economic reform

 and liberalization Source: author’s research.

As we can see in Table 1, FDI seems to have more advantages than disadvantages. FDI has a beneficial effect for developing countries. It contributes to growth through capital and finance inflows, thus improving productivity and economic efficiency. Additionally, it improves social conditions and reduces poverty in a country. However, it may lead to an unsustainable balance of payments and the formation of monopolies as a result of competitive advantage (technology). Therefore, we can state that FDI possesses a series of advantages that are beneficial when applied correctly and when they do not become obstacles to the activity and development established in a country.

It is important to recognize the primary factors that influence investment flows in one country and not in another. This issue is important for developing countries that desire to increase growth and, consequently, improve quality of life, using FDI.



Table 2 shows the primary determining factors for FDI, some of which have already been described in this paper.

Table 2: Determining factors for FDI

Source: CEPAL 1997.

Market size and economic growth represent varying degrees of wealth clustering, which conditions foreign investment flows. Countries with higher internal production have more opportunities to receive foreign investment (Mogroviejo, 2005). Therefore, it is easier for investing companies to generate economies of scale and thus use the advantages of the free movement of the production factors. There is a certain type of FDI that seeks larger markets, which does not occur directly but indirectly. In this context, an economy that offers commercial or geographical advantages could attract FDI that seeks to enter a broader market, which is linked with a higher volume of international trade.

Determining factors for FDI

 Economies of scale

 GDP Market size

 Population

 Political risk Country risk

 Economic solvency of receiving country

 Exports

 Imports Commercial openness

 Degree of commercial openness

 Average wage cost Labor costs

 Percentage of qualified workforce

 GDP growth

 Exchange rate volatility

 Inflation

 Internal savings rate Macroeconomic stability

 Exchange rate

 Level of tariff protection Trade policies

 Corporate tax rate

 Research and development intensity

 Publicity expenditure intensity

 Availability of natural resources Intensity and availability of

production factors

 Presence of qualified labor

 Proximity to investment countries of origin

 Transport costs

 Degree of industrial agglomeration Other comparative advantages

 Existence of sunk costs


Because FDI aims to take advantage of existing natural resources, commercial openness is another factor that affects the evolution of investments. This way of thinking is the most traditional and antiquated. However, currently, this type of FDI is losing its standing worldwide, partly because factor abundance is relatively fixed but also as a result of the emergence of many other goods that can substitute for this type of resource.

Country risk is a factor that can represent the internal institutional framework of receiving countries. The dynamic between political and social acts is an important part of the framework of the many decisive variables that affect the decisions of firms to invest abroad. In these situations, for example, institutional deficiencies that result in a lack of civic trust, political instability, a high level of corruption among public officials, can cause any enterprise – foreign of national – to fail (Mogroviejo, 2005).

Labor costs are not statistically significant except in labor-intensive industries and subsidiaries focused on export. However, this variable lacks the strength to be the sole decisive factor in location decisions.

Macroeconomic stability can be a factor that encourages FDI. More economic stability and less uncertainty regarding the future macroeconomic situation can make a country more attractive for possible FDI inflows. In this context, a stable economic environment with healthy public finances and a transparent foreign exchange regime can be fundamental for attracting certain types of FDI.

As for commercial policies, there are three basic types: fiscal incentives, financial incentives and promotion policies. The first two types involve direct expenditure or a positive opportunity cost. Both types of policy discriminate in favor of foreign companies and thus imply the introduction of distortions in the way the economy functions. In these cases, normally, there is more space for discretionary power and consequently corruption.

The third type of policy is generally less costly and neutral.

The intensity and availability of production factors results in the search for highly qualified labor by companies, a certain type of infrastructure or the development of a certain type of knowledge (know-how). In this case, FDI is aimed at developing software, research and development activities or the production of goods with high-end technology.

Finally, other comparative advantages that determine the presence of FDI include high transport costs, the proximity of, e.g., the primary suppliers (which are key to reducing ensuing costs) and the proximity of raw materials.

3. FDI in Latin America

In the last decade, Spain has consolidated its position as the primary European investor in Latin America. In the first half of the decade, its share in European FDI directed to the region amounted to 52%, decreasing to a lower rate of 45% in the second half of the decade. Spanish investments were primarily channeled into services such as energy, telecommunications, infrastructure and banking and into the oil and gas extraction. In fact, between 2000 and 2010, 86% of Spanish FDI in the region was channeled into services, whereas the manufacturing sector (primarily in Brazil) and the primary sector received 12% and 2%, respectively (Arahuetes, 2011). This process was driven by a small number of companies (e.g., Telefónica, Gas Natural Fenosa, Santander, Sol Meliá).



Large Spanish service companies were responsible for several of the largest acquisitions in the region, which enabled them to quickly attain a leadership position in the markets in which they operated. We can observe in greater detail in Figure 1 Spain’s participation in the Latin American countries. As shown in the figure, the preferred recipient countries of this FDI were Brazil, Mexico, Chile and Argentina, which (together) represent approximately 86% of Spanish FDI in the region.

Figure 1: Spain’s participation in Latin America by country between 1997-2012

Source: author’s research based on data from

Until approximately the first half of 2000, Spanish investments were primarily directed to Latin America. However, the start of this decade was a tumultuous time for Spanish companies. Argentina’s economic and political crisis reversed this pattern and had a strong negative effect on companies that operated in the services subsector. This reversal resulted in a shift in focus toward investments in other countries. Thus, in recent years, Spanish investment flows in the region have decreased (Figure 2). However, this decrease did not mark the end of operations in the region. Spanish companies have maintained leading positions in the service and extraction sectors.

Between 2001 and 2003, the large increase in Spanish investment in Latin America ended. However, in 2004, foreign investment again re-emerged, targeting new sectors (construction and tourism), financial activities (insurance) and manufacturing. Thus, while the amounts invested by Spanish companies in the second half of the decade were


lower, their corporate presence became diversified, and the predominance of services increased.

Figure 2: Spanish FDI in Latin America

Source: author´s research based on data from

In recent years, Spanish investment has decreased because of structural and cyclical issues. Among the structural aspects, we can identify the end of the privatization push and renewed Spanish interest in member states of the European Union and other developing regions. More circumstantially, the adverse effects of the crisis for the Spanish economy have also affected investment in the region. Nevertheless, the operations of diverse companies in Latin America have been important in the fight against the crisis (CEPAL, 2011).

The interest of Spanish companies in Latin America is focused on using their cultural, linguistic, legal and administrative know-how to achieve a competitive advantage. Thus, they have achieved strong positioning in the Latin American market by channeling a large part of Spanish FDI into many of the previously mentioned sectors.

4. Comparative analysis: Brazil, Argentina and Mexico a. Preliminary analysis

In this section, we perform a comparative analysis of Spanish investment in Brazil, Mexico and Argentina, the primary receiving countries of Spanish FDI. To this end, we study the different factors that can help explain the evolution of Spanish FDI directed to each of these countries in recent years. It is important to note that in this analysis, we must account for the dramatic crisis in Argentina in 2001, which affected Spanish investment in Latin America as a whole.

As we can see in Figure 3, until 2000, Spanish investment flows were focused on Argentina and Brazil, with Argentina as the primary focus for the Spanish economy. With the Argentinean crisis, Spanish flows decreased by a factor of four compared with the amounts invested in prior years. However, it is noteworthy (as previously mentioned) that this crisis not only affected Argentina but also, as we show in the figure, Brazil and to a lesser degree Mexico.



Figure 3: Gross investment flows from Spain (thousand Euros)

Source: author’s research based on data

In the aftermath of the crisis in Argentina, Spanish flows were channeled into the Mexican market, which acquired a greater significance in subsequent years. Despite this trend change in the Spanish economy, at the end of the period analyzed, Brazil remained the leading receiving country in terms of Spanish FDI.Regarding market size growth, based on the data shown in Figure 4 for recent years, we can state that Brazil is first in Latin America, Argentina second and Mexico third.

Figure 4: Evolution of the GDP per capita, USD

Source: author’s research. Data: from United Nations.

The growth of the Brazilian and Argentinean economies in the crisis years is highly similar. We can observe that during this period the Mexican economy could use its resources to grow and situate itself as an economy comparable to those of Brazil and Argentina.

This growth rate was and is a significant decisive factor for investing in these countries by Spanish companies.

In the case of Brazil, Spain decided to invest in this country because it had the region’s largest GDP and a diversified production structure. In this context, those Spanish companies whose strategy was focused on “market search” found in Brazil a large market


with large growth opportunities. Additionally, since 1991, Brazil has been participating in various regional integration processes, which make it a strategic “platform” for companies with export interests.

However, despite the severe crisis experienced by Spain in the eurozone, Mexico has consolidated its position as an important trading partner with investment flows that have increased virtually ceaselessly. Spain’s presence in Mexico was third behind the United States and Holland.

Because of the expropriation of Yacimientos Petrolíferos Fiscales (YPF) by the Argentinean government, bilateral relations between Spain and Argentina are not at their best. YPF’s renationalization is only one example of increasing protectionism in Argentina, which jeopardizes foreign companies in the country and future investments.

For years, legal insecurity and the exchange rate have been the primary risks with respect to investing in Argentina. In this context, the country is losing competitiveness compared with surrounding countries, such as Chile, Peru or Brazil, which are more attractive for foreign investment.

Figure 5: Inflation rate (%)

Source: author’s research based on data from

In Figure 5, we can observe the evolution of the inflation rate in the three study countries.

In Brazil, the inflation rate was maintained at stable levels until the end of the analyzed period. However, we can observe how at the start of the period, the inflation rate started increasing and reached a considerable maximum level of 14.7% in 2003, which was reduced by government policy actions. Currently, Brazil’s inflation is approximately 6%.

The inflation rate has been and continues to be a recurrent problem in Argentina’s political, social and economic life. As shown in Figure 5, inflation has been endemic in Argentina for years, with the result that Argentines accept annual double-digit inflation as normal. The maximum value achieved was 40% in 2002, a year after the country suffered a severe crisis. Despite the crisis, Argentina was able to reduce this factor notably in 2003 and control it in subsequent years. However, we observe that the inflation rate in recent years has presented a growing trend with some downward fluctuations.

In Mexico, the average annual inflation rate during the analyzed period has been maintained at a stable and low level. In Figure 5, we can observe in detail the falling trend presented by this analyzed factor in Mexico. Between 1999 and 2000, the inflation rate



was higher. However, since 2001, the situation has changed, and Mexico has reduced its inflation rate.

Figure 6: Evolution of the exchange rate FX

Source: author’s research. Data:

The increase in investment and the evolution of the exchange rate comprise one of the primary challenges of the Brazilian economy (AFI, 2013). As shown in Figure 6, the fluctuations of the exchange rate reflect significant depreciation at the start of the analyzed period (2003 to 2005), a period that coincides with a high inflation rate.

Brazil will continue to face difficulties managing the exchange rate (using futures market operations and fiscal adjustments on capital inflows). The Brazilian monetary authorities have tried to weaken the Real to decrease pressure on the manufacturing sector. However, with the return of inflation, in the short term, they could allow some strengthening of their currency. Overall, forecasts suggest that in the medium term authorities will try to weaken the real in nominal terms.

In the case of Argentina, exchange rate policy continues to be considered a central element of the different economic models implemented there. Since 1993, the Central Bank of Argentina has periodically calculated the exchange rate, including the currencies of the most important trading partners.

Between 1991 and 2001, during the convertibility regime, exchange parity was constituted as a basic policy pillar to tame inflation, incentivize the modernization of the production structure and create confidence in the country’s economic stability.

The devaluation of the Argentine peso, which since 2011 has reached historically low levels in terms of the US dollar and the euro, is part of the policy of “controlled floating”

conducted by the Central Bank of the Republic of Argentina, with the mandate to preserve monetary reserves and guarantee exchange rate competitiveness.

The economy of Mexico is tightly linked to the exchange rate. The fluctuations of this variable affect on a daily basis multiple commercial and financial transactions in and out of the country.


As shown in Figure 6, the exchange rate for the Mexico peso followed an increasing trend during 2002-2006, with small rising fluctuations in recent years. This trend is similar to that of Argentina.

Figure 7: Evolution of country risk EMBI+

Source: author’s research based on data from

In the analysis of country risk, we will focus on the Emerging Markets Bond Index (EMBI+), which is a transparent index that represents opportunities available for investors. It assigns more weight to fluctuations in the debt of countries whose importance is relatively higher in the international market (Díaz, Gallego and Pallicera, 2007-2008).

The EMBI+ index for Brazil increased at the start of the period, achieving its maximum value of nearly 1,600 base points (bp) in 2002 because of the crisis suffered in Argentina in 2001, which caused the country to reach in 2002 a level over 6,000 bp. As we have been able to observe in the inflation rate and exchange rate figures (Figures 5 and 6, respectively), the economy experienced a slowdown, which resulted in lower confidence and solvency for the country. Since 2004, the EMBI+ followed a downward trend that coincided with recovery from the crisis. In subsequent years, the EMBI+ index has closed fiscal years with values of approximately 1,000 bp. According to J.P. Morgan, Argentina is included among the 20 emerging countries. However, the EMBI+ of Argentina has been the only one to increase. The current situation is similar to that of the crisis in 2001 (Figure 7).

Nevertheless, in recent years, Brazil has increased its investment inflows from other countries, particularly Spain. With the current financial crisis, many companies have taken the opportunity to invest or establish themselves in Brazil because, as noted at this section’s beginning, Brazil is an attractive country for investors.

The improvement of country risk in Mexico has been generated primarily by economic activity, healthy public finances and the recovery of the Mexican peso. However, other factors have also helped improve this indicator, such as the inflow of monetary resources from abroad.

The country risk of Mexico is better positioned than that of other countries, including some from the euro area.


139 b. Correlation analysis

This section’s purpose is to analyze whether the different factors studied here explain the fluctuations of Spanish FDI in Brazil, Argentina and Mexico during the study period.

To analyze the relation between the most important factors and FDI, we use scatter charts, including their corresponding regression line, which minimizes the sum of the square roots of deviations from each point of the line. Additionally, we analyze the correlation coefficients between our study’s independent variable (Spanish FDI) and the explanatory factors (exchange rate, inflation rate, country risk and GDP growth). Finally, we study whether the correlation coefficients obtained are statistically significant.


The relation between the analyzed variables and Spanish investment flows to Argentina is markedly negative for all of the studied factors. A possible explanation can be found in the crisis suffered by the country in 2001, which could have the effect of reducing inbound FDI into the country.

Figure 8: Relation between Spanish FDI and the exchange rate, inflation rate, country risk and GDP

0 1 2 3 4 5 6

0 5000000 10000000 15000000 20000000 Euro/ARS

Gross investment flows in euros from Spain to Argentina

-10 0 10 20 30 40 50

0 5000000 10000000 15000000 20000000

Inflation rate (%)

Gross investment flows in euros from Spain to Argentina

0 1000 2000 3000 4000 5000 6000 7000

0.00 5,000,000.00 10,000,000.00 15,000,000.00 20,000,000.00 EMBI+ (bp)

Gross investment flows in euros from Spain to Argentina -15 -10 -5 0 5 10 15

0.00 5,000,000.00 10,000,000.00 15,000,000.00 20,000,000.00 GDP growth

rate (%)

Gross investment flows in euros from Spain to Argentina

Source: author’s research.


As we can see in Figure 9, there is a negative relation between FDI and the exchange rate and the inflation rate. However, the relation is positive between FDI and risk premium and apparently constant for Spanish FDI and the GDP growth rate. Therefore, we observe that there is a clear relation between investment flows and the majority of variables used (except GDP growth).


Figure 9: Relation of Spanish FDI and the exchange rate, inflation rate, country risk and GDP

0 0.5 1 1.5 2 2.5 3 3.5 4

0 10000000 20000000 30000000


Gross investment flows in euros from Spain to Brazil

0 2 4 6 8 10 12 14 16

0 5000000 10000000 15000000 20000000 25000000 Inflation rate


Gross investment flows in euros from Spain to Brazil

0 200 400 600 800 1000 1200 1400 1600 1800

0 5000000 10000000 15000000 20000000 25000000 EMBI+ (bp)

Gross investment flows in euros from Spain to Brazil -1 0 1 2 3 4 5 6 7 8

0 5000000 10000000 15000000 20000000 25000000 GDP growth

rate (%)

Gross investment flows in euros from Spain to Brazil

Source: author’s research.


In this case, Mexico displays a weak positive relation between Spanish investment flows and the factors “inflation rate”, “risk premium” and “GDP growth”. Meanwhile, the explanatory factor “exchange rate” exhibits a weakly negative relation.

Figure 10: Relation between Spanish FDI and the exchange rate, inflation rate, country risk and GDP

0 2 4 6 8 10 12 14 16 18 20

0 1000000 2000000 3000000 4000000 5000000 Euro/MXN

Gross investment flows in euros from Spain to Mexico

0 2 4 6 8 10 12 14 16

0 1000000 2000000 3000000 4000000 5000000 Inflation rate


Gross investment flows in euros from Spain to Mexico

0 50 100 150 200 250 300 350 400 450 500

0 1000000 2000000 3000000 4000000 5000000

EMBI+ (bp)

Gross investment flows in euros from Spain to Mexico -8 -6 -4 -2 0 2 4 6 8

0 1000000 2000000 3000000 4000000 5000000

GDP growth rate (%)

Gross investment flows in euros from Spain to Mexico

Source: author’s research.



Therefore, regarding the previous figures taken together, we can conclude the following:

Spanish investment flows present a negative relation with the factor “exchange rate” for Brazil and Argentina and constant relation for Mexico. The same occurs for the inflation rate. Conversely, the level of country risk linked to Spanish FDI presents a positive relation for Brazil and Mexico. However, for Argentina, this relation is negative, which is a decisive fact with respect to investing in the country. Last, GDP growth in all three countries maintains a relation that approaches zero (which indicates a non-existent relation between Spanish FDI and the GDP growth rate), whereas in the case of Argentina, the growth rate presents a negative relation. The tables included below (3-7) show the main descriptive statistics of Spanish investment flows to Brazil, Argentina and Mexico as well as the explanatory variables analyzed.

Table 3: Main descriptive statistics of Spanish FDI in Argentina, Brazil and Mexico

Mean Median Maximum Minimum Stand. Dev.

FDI_ARGENTINA 1,934,057 531,351.5 15,647,392 155,612.8 4,059,990 FDI_BRAZIL 4,002,746 1,428,453 21,475,277 716,982.6 5,940,748 FDI_MEXICO 2,094,333 1,858,209 4,040,386 275,529.3 1,322,619 Asymmetry Kurtosis Jarque-Bera Probab. Observs.

FDI_ARGENTINA 3.033549 10.80234 56.98363 0.000000 14 FDI_BRAZIL 2.220200 6.658726 19.31034 0.000064 14 FDI_MEXICO 0.337022 1.688424 1.268498 0.530334 14 Source: author’s research.

On average, Brazil receives the highest volume of Spanish FDI. It also has the maximum value of these investment flows. Conversely, Argentina displays the minimum value of investment flows. Mexico exhibits the maximum value in the median.

Table 4: Main descriptive statistics of the factor Exchange rate: Argentina, Brazil and Mexico Mean Median Maximum Minimum Stand. Dev.

FX_ARGENTINA 3.363891 3.501400 5.355900 0.661200 1.537636 FX_BRAZIL 2.314193 2.180850 3.392200 1.499140 0.517383 FX_MEXICO 12.68296 13.34150 17.27400 7.794800 3.362484 Asymmetry Kurtosis Jarque-Bera Probab. Observs.

FX_ARGENTINA -0.647552 2.198426 1.353225 0.508336 14 FX_BRAZIL 0.593305 2.741352 0.860384 0.650384 14 FX_MEXICO -0.267044 1.632901 1.256623 0.533492 14 Source: author’s research.

Regarding the factor “exchange rate”, Mexico achieves the highest values with respect to the mean, median and maximum. Argentina presents the minimum value in the exchange rate registered for this variable.

Table 5: Primary descriptive statistics of the factor Inflation rate: Argentina, Brazil and Mexico Mean Median Maximum Minimum Stand. Dev.

INF_ARGENTINA 11.60000 9.050000 41.00000 -2.000.000 11.26533 INF_BRAZIL 6.457143 5.850000 14.70000 3.000000 2.817450 INF_MEXICO 5.564286 4.300000 15.00000 3.400000 3.141682 Asymmetry Kurtosis Jarque-Bera Probab. Observs.

INF_ARGENTINA 1.343249 4.426796 5.397591 0.067286 14 INF_BRAZIL 1.760101 6.388125 13.92487 0.000947 14 INF_MEXICO 2.145153 6.940682 19.79582 0.000050 14 Source: author’s research.


Argentina presents most extreme values in the majority of descriptive statistics (mean, median, maximum, minimum and standard deviation) linked to the factor “inflation rate”.

This outcome represents additional evidence of the problems Argentina has had in controlling the inflation rate.

Table 6: Primary descriptive statistics of the factor “Risk premium” in Argentina, Brazil and Mexico

Mean Median Maximum Minimum Stand. Dev.

PREM_ARGENTINA 1,957.429 874.0000 6,362.000 324.0000 2,101.648 PREM_BRAZIL 579.0871 443.6000 1,594.000 175.0000 402.8326 PREM_MEXICO 285.0714 259.5000 435.0000 148.0000 105.2648 Asymmetry Kurtosis Jarque-Bera Probab. Observs.

PREM_ARGENTINA 1.267897 2.907245 3.756000 0.152896 14 PREM_BRAZIL 1.084249 3.720245 3.045661 0.218094 14 PREM_MEXICO 0.235603 1.497932 1.445641 0.485381 14 Source: author’s research.

As with the inflation rate, Argentina exhibits the highest values for the factor “risk premium” in the mean, median and maximum value achieved for the risk premium of the country. The minimum value in this case appears for Mexico.

Last, for “GDP growth rate”, Argentina is again the country with the maximum and minimum values. Thus, its volatility is also higher than in the other analyzed countries (expressed by standard deviation).

Table 7: Primary descriptive statistics of the factor “GDP growth” in Argentina, Brazil and Mexico

Mean Median Maximum Minimum Stand. Dev.

GDP_ARGENTINA 3.742857 7.650000 9.200000 -1.090.000 6.561978 GDP_BRAZIL 2.914286 2.500000 7.500000 -0.200000 2.320762 GDP_MEXICO 2.614286 3.600000 6.600000 -6.200.000 3.177531 Asymmetry Kurtosis Jarque-Bera Probab. Observs.

GDP_ARGENTINA -0.896172 2.617186 1.959443 0.375416 14

GDP_BRAZIL 0.346752 2.158639 0.693488 0.706986 14

GDP_MEXICO -1.500.025 5.278346 8.278177 0.015937 14

Source: author’s research.

Based on the analysis conducted, to confirm whether the relations between Spanish FDI in each of the countries and the factors studies are statistically significant, we provide the corresponding correlation coefficients and their statistical significance in Table 8.

Table 8: Correlation coefficients of the primary explanatory factors by country


ARGENTINA -0.600317b -0.427455 -0.185498 -0.380125 BRAZIL -0.450136a -0.140868 0.212987 0.000315

MEXICO -0.038743 0.089325 0.270679 0.059363

a p<0.10, b p<0.05, c p<0.01. Source: author’s research.



The correlation coefficients include the effect of each analyzed factor on Spanish FDI in each country (Brazil, Argentina and Mexico). This relation is negative and significant for the factor “exchange rate”, both in Argentina and Brazil (Table 8).

The inflation rate also presents a negative relation with FDI for Argentina and Brazil and a positive relation for Mexico. However, the coefficients are not significant.

Last, we observe that both risk premium and GDP growth have a negative coefficient for Argentina but are positive for Brazil and Mexico. In this case, the coefficients are not statistically significant.

Therefore, we should emphasize that the exchange rate is the only factor with statistical significance in the analyzed countries and the study period. That is, the exchange rate is the factor with the greatest explanatory value with respect to Spanish FDI in Brazil, Argentina and Mexico.

This negative relation implies that the higher the exchange rate expressed in €/currency of the analyzed country is, the greater the value of the alternative currency and, thus, the lower the potential Spanish FDI in the country. In contrast, a lower exchange rate

€/alternative currency determines the strength of the euro, which involves higher Spanish FDI in the analyzed country. The obtained data demonstrate a negative and significant relation between Spanish FDI and the FX that increases to 60% in the case of Argentina and 45% for Brazil.

5. Conclusions

Latin America has become an investment destination of choice not just for Spain but also other European and Asian countries.

Spanish investment flows to Latin America started to play an important role at the beginning of the 1990s, and by the end of the decade, Spain’s position as the region’s primary investor was consolidated. However, the crisis suffered by Argentina in 2001 greatly affected European companies, above all those from Spain. As a consequence, in 2003, Spanish investment suffered the largest decrease registered for a decade. Business opportunities can be plentiful for more experienced Spanish companies that are starting their internationalization process as a result of the current economic crisis, given the cultural proximity and growth of the internal markets of the two countries.

Spanish investment in Latin America tends to prefer large markets, such as Brazil, Argentina and Mexico, given their strong economic and business dynamism.

Mexico’s inflation rate is among the lowest, not only compared with the analyzed countries but for Latin America countries as a whole. Brazil has taken advantage of improved exchange rates and GDP growth. In contrast, Argentina has the highest rates of inflation, which have been moderate in the other of Latin American countries.

Although Brazil’s economic situation has been unstable and consumer prices have demonstrated volatility in recent years, Brazil has managed impressive market growth rates, which has caused Spanish business to choose Brazil as the primary recipient of financial flows.

The second position is contested by Mexico and Argentina. Based on the data analyzed in this paper, Mexico occupies that position because for Spain it is a country of opportunity.

In recent years, many companies have chosen this country as their investment destination.


Although Spanish investment started flowing late, Mexico managed to move between Brazil and Argentina, which were the previous leaders.

Last, Argentina is the third most attractive country for Spanish investors. Until 2000, Argentina was the primary recipient of Spanish investment. However, given the acute crisis suffered by the country, investment flows were considerably reduced. However, Argentina has inflation rates at a higher level than Brazil and Mexico. Additionally, the EMBI+ index demonstrates high values, which has resulted in doubt on the part of Spanish investors who are considering Argentina. Nevertheless, Argentina has many other qualities and aspects that are relevant for Spanish investors, such as its quantity of natural resources, the workforce, good education levels and an important industrial base.

Based on the comparative analysis, we can conclude that Spanish investment flows to Brazil are increasing despite fluctuations generated by the exchange rate. The same can be said for Mexico. In the case of Argentina, the risk premium and the high inflation rate are harming the country because it is less able to absorb Spanish investment flows.

Generally, we find a positive relation between FDI and the factor “GDP growth” because the three countries have growing economies, particularly Brazil, which is already considered to be an economic “heavyweight”.

Last, it is important to note that the only factor that demonstrates a statistically significant relation with Spanish FDI is the exchange rate. This relation is strongly negative for both Argentina (60%) and Brazil (45%).


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