Introduction: Mexico’s Domestic Investment Puzzle

Mexico has become one of the most attractive destinations for global investors, particularly in manufacturing, nearshoring, and trade with the United States. Yet, despite the flow of foreign capital, the country continues to struggle with domestic investment in Mexico. According to the Milken Institute’s Global Opportunity Index 2025, Mexico ranked 62 out of 100 countries in terms of economic opportunities for investors.

The report highlights two structural challenges that Mexico must address to unlock greater local capital flows: innovation in Mexico and security in Mexico. Both factors are critical to building investor confidence and ensuring long-term economic growth.

Domestic Investment vs. Foreign Direct Investment

One of the striking insights from the Milken Institute’s analysis is the imbalance between domestic and foreign investment in Mexico. While foreign direct investment (FDI) has grown steadily, domestic investment in Mexico remains relatively weak.

Maggie Switek, Senior Director of Research at the Milken Institute, explained that in countries such as Brazil, domestic productive investment is on par with foreign investment. For Mexico, however, the gap is significant. This imbalance makes the economy heavily dependent on external capital flows, leaving it more vulnerable to global trade disputes and tariff policies.

“Mexico is advanced enough not to rely solely on foreign capital. The country has the potential to develop internal resources and encourage local investors to participate more actively,” Switek noted.

The Role of Governance, Security, and Rule of Law

To encourage domestic investment in Mexico, the foundation must be strong governance. The Milken Institute emphasizes that investors — both local and foreign — are highly sensitive to institutional stability.

Security in Mexico: An Ongoing Concern

One of the most pressing issues is security in Mexico. Persistent concerns about physical safety, crime, and the protection of assets directly influence investment decisions. Companies often face additional operational costs due to security measures, while individuals hesitate to commit capital in regions perceived as unsafe.

Addressing insecurity would not only improve the business climate but also strengthen local confidence. Domestic investors are less likely to expand in environments where risks are high and returns are uncertain.

Judicial Reforms and Rule of Law

Another factor influencing investor confidence is the evolving judicial framework. Recent reforms to the judiciary and debates around the role of autonomous institutions have created uncertainty. For many domestic investors, predictable legal processes and respect for the rule of law are essential conditions before committing capital.

Innovation in Mexico: A Missing Growth Engine

Beyond security, another key challenge is innovation in Mexico. Advanced economies that lead the Milken Institute’s ranking — including Sweden, the Netherlands, and the United States — consistently invest in research, development, and technology.

Why Innovation Matters

Innovation drives competitiveness, efficiency, and productivity. For Mexico, greater investment in innovation would mean:

Developing new industries beyond traditional manufacturing.

Increasing value-added production rather than relying solely on cost advantages.

Enhancing collaboration between universities, research centers, and the private sector.

By creating an innovation-driven economy, Mexico could attract not only foreign but also local capital, fostering stronger domestic investment in Mexico.

Mexico’s Standing in the Global Opportunity Index

The Milken Institute’s Global Opportunity Index 2025 ranks countries based on five categories:

Trade perception by businesses

Financial services

International norms and policies

Economic fundamentals

Institutional framework

Mexico placed 62nd globally, behind countries like Malaysia (31) and China (36), but ahead of Vietnam (73). The ranking was unchanged from 2024, as it still reflects data from that year and does not yet incorporate the effects of recent institutional changes.

The country performed best in areas such as trade perception, compliance with international norms, and macroeconomic fundamentals. However, weaknesses in security in Mexico and institutional trust weigh heavily on its overall position.

Domestic Investment as a Buffer Against Global Uncertainty

With global trade tensions, shifting tariff policies from the United States, and an increasingly complex geopolitical environment, diversifying capital sources becomes essential. Encouraging domestic investment in Mexico would provide resilience against external shocks.

If foreign investors see potential in Mexico despite challenges, there is no reason why local investors should not take similar positions. As Switek observed: “If foreign investors are arriving, I see no reason why local investors should not also settle in Mexico.”

Domestic capital plays a crucial role in ensuring sustainable economic growth, as it reflects confidence from within the country itself.

Mexico’s Path Forward: Policy Priorities

To boost domestic investment in Mexico, policymakers must take a comprehensive approach:

1. Strengthen Security

Reducing crime and improving the safety of both individuals and businesses will enhance investor confidence. Effective law enforcement and stronger local security measures are essential.

2. Enhance the Rule of Law

Clear, predictable, and fair judicial processes are vital for protecting property rights and contracts. Ensuring respect for autonomous institutions also plays a major role.

3. Promote Innovation in Mexico

Government incentives for R&D, partnerships between academia and industry, and support for startups can foster an innovation-driven economy. This would attract both local and international capital.

4. Build Investor Confidence

Stable macroeconomic policies, transparent regulations, and stronger financial services can help create a favorable environment for domestic investment in Mexico.

Conclusion: Turning Challenges into Opportunities

The findings of the Milken Institute underline the importance of innovation and security for Mexico’s economic future. While foreign direct investment continues to flow, building stronger domestic investment will require addressing security in Mexico and promoting innovation in Mexico.

By focusing on these two pillars, Mexico can transform current challenges into opportunities, ensuring sustainable growth and strengthening both its domestic and international investment landscape.