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

While scholars extensively study the middle-income trap, gaps persist, particularly regarding foreign direct investment (FDI) and its role in transitioning from middle- to high-income status. This mixed-methods research examines the relationship between FDI inflows and escaping the middle-income trap (MIT). Using a comparative case study of the automotive industries in Mexico and South Korea (1960s–2000s) alongside logistic regressions, the study consistently observes a negative correlation: higher FDI inflows are associated with a decreased likelihood of escaping the MIT. The findings align with World-Systems Theory, suggesting that FDI can impede upgrading in strategic, high value–adding industries. Policy implications urge caution among middle-income countries in accepting FDI, advocating for technology purchases or joint ventures that ensure technology transfers. The research fills a critical gap by clarifying FDI’s nuanced effects on transitions from middle- to high-income status.