81 © Springer Nature Singapore Pte Ltd. 2018 M. Falck-Reyes, L. Guzman-Anaya (eds.), Japanese Direct Investment in Mexico’s Transport Equipment Sector, New Frontiers in Regional Science: Asian Perspectives 22, https://doi.org/10.1007/978-981-10-7718-0_5 Chapter 5 The Role of Public Policies in Attracting Japanese FDI in Mexico Maria Guadalupe Lugo-Sanchez Abstract With the debt crisis of the 1980s, an economic transition began, replacing import substitution industrialization, with the aim of adopting a series of structural reforms as a new model of economic growth. In order to obtain the benefits associ- ated with investment, governments in developing countries relaxed their barriers to foreign investment flows and actively promote the attraction of FDI through the provision of subsidies and tax incentives. In the empirical literature, four factors are identified as determinants of the FDI location decision: regional demand, regional production costs, regional policies and the regional presence of agglomeration economies. Studies focused on public policies as a determinant factor for the loca- tion of FDI in developing countries are relatively scarce. This study is focused on the fiscal policies offered by the Bajio states, and their role in attracting Japanese foreign direct investment in the automotive industry. Keywords Foreign direct investment · Public policies · Automotive industry · Mexico · Japan 5.1 Introduction In the empirical and theoretical economic literature, Foreign Direct Investment (here- after FDI) is regarded as a factor that stimulates economic growth. Many govern- ments, from both developed and developing countries consider that FDI can benefit the host country through externalities or spillovers effects associated with this type of investment. Therefore, both in Mexico and in other Latin American countries, the attraction of FDI was considered to be one of the main factors to achieve economic M. G. Lugo-Sanchez (*) Human Resources Department, University of Guadalajara, Zapopan, Mexico e-mail: lupita.lugsan@gmail.com