All exclusive: the politics of offshore finance in Mexico

At first sight, Mexico appears to be a textbook example of a state affected by offshore finance. Offshore financial services allow corporations and the wealthy to plan taxes, avoid regulations or to launder money. The literature holds that large, developing, open economies, with geographical proximity to offshore centers and problems of crime and corruption are particularly affected by offshoring. By this logic, we should expect Mexico to show a significant demand for offshore financial services. Yet, new empirical evidence derived from interviews and banking statistics suggests otherwise. Mexican firms and individuals make only limited use of offshore finance. The article explains why. Building on a Weberian notion of the state, the article shows that the historically exclusive nature of Mexico’s state concentrates political and economic power such that the onshore economy offers similar rents for economic elites as offshoring. Moreover, in instances where economic actors use offshore services it is driven by banking, not taxation. These findings have two theoretical implications. First, they confirm that institutions matter, though differently than hitherto thought. Second, we must look beyond taxation to include banking into our analyses.