In this thesis I have examined the role of Foreign Direct Investments (FDI) in fuelling hostcountries economic developments. By looking closer into Mexico and the case of automobile industry which has been historically the subject of control of foreign affiliates I observed coinciding patterns. Through North American Free Trade Agreement (NAFTA) the channels between trade and investments have become more obvious and even transparent. Speaking about Mexico’s economic developments, albeit the total volumes of trade have increased, the country’s terms-of- trade were deteriorating following the post-NAFTA years. While conducting the research I have made use of neo-liberal economic discourses, theories of international trade and investment in order to explain the underlying motives for free-trade. These motives offer solid arguments to adopt the strategy of export orientation. While investigating the investments form multinationals and comparable Mexican trade performance, I have fund that exports and FDI flows have seemingly unrelated. The country has been a significant receiver of foreign imports at the time of post-NAFTA developments and huge FDI inflows. The result was that capacity of domestic production was limited and the trade imbalance ensured. Analysis explores closer relation between FDI and the country’s import levels which cause deterioration in the terms of trade and economic growth. The explanation lies in the nature of FDI per se. The type of investment in Mexico is essentially market-seeking, since it adjusts to the international competitive pressures, and search access to comparatively advantageous foreign markets, explained by the theory of capital movements. This paper also questions and raises concern with regard to the consequences of these pressures that leads to race-to-the-bottom policies.