Chanchal Kumar Sharma

Federalism and Foreign Direct Investment: How Political Affiliation Determines the Spatial Distribution of FDI – Evidence from India

GIGA Working Paper, No. 307, October 2017

This paper links the foreign economic engagement of India’s states with the literature on federalism, thereby contributing to an understanding of the political economy of FDI inflows in a parliamentary federal system. More specifically, it studies subnational governments’ international engagements to attract foreign direct investment (FDI) and investigates whether the political affiliations of states’ chief ministers and parliamentarians determine the spatial distribution of FDI across the Indian states, correcting for the influence of per capita income, population density, urbanisation, infrastructure, policy regime, and human development.

Although the central government plays no direct role in determining the state to which FDI goes, the centre–state relations in a federal structure play a role in creating perceptions about the relative political risk involved in different investment destinations. Employing multiple linear regressions to analyse time‐series (2000–2013) cross‐sectional (12 states) data using the panel procedure, the study finds that affiliated states attract relatively more FDI per capita in comparison to states ruled by opposition parties or coalition partners. However, some exceptions do result, primarily due to two phenomena: first, the presence of a strong state leadership and, second, the presence of a significant share of members of parliament belonging to the prime minister’s party in the non‐affiliated states. Further, states ruled by outside supporters have been most successful in attracting FDI inflows during the coalition period.

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GIGA AutorInnen

Dr. Chanchal Kumar Sharma is an associate at the German Institute for Global and Area Studies (GIGA) and a fellow at the Centre for Multilevel Federalism, Institute of Social Sciences, New Delhi. He teaches political science at the Central University of Haryana, Mahendergarh.

Aktuelle Publikationen der AutorInnen

Chanchal Kumar Sharma / Sandra Destradi / Johannes Plagemann

Partisan Federalism and Subnational Governments’ International Engagements: Insights from India

Publius: The Journal of Federalism, 50, 2020, 4, 566–592

Chanchal Kumar Sharma / Wilfried Swenden

Economic governance: Does it make or break a dominant party equilibrium? The case of India

International Political Science Review, 41, 2020, 3, 451-465

Arjan H. Schakel / Chanchal Kumar Sharma / Wilfried Swenden

India after the 2014 general elections: BJP dominance and the crisis of the third party system

Regional & Federal Studies, 2019, 329-354

Chanchal Kumar Sharma / Wilfried Swenden

Modi-fying Indian Federalism? Center–State Relations under Modi’s Tenure as Prime Minister

Indian Politics & Policy, 1, 2018, 1, 51-82