Coalition Politics and Foreign Direct Investments: a Sub-national Study of India

Why do some states attract more Foreign Direct Investments (FDI) than others? Existing literature on FDI is majorly focused on analyzing cross-national variation of FDI inflows and quantifying the return on investments by means of economic and international trade causal mechanisms. However, research so far has not adequately addressed the effect of domestic politics and inter- governmental interactions on FDI inflows at a sub-national level. This dissertation addresses this gap by exploring the effects of political structural differences between state and central coalition governments on foreign direct investments in India. I argue that ideological and political differences between state and central governments have a significant effect on FDI flows to states. I hypothesize that higher the political differences, lesser the FDI inflows. Using a mixed methods approach to analyzing FDI inflows between 2000-2019 to 28 states of India, I provide evidence that that politically affiliated states attract relatively more FDI inflows in comparison to states ruled by opposition parties or coalition partners. The findings highlight how several political and regional factors cumulatively play a role in determining the level of FDI inflows as opposed to these factors being considered independently and when aggregated at a national level.