Social and cultural factors in FDI flows – evidence from the Indian states

SHRADDHA SATHE, SHIPPING CORPORATION OF INDIA, INDIA
MORRISON HANDLEY-SCHACHLER, NAPIER UNIVERSITY, UK

FDI is of increasing importance for both developing and industrialized countries, with the UN estimating total FDI flows at $560 billion in 2003 (UNCTAD 2004), of which an increasing share went to developing countries. These investment flows can have a major impact on the economic environment and competitiveness of developing countries. Yet they remain uneven, with some countries and some regions within countries attracting more FDI in relation to their population and economic activity than others. This study examines the possible cultural factors affecting FDI in different regions of one large emerging economy, namely India, in terms of the varying religious, social and political backgrounds of the different states. Although a substantial amount of literature exists in relation to the effects of culture on business practice, less has been published on the effects of culture on international trade and investment. In addition, culture is often quite narrowly defined in terms of implicit psychological attitudes, with far less attention being paid to the effects of explicit cultural features such as religion and political philosophy or to sociological factors such as urbanization and education levels, which may have a crucial effect on the ability of countries and regions to attract FDI and on the uses to which FDI inflows are put. This study considers the relationship between a wide range of cultural factors and levels of FDI in the 28 Indian states.
Keywords: Foreign Direct Investment; India; Culture; Urbanization; Economic Development.

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