Friends, Family, or Foreigners? The Political Economy of Remittances and Diasporic FDI in India and China

Comparative studies of India and China’s political economy typically focus on either domestic economic indicators such as GDP growth and employment rates, or external indicators of globalization such as trade and investment flows. In contrast, the proposed paper addresses an informal dimension of development that bridges the conventional divide between students of international versus domestic political economy: diasporic remittances. In 2008, India and China were the world’s largest recipients of remittances at $52 billion and $40.6 billion, respectively. An empirical examination of the sources and uses of remittances in the two countries reveals a host of similarities, which are generally eclipsed in the comparative political economy literature on China and India. One of the main reasons that observers tend to highlight differences between the countries in the global political economy is because China’s FDI inflows vastly outstrip those of India’s ($92.4 vs. $33 billion in 2008). However, once we take into account (conservative) estimates that at least one-third of China’s FDI is roundtrip capital and another third of FDI is from ethnic Chinese investors, the apparent divergence between the two countries in attracting external capital becomes less stark and more complicated. What motivates the respective diasporas to send money back to their homelands in the form of remittances versus FDI? What are the local developmental implications of these diasporic flows? And how do the respective national governments interpret and frame the respective flows? Preliminary questions to these questions provide an analytic opportunity to generate more nuanced theories of political economy by considering the role of transnational identity politics in national and regional economic development