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

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 the effects of culture on business practice have been extensively studied, less research has been published on the effects of culture on international trade and investment. In addition, culture is often narrowly defined in terms of implicit psychological attitudes, with little attention being paid to the effects of explicit cultural features such as religion or to sociological factors such as urbanisation 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. Our findings indicate that social and explicit cultural variables have a measurable effect on FDI flows, with urbanisation being the most important factor.