Competing for Investment Proposals in Special Economic Zones (SEZs)? Evidence from Indian States, 1998–2009

in Jason Miklian and Åshild Kolås (Eds.) 'Invisible India: Hidden Risks within an Emerging Superpower': Routledge

38 Pages Posted: 6 Jan 2017

See all articles by Krishna Chaitanya Vadlamannati

Krishna Chaitanya Vadlamannati

University College Dublin (UCD) - Department of Politics

Haider Ali Khan

University of Denver; Asian Development Bank

Date Written: January 1, 2017

Abstract

After 1991 economic reforms, India relaxed investment regulation norms, allowing states to form their own investment policy frameworks. Withdrawal of controls exercised by the central government to approve investments in Special Economic Zones (SEZs) and Export Oriented Units (EOUs) has unleashed fierce competition among states to attract investment which generates jobs and boosts the local economy. Using spatial econometric estimations on panel data on 30 states in India during the 1998–2009 period (12 years), we find that the approval of SEZ and EOU investment proposals in one state are positively correlated with the approval of proposals elsewhere (i.e., potential hosts are more likely to approve SEZ and EOU investment proposals when their competitors have done so). These results are not only robust to alternative weighting schemes but also controlling for endogeneity. Our findings might suggest policy implications in terms of costs associated with undue competition. It is likely, due to differing initial conditions prevailing during the time of economic reforms, that in high-income industrial states the benefits from competition might outweighs the costs, while in low-income states the competition for investment might result in race to the bottom.

Keywords: Investments, Special Economic Zones, Spatial econometrics, India

Suggested Citation

Vadlamannati, Krishna Chaitanya and Khan, Haider Ali, Competing for Investment Proposals in Special Economic Zones (SEZs)? Evidence from Indian States, 1998–2009 (January 1, 2017). in Jason Miklian and Åshild Kolås (Eds.) 'Invisible India: Hidden Risks within an Emerging Superpower': Routledge, Available at SSRN: https://ssrn.com/abstract=2892270

Krishna Chaitanya Vadlamannati (Contact Author)

University College Dublin (UCD) - Department of Politics ( email )

Belfield
Dublin 4
Ireland

Haider Ali Khan

University of Denver ( email )

Grad. School of International Studies
Denver, CO 80208-2685
United States

Asian Development Bank ( email )

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Philippines

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