How does foreign direct investment (FDI) affect the wellbeing of the poor? We address this question by analyzing the impacts of FDI on access to potable water. We predict that higher levels of greenfield FDI in water-intensive sectors slow the rate of access to potable water in developing countries, with these adverse effects conditional on subnational politics. We hypothesize that this is more likely to occur in polities marked by relatively large poor and marginalized populations, where regulatory capture is more likely to occur. To test our intuition, we analyze subnational data on greenfield FDI in India, confirming that multinational investment in "thirsty" manufacturing sectors are negatively associated with improvements in potable water access. We then present a controlled comparison case study of two Indian states, Kerala and Rajasthan, highlighting the political mechanisms conditioning FDI's effects on potable water.
K E Y W O R D Sdistributive effects, environment, foreign direct investment, globalization, India, inequality, integration, international political economy, Kerala, natural resources, poor, potable water, Rajasthan, regulatory capture | 367 countries where FDI is a larger percentage of GDP. Next, we present a paired case study, drawing on field interviews, as well as primary and secondary source documents, that highlights the mechanisms underlying the effects of FDI on potable water. While none of these sources themselves establish causal effects, the combined evidence points toward a new, important empirical regularity that merits further scholarly inquiry.Our major finding is that alongside local demographic and economic factors, a greater number of greenfield FDI projects-particularly in the manufacturing sector-is associated with slower progression of potable water provision. We find that Indian states which attract higher levels of FDI subsequently experience slower increases in potable water provision. But this effect only holds in states with relatively large populations of the poor, where regulatory capture by industrial lobbies is most likely to occur and the poor's demands for reforms in response to FDI's effects on water go unheeded. Our case studies from two states, Kerala and Rajasthan, trace these mechanisms in greater detail, and provide further support for our hypothesis.This research makes three contributions. First, we consider how MNC "inputs" and "outputs" have environmental-cum-societal costs, which are concentrated among the poor. Second, we posit circumstances under which citizens of developing economies may be able to resist regulatory capture of MNCs, preserving the poor's access to fundamental resources in the process. Third, we contribute to a growing literature that analyzes how domestic political factors condition the impacts of international markets.