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In this paper, I investigate the mechanisms by which incoming FDI may affect India’s income distribution. I provide a brief history of India’s FDI inflows as observed before and after the trade liberalizations of 1991. I hypothesize that the FDI's regional bias caused India's inter-state inequality as well its as urban-rural inequality to increase, and that FDI’s amplification of the skill bias on the labor market led to an increase in India’s within-urban inequality. As my national-level analysis yields inconclusive findings, I conduct case studies on the states of Karnataka and Gujarat to determine whether manufacturing-oriented FDI has a different impact on inequality than services-oriented FDI. While I find that the states vary little with respect to urban inequality, I note that urban-rural inequality rose in the service-heavy state of Karnataka, but declined in the manufacturing-heavy state of Gujarat.
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van Doornen, Heske Lidewij, "FDI and Inequality: An Investigation into the Impact of Foreign Direct
Investment on Income Disparities in India" (2014). Senior Projects Fall 2014. 31.
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