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

Focusing exclusively on foreign direct investment (FDI) as a comparative measure of capital inflows obscures another significant source of funds—that of monetary remittances. This article emphasizes the empirical and analytic value of disaggregating FDI data and analyzing remittance trends in the two most populous developing countries in the world, China and India. While identifying the determinants of FDI inflows dominates much of the literature on FDI, this article suggests that the concept of FDI may not be the most meaningful indicator of relative developmental performance, especially given the reality of national definitional differences in FDI, roundtrip capital, growth in portfolio investment and variation in the sources and uses of realized FDI. In this context, the article examines what motivates the respective diasporas to send money back to their homelands in the form of FDI versus remittances and the local developmental implications of these diasporic flows. It proposes that attending to vernacular modes of capital formation such as ethnic and transnational networks presents an analytic opportunity to generate more empirically accurate and nuanced theories of political economy.