Globalization and the Politics of Informality

• In Event: Political Implications of Foreign Direct Investment: Promising Trends & Methods

Abstract

Politicians go to great lengths to court foreign direct investment (FDI) and advertise its benefits to voters, especially in terms of poverty reduction and job creation. Recent scholarship finds that FDI provides significant political payoffs to incumbents. We question if (and why) FDI brings politicians political payoffs from marginalized populations, and informal sector workers in particular. We anticipate that informal workers may reward politicians more so than formal workers because they expect FDI to serve as a form of social insurance. Since the former are more income-constrained, face higher levels of risk, and have low education levels, they likely discount the immediate benefits of FDI because of the higher barriers to employment in foreign firms (due to higher skill demands). At the same time, however, they have limited protections against old age poverty, and may associate the presence of foreign firms- relative to domestic ones- with greater job opportunities, higher wages and upward mobility for their children. Unlike formal workers, informal workers rely solely on family/children’s support in old age; the prospect of future income security may then likely be the mechanism that drives their support for politicians that bring in FDI. We test our hypotheses using a conjoint experiment in India during the Spring of 2020.

Authors

• Harish S.P., College of William & Mary

• Helen V. Milner, Princeton University

• Nita Rudra, Georgetown University