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sis of FDI in Brazil and India shows the importance of historical and institutional awareness in gaining an understanding of the manner in which each society perceived the role of foreign investments in their societies. By doing this, we gained an understanding of the reasons these countries adopted different attitudes and policies towards foreign capital.

We have shown how historical experiences of both countries shaped both, formal (laws and regulations) and informal institutions (perceptions regarding foreign investment) in the post-independence era. During the ISI era, FDI came to play an important role in the industrial development of Brazil. In the case of India the colonial experiences, in addition to political and social restrictions, prevented it from fully exploiting the advantages of FDI.

In the neo-liberal era, though both countries have opened their doors to foreign investments, the institutions established during the ISI era have persisted. In comparison with Brazil, the Indian liberalization policy continues to be marked by export pessimism and gradualism. As a result, Brazil has been far more successful at attracting FDI than has India: in 2010 FDI stocks in Brazil were more than twice the FDI stocks in India.

Though FDI is an important ingredient of development, the extent to which FDI contributes to economic development depends not only on the quantity of inflows but also on its structural composition and its spillover effects on the domestic economy, or what has been come to be known as FDI quality. By analyzing two key determinants of FDI quality- the sector wise distribution of FDI and its mode of entry- we find that the structure of FDI has undergone tremendous changes in the neo-liberal era. First, there has been a shift of FDI away from manufacturing sector towards public utilities and services. Second, M&A related FDI inflows have become predominant in Brazil and to a lesser extent in India.

FDI may have contributed in part to the high industrial growth rates of India and of Brazil’s recovery from its slow growth rates in the last decades of the 20th century. Yet as we have noted, that a strong presence of the state can also influence the effectiveness of foreign investments by increasing public spending in infrastructure and other key sectors of the economy. From a policy perspective our analysis makes it clear that an effective FDI policy is one in which state intervention and foreign investments complement each other, thereby maximizing the potential for industrial growth and development.
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