While the role of national and sub-national institutional factors in attracting foreign direct investment (FDI) in a country has been established in literature, it needs to be complemented with an alignment between national and sub-national institutional goals. Misalignments in these goals create institutional schisms which can affect the business environment and therefore the achievement of desired economic objectives. In this paper, we study institutional schisms between the national and sub-national (state) levels of government based on the degree of cooperative federalism and establish a framework that demonstrates their impact on inward FDI across states. We analyze the context of India due to its heterogeneity across states and the corresponding varying levels of cooperative federalism.
