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India has a federal structure of governance with 28 states and 7 union territories. States are different in their geographical, economic, business, infrastructural, political and social aspects. The aim of our study was to understand and identify various factors that have influenced investments into these sub-national regions. We identified the criteria considered important by firms to select a province for locating a manufacturing or a service facility. We also examined if the criteria considered important by manufacturing and service sector firms are different. We analyzed the data on fixed capital formation in states in the manufacturing sector, a measure of investments, over a 14 year period to identify the variables which explain the differences across states. The Gujarat case study outlines the initiatives states in India can implement to improve the investment climate. This study would be found useful by policy makers at the state level, by planners at the central level, as well as by investors who are in the process of locating their manufacturing or service facility and who want to get some insight on Indian states.

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