Foreign Direct Investment and the Digital Economy

The digital economy is now here to stay. The new technologies and modes of business it has created add immensely to speed, convenience, productivity, and transparency, boosting trade and GDP. This digital economy is fundamentally transforming the global economy and unleashing a Fourth Industrial Revolution that will disrupt the existing economic order. This disruption will both drive – and be driven – by shifts in global patterns of FDI as MNEs all over the world take to digital technology and modes of organization to compete. The digital economy is also driving sustainable development through more resource-efficient products, technological inclusivity, and new green technologies, speeding up global progress in meeting the goals of the 2030 Agenda for Sustainable Development.

This paper explores how countries can strategically harness FDI to build and expand their digital economies. It highlights that Investment Promotion Agencies (IPAs) will need to drive this effort by ‘going digital’ in two ways. They will need to tactically identify, target, and attract promising digital economy investors while also developing or upgrading the digital tools they use to reach and impactfully engage with potential foreign investors. In addition to this, the paper considers three fronts on which policies to attract FDI in the digital economy must focus, namely: digital infrastructure, digital business development and wider digital adoption. IPAs and policymakers must work closely together to develop an FDI strategy that promotes and facilitates investment in each on each of these fronts. Finally, the paper also considers how such a digital FDI policy can be especially relevant for more broadly supporting micro-, small-, and medium-sized enterprises (SMEs) and their integration into global and regional value chains.