DIGITAL TRANSFORMATION AS A LOCATION-SPECIFIC ADVANTAGE FOR FOREIGN DIRECT INVESTMENT: A SYSTEMATIC EVIDENCE REVIEW
Abstract
Digital transformation is increasingly treated as a determinant of international investment attractiveness, yet the evidence remains conceptually and methodologically fragmented. This study systematically synthesizes the empirical and theoretical literature linking digital capability to foreign direct investment (FDI), with particular attention to location advantage, measurement, causal identification, subnational heterogeneity, and spatial dependence. The review distinguishes four dimensions of digital capability—basic connectivity, digital government, productive digital adoption, and multidimensional digital transformation—and organizes the evidence around the ownership-location-internalization (OLI) paradigm. The final analytical corpus combines direct inward-FDI studies with complementary evidence on subnational institutions, reverse causality, and spatial econometric foundations. The synthesis shows that the modal empirical result is positive, but the effect is conditional rather than universal. Digital capability can lower information and transaction costs, improve government-business interaction, strengthen innovation and skills, and support network coordination; however, effects vary by development level, institutional quality, digital maturity, and FDI outcome. Recent studies also document nonlinearity and heterogeneous effects, while reverse-causality evidence indicates that FDI can itself accelerate digital adoption. The review therefore argues that digital transformation is best understood as a conditional, cross-cutting, location-specific advantage that augments rather than replaces traditional determinants of FDI. The main research frontier lies in subnational analysis, richer FDI outcome measurement, explicit treatment of endogeneity, and spatial models capable of separating local from regional spillover effects. These gaps are especially relevant for emerging economies such as Vietnam, where digital capability and FDI are unevenly distributed across provinces.
JEL: F21, F23, O33, R11, C23
Keywords
Full Text:
PDFReferences
Addison T, Heshmati A, 2003. The New Global Determinants of FDI Flows to Developing Countries: The Importance of ICT and Democratization. WIDER Discussion Paper No. 2003/45. UNU-WIDER. https://doi.org/10.1016/S1567-7915(04)04007-8
Al-Sadiq AJ, 2021. The Role of E-Government in Promoting Foreign Direct Investment Inflows. IMF Working Paper 2021/008. https://doi.org/10.5089/9781513566795.001
Anselin L, 1988. Spatial Econometrics: Methods and Models. Kluwer Academic Publishers, Dordrecht. https://doi.org/10.1007/978-94-015-7799-1
Arvin MB, Pradhan RP, Nair M, 2021. Uncovering interlinks among ICT connectivity and penetration, trade openness, foreign direct investment, and economic growth: The case of the G-20 countries. Telematics and Informatics 60: 101567. https://doi.org/10.1016/j.tele.2021.101567
Bénassy-Quéré A, Coupet M, Mayer T, 2007. Institutional determinants of foreign direct investment. The World Economy 30(5): 764-782. https://doi.org/10.1111/j.1467-9701.2007.01022.x
Bevan AA, Estrin S, 2004. The determinants of foreign direct investment into European transition economies. Journal of Comparative Economics 32(4): 775-787. https://doi.org/10.1016/j.jce.2004.08.006
Blonigen BA, Piger J, 2014. Determinants of foreign direct investment. Canadian Journal of Economics 47(3): 775-812. https://doi.org/10.1111/caje.12091
Bobenič Hintošová A, Bódy G, 2023. Sustainable FDI in the Digital Economy. Sustainability 15(14): 10794. https://doi.org/10.3390/su151410794
Bussy A, Zheng H, 2023. Responses of FDI to geopolitical risks: The role of governance, information, and technology. International Business Review 32(4): 102136. https://doi.org/10.1016/j.ibusrev.2023.102136
Choi C, 2003. Does the Internet stimulate inward foreign direct investment? Journal of Policy Modeling 25(4): 319-326. https://doi.org/10.1016/S0161-8938(02)00202-8
Dunning JH, 1977. Trade, location of economic activity and the MNE: A search for an eclectic approach. In: Ohlin B, Hesselborn PO, Wijkman PM (eds), The International Allocation of Economic Activity. Palgrave Macmillan, London, pp 395-418. https://doi.org/10.1007/978-1-349-03196-2_38
Dunning JH, 1988. The eclectic paradigm of international production: A restatement and some possible extensions. Journal of International Business Studies 19(1): 1-31. https://doi.org/10.1057/palgrave.jibs.8490372
Dunning JH, Lundan SM, 2008. Multinational Enterprises and the Global Economy, 2nd edn. Edward Elgar, Cheltenham, UK.
Fan L, Ou J, Yang G, Yao S, 2024. Digitalization and outward foreign direct investment of Chinese listed firms. Review of International Economics 32(2): 604-634. https://doi.org/10.1111/roie.12702
Gani A, Sharma B, 2003. The effects of information technology achievement and diffusion on foreign direct investment. Perspectives on Global Development and Technology 2(2): 161-178. https://doi.org/10.1163/156915003322763548
Gholami R, Lee S-YT, Heshmati A, 2006. The causal relationship between information and communication technology and foreign direct investment. The World Economy 29(1): 43-62. https://doi.org/10.1111/j.1467-9701.2006.00757.x
Goldfarb A, Tucker C, 2019. Digital economics. Journal of Economic Literature 57(1): 3-43. https://doi.org/10.1257/jel.20171452
Gong C, Ribiere V, 2021. Developing a unified definition of digital transformation. Technovation 102: 102217. https://doi.org/10.1016/j.technovation.2020.102217
Ha LT, Huyen NTT, 2022. Impacts of digitalization on foreign investments in the European region during the COVID-19 pandemic. Development Studies Research 9(1): 177-191. https://doi.org/10.1080/21665095.2022.2074863
Hanelt A, Bohnsack R, Marz D, Antunes Marante C, 2021. A systematic review of the literature on digital transformation: Insights and implications for strategy and organizational change. Journal of Management Studies 58(5): 1159-1197. https://doi.org/10.1111/joms.12639
He Z, Liu Z, Zhao Y, Zhao Y, 2024. Is more digital always better? A nonlinear perspective on corporate digital transformation and OFDI. International Review of Financial Analysis 96: 103649. https://doi.org/10.1016/j.irfa.2024.103649
Ho TL, Ngoc LH, Ho TH, 2025. Nonlinear and heterogeneous effect of digitalization on foreign direct investment: Evidence from developing countries. Emerging Science Journal 9(4): 1938-1961. https://doi.org/10.28991/ESJ-2025-09-04-011
Kim K, An J, 2022. Corruption as a moderator in the relationship between e-government and inward foreign direct investment. Sustainability 14(9): 4995. https://doi.org/10.3390/su14094995
LeSage JP, Pace RK, 2009. Introduction to Spatial Econometrics. Chapman and Hall/CRC, Boca Raton, FL. https://doi.org/10.1201/9781420064254
Liu W, Wang J, 2024. Media freedom, information and communication technology infrastructure, and foreign direct investment inflows. Managerial and Decision Economics 45(1): 210-225. https://doi.org/10.1002/mde.3997
Mai HG, 2025. Digital transformation as a catalyst for foreign direct investment: Evidence from an emerging economy. Cogent Economics & Finance 13(1): 2586304. https://doi.org/10.1080/23322039.2025.2586304
Mensah JT, Traore N, 2024. Infrastructure quality and FDI inflows: Evidence from the arrival of high-speed Internet in Africa. The World Bank Economic Review 38(1): 1-23. https://doi.org/10.1093/wber/lhad021
Meyer KE, Nguyen HV, 2005. Foreign investment strategies and sub-national institutions in emerging markets: Evidence from Vietnam. Journal of Management Studies 42(1): 63-93. https://doi.org/10.1111/j.1467-6486.2005.00489.x
Nguyen VB, 2025. Digitalization's divergent impact on FDI inflows: A comparative analysis between advanced and developing countries. Transnational Corporations Review 17(3): 200148. https://doi.org/10.1016/j.tncr.2025.200148
Saidi S, Mefteh H, 2020. Empirical analysis of the dynamic relationships between transport, ICT and FDI in 63 countries. International Economic Journal 34(3): 448-471. https://doi.org/10.1080/10168737.2020.1765186
UNCTAD, 2024. World Investment Report 2024: Investment Facilitation and Digital Government. United Nations Conference on Trade and Development, Geneva.
Verhoef PC, Broekhuizen T, Bart Y, Bhattacharya A, Dong JQ, Fabian N, Haenlein M, 2021. Digital transformation: A multidisciplinary reflection and research agenda. Journal of Business Research 122: 889-901. https://doi.org/10.1016/j.jbusres.2019.09.022
Vial G, 2019. Understanding digital transformation: A review and a research agenda. The Journal of Strategic Information Systems 28(2): 118-144. https://doi.org/10.1016/j.jsis.2019.01.003
Vu M, Nguyen G, Le T, 2026. Does FDI facilitate digital transformation in developing countries? Evidence from Vietnamese firms. Industrial and Corporate Change: dtag001. https://doi.org/10.1093/icc/dtag001
Yao T, Wang D, 2026. Does intelligent development attract foreign direct investment? Empirical evidence from prefecture-level cities in China. Sustainable Futures 11: 101719. https://doi.org/10.1016/j.sftr.2026.101719
Zhang D, Masron TA, Lu X, 2024. The impact of digitalization on foreign direct investment inflows into cities in China. Cogent Economics & Finance 12(1): 2330458. https://doi.org/10.1080/23322039.2024.2330458
DOI: http://dx.doi.org/10.46827/ejefr.v10i6.2311
Refbacks
- There are currently no refbacks.
Copyright (c) 2026 Tran Nhu Mai, Nguyen Hong Anh
This work is licensed under a Creative Commons Attribution 4.0 International License.
The research works published in this journal are free to be accessed. They can be shared (copied and redistributed in any medium or format) and\or adapted (remixed, transformed, and built upon the material for any purpose, commercially and\or not commercially) under the following terms: attribution (appropriate credit must be given indicating original authors, research work name and publication name mentioning if changes were made) and without adding additional restrictions (without restricting others from doing anything the actual license permits). Authors retain the full copyright of their published research works and cannot revoke these freedoms as long as the license terms are followed.
Copyright © 2016 - 2026. European Journal of Economic and Financial Research (ISSN 2501-9430) is a registered trademark of Open Access Publishing Group. All rights reserved.
This journal is a serial publication uniquely identified by an International Standard Serial Number (ISSN) serial number certificate issued by Romanian National Library. All the research works are uniquely identified by a CrossRef DOI digital object identifier supplied by indexing and repository platforms. All the research works published on this journal are meeting the Open Access Publishing requirements and standards formulated by Budapest Open Access Initiative (2002), the Bethesda Statement on Open Access Publishing (2003) and Berlin Declaration on Open Access to Knowledge in the Sciences and Humanities (2003) and can be freely accessed, shared, modified, distributed and used in educational, commercial and non-commercial purposes under a Creative Commons Attribution 4.0 International License. Copyrights of the published research works are retained by authors.
