DOES THE FOREIGN DIRECT INVESTMENT ENHANCE DIGITAL READINESS?

Abstract

Paper focuses on studying the role of foreign direct investment in improving technology and digitalization in central and southeast European countries. Frontier technology readiness index is a measure which is positively affected by investment. Apart from the foreign direct investment, 12 variables are used in panel regression analysis. The variables represent different areas, such as the performance of the economy, international trade, labour, education, research and digital infrastructure. The data used consist of 17 cross-sectional units – countries from central and southeast Europe and 12 time series – period 2008-2019 for which the Index is available. The result indicates that the FDI inflow has positive and statistically significant effect on the score of the Index. It means that the higher the FDI inflows to a country, the higher the Index score. In other words, foreign direct investment might be considered as the factor enhancing the digitalization, technology improvement and country readiness to use, adopt or adapt advanced technologies. The result confirms the technological spill-over effect of foreign direct investment to host economy.