Why Digital Infrastructure Fails to Guarantee Foreign Investment

Polyxeni Kechagia of the International Hellenic University analyzed data from 2003 to 2023 to determine if institutional quality could bridge the gap between digital access and foreign direct investment (FDI). The findings challenge the assumption that better internet automatically lowers transaction costs for multinationals enough to drive capital inflows. In both country groups, the baseline models frequently showed negative correlations between connectivity and investment, proving that digital expansion does not inherently translate into a more attractive business environment.

The research underscores that governance is not a monolithic force. While BRICS nations showed signs that rule of law and accountability could mitigate the negative impacts of digital growth, these effects proved fragile. Once the authors adjusted for different statistical methods or redefined how FDI is measured, the supposed benefits of governance largely evaporated. The study ultimately concludes that governments must move beyond simple connectivity metrics. Because digital access fails to account for the actual commercial ecosystem—such as e-government capabilities or how firms integrate technology into production—policymakers should avoid treating broadband expansion as a sufficient condition for economic development.