Matthew Stephenson, Lorraine Eden, Michael Kende, Fukunari Kimura, Karl P. Sauvant, Niraja Srinivasan, Luica Tajoli, and James Zhan, “Leveraging Digital FDI for Capacity and Competitiveness: How to be Smart”, T20 Task Force 3, Trade, Investment and Growth, September 2021.
Abstract
Policy-makers and firms can leverage foreign direct investment (FDI) to grow their digital capabilities and competitiveness with a three-part strategy. First, launching Digital FDI enabling projects (DEPs) to create digital friendly investment climates by adopting enabling policies, regulations and measures. Second, using a SMART test as a heuristic before launching a full-fledged DEP, which benchmarks their economy’s digital Skills, Market functioning, Access through connectivity, Restrictions, and Trust (or ‘SMART’), and provides tools to tackle limiting factors. Third, policy-makers can review FDI trends in six sectors that are important to grow the digital economy (two of which are proposed as essential, namely communications and software & IT services), with quantitative evidence that can guide policymakers to prioritize policy reforms and investment promotion where they are relatively weak. Throughout the strategy, particular attention should be paid to growing the digital capacity of SMEs. A G20-initiated Sustainable Technology Board – modelled after the Financial Stability Board but oriented to cooperation over new technologies – could help address techno-competition and other concerns over Digital FDI.