This chapter introduces the OECD Investment Policy Framework for Digital Transformation, a practical tool designed to help governments mobilise quality international investment to support digital transformation. It highlights how foreign direct investment can contribute to digital infrastructure, innovation, skills development, productivity, and broader progress. The chapter also describes the channels that shape the impacts of digital investment and determine countries’ ability to benefit from digitalisation. The framework provides a non-prescriptive approach for identifying policy gaps and strengthening enabling environments for digital transformation.
Investment Policy Framework for Digital Transformation
Abstract
Digital transformation – the impact of digital technologies and data and their use on existing and new activities – has emerged as a transformative force reshaping economies and societies (Box 1.1). Digital technologies, such as Artificial Intelligence (AI), Blockchain and Internet of Things (IoT), are altering how goods and services are being produced, delivered, and used (OECD, 2024[1]). The digital economy, which includes industries reliant on these technologies, is becoming a fundamental driver of global growth, fostering new business models, driving innovation, improving productivity, and creating new entrepreneurship opportunities (OECD, 2024[1]). Beyond driving economic expansion, digitalisation could serve as a powerful enabler for achieving national development priorities. It can improve access to education and healthcare, support environmental objectives and facilitate voluntary knowledge sharing on mutually agreed terms. By integrating digital solutions, countries can unlock significant development potential for all segments of society.
Mobilising investment in communications infrastructure, enhancing human capital, and developing robust digital ecosystems in host economies is essential. FDI can accelerate digital transformation by providing capital, technology, and expertise, fostering voluntary knowledge transfer on mutually agreed terms, and strengthening local capabilities. Investment in digital sectors supports infrastructure development, job creation, and skills upgrading, while enhancing value creation, competitiveness, and productivity. The impact of FDI on digitalisation also depends on the ability of host economies to absorb and integrate these technologies, underpinned by investments in digital skills development and supportive policy frameworks (OECD, 2020[2]) as well as the establishment of basic connectivity.
Digitisation: conversion of analogue data and processes into a machine‑readable format.
Digitalisation: use of digital technologies and data as well as interconnection that results in new or changes to existing activities.
Digital transformation: economic and societal effects of digitisation and digitalisation.
Digital sectors: sectors involving goods or services that are core to the digital transition and/or enable digital activity, including digital services, ICT goods and electrical equipment.
Digital FDI: for the purpose of this report, this refers to FDI in core digital sectors (e.g. digital services, ICT goods and electrical equipment).
Digital-intensive sectors: those characterised by the extensive adoption and integration of digital technologies across various facets of their operations. In addition to core digital sectors, these also include traditional sectors (e.g. automotive, finance, business services, retail trade, audiovisual and broadcasting), which are increasingly incorporating digital inputs and processes into their core business models.
Source: OECD (2019[3]), Going Digital: Shaping Policies, https://doi.org/10.1787/9789264312012-en.
The OECD has partnered with economies across all continents to share its expertise in reforming investment frameworks. The policy lessons from decades-long efforts to improve the investment climate have been distilled into tools and instruments that policymakers can use to attract quality investment. These instruments are part of the overarching OECD Declaration on International Investment and Multinational Enterprises and support strategic objectives of governments in attracting more, better, and safe FDI. In addition, other OECD standards in the areas of artificial intelligence, data governance and digital security, such as the OECD Recommendation on AI and OECD Privacy Guidelines, provide guidance for governments seeking to encourage private investment in digital technologies.
The investment policy framework for digital transformation provides a pragmatic tool to diagnose policy gaps and opportunities to mobilise international investment in support of digital transformation. It addresses a broad set of policy areas – from investment and competition to cross-border data flows, trade and investment agreements, skills development, and responsible business conduct. Building on the structure of the FDI Qualities Policy Toolkit (OECD, 2022[4]), it is organised around four building blocks that highlight the policy domains most relevant for enabling digital investment: governance, domestic and international regulations, financial and technical support, and information and facilitation services. Its added value lies in bringing together these diverse policy strands and integrating them into a coherent approach to ensure that international investment effectively supports digital transformation.
The framework is intended to provide a non-prescriptive approach to strengthening the enabling environment for private investment, particularly international investment, and its impact on digital transformation. The framework can be used in various ways and for various purposes by different constituencies, including in OECD Investment Policy Reviews and FDI Qualities Reviews, for self-evaluation and reform design by governments, and for peer reviews in regional or multilateral discussions. Users of the framework are invited to go through each of the building blocks and use the provided guiding questions to identify potential gaps and areas for improvement. Each building block contains an explanation of the relevance of the questions, illustrated with examples of international good practices.
Digital sectors are essential to digital transformation, involving the production of goods or services that form the backbone of digital ecosystems. These include computer, electronic and optical products; publishing, audiovisual and broadcasting activities; telecommunications; and IT and other information services. Greenfield FDI in digital sectors has seen substantial growth, rising from 15% of greenfield FDI between 2016‑2020 to 26% between 2021‑2025, driven by ICT goods, including semiconductors, computers, and electronic components (Figure 1.1, Panel A). Variations across countries are large, however. Economies like Japan, Ireland or Malaysia, attract a large share of FDI in digital sectors, leveraging strong positioning in the digital technology value chain. In contrast, some countries in Latin America and Sub-Saharan Africa have seen limited benefits from the surge in digital investments.
Note: Panel A: Based on the ISIC Rev. 4 classification, the digital sectors include: i) computer, electronic and optical products (C26); ii) publishing, audiovisual and broadcasting activities (J58T60); iii) telecommunications (J61), and; iv) IT and other information services (J62T63). This categorisation is based on the economic activities included in the “Information industries” classification used in the OECD Going Digital Toolkit (https://goingdigital.oecd.org). Panel B: Digital-intensive FDI combines high and mid-high digital-intensive sectors. Adapted from Calvino et al., (2018[5]), A taxonomy of digital intensive sectors, https://doi.org/10.1787/f404736a-en.
Source: OECD FDI Qualities Indicators based on Financial Times’ fDI Markets Database.
As digital technologies evolve, digital transformation extends beyond traditionally digital sectors, impacting all sectors of the economy. The extent to which sectors are exposed to digital technologies varies significantly (Calvino et al., 2018[5]). While digital sectors exhibit high adoption rates of digital technologies, more traditional sectors (e.g. automotive, finance, business services and retail trade), are increasingly incorporating digital technologies across various facets of their operations (OECD, 2024[1]). Analysing FDI through the lens of sectoral digital intensity provides insights into its contribution to the broader digital economy. Digital-intensive sectors account for approximately 40‑50% of total greenfield FDI (Figure 1.1, Panel B), depending on the year. However, the share of FDI in these sectors varies significantly across countries; in some advanced economies, such as Singapore, it exceeds 50% of total FDI. These disparities highlight the importance of the host country’s economic structure and digital readiness to leverage the benefits of international investment. Similarly, countries with a more skilled workforce are better positioned to attract and leverage FDI in digital-intensive sectors, while those with weaker capabilities risk falling behind.
The investment policy framework for digital transformation identifies the channels through which private investment influences the digital transformation and examines how this impact is shaped by policies of host countries. The extent to which FDI contributes to digital transformation and the magnitude and direction of the impact – positive or negative – depend on the framework conditions of the host country (Figure 1.2). Absorptive capacity – the ability of local firms, institutions, and workers to adopt and integrate new technologies, plays a critical role in attracting FDI and ensuring that spillovers result in sustained economic transformation (Gönel and Aksoy, 2016[6]). This capacity is shaped by the strength of the domestic digital ecosystem, including the availability of digital skills and infrastructure, as well as supportive policy and regulatory frameworks. By identifying gaps in these conditions and addressing barriers, governments can enhance the contribution of FDI, mitigate its risks, and ensure a sound digital transformation.
FDI drives digital transformation through both the direct activities of MNEs and their spillover effects in host economies. MNEs operating in digital sectors (digital MNEs) contribute by increasing technology adoption, stimulating demand for digital skills, and expanding the supply of digital services. Beyond core digital sectors, MNEs accelerate digitalisation in traditional industries – for instance, through automation in automotive manufacturing and the expansion of fintech in financial services – reflecting their typically higher adoption of advanced digital technologies relative to domestic firms. MNEs invest in communications infrastructure and services – broadband, cloud computing, and data centres – enhancing connectivity and enabling broader technology adoption. Their presence can also support labour market outcomes by creating high-quality jobs, implementing training programmes that upskill and reskill local workers, and generating new employment opportunities in digital services, offering enhanced work flexibility including part-time and remote work options which allows for a better work-life/family balance. Through their investments, digital MNEs can expand workforce participation in rural and remote areas by enabling flexible work arrangements and facilitating online job opportunities.
Source: Based on OECD (2022[4]), FDI Qualities Policy Toolkit, OECD publishing, Paris, https://doi.org/10.1787/7ba74100-en.
Interactions between MNEs and local firms generate indirect impacts or spillovers, creating ripple effects that extend beyond the direct activities of foreign investors. Through value chain linkages, domestic firms gain access to advanced digital tools and technologies, that allow them to adopt international digital standards and more innovative practices. For instance, collaborations between MNEs and local suppliers often result in voluntary digital technology transfer on mutually agreed terms, enabling local firms to meet international quality benchmarks and expand their market reach. On average, MNEs in digital sectors rely more heavily on imports compared to MNEs in non-digital sectors, particularly in developing countries (Box 1.2). High import reliance may reduce opportunities for voluntary knowledge transfer on mutually agreed terms, while competitive pressures introduced by MNEs can encourage local firms to improve their operations, adopt digital tools, and innovate to maintain their market position. Labour mobility also plays a significant role, as employees trained by MNEs transfer their expertise to domestic firms or launch their own startups, spreading digital knowledge and driving innovation and entrepreneurship. The interplay of direct and indirect channels amplifies the transformative potential of FDI, embedding advanced digital practices across the economy and fostering long-term growth and innovation.
With a substantial increase in the financing gap to meet national development objectives, and the urgent need to accelerate investment to support the digital transition, FDI is even more important. The FDI Qualities Indicators provide governments with essential data to gauge FDI’s impacts on the economy. Covering a large number of OECD and non-OECD economies, the FDI Qualities Indicators on the digital transformation provide information on FDI flows into sectors that enable digital transformation, as well as into emerging digital technologies, including AI and data processing. They also assess the impact of FDI on the digitalisation of the broader economy, with a focus on the development of communication infrastructure and connectivity. Additionally, they allow investigating the varying levels of participation in the digital economy between foreign-owned and domestic firms, highlighting potential disparities.
The indicators show that, between 2021 and 2025, more than a quarter of global greenfield FDI targeted digital sectors – 32% in OECD and20% in non-OECD countries. FDI in technologies, such as cloud computing, data centres, and 5G‑6G, doubled during this period. However, supply chain vulnerabilities and industry restructuring have led to a high concentration of digital FDI. The top 20 MNEs in ICT manufacturing accounted for 81% of total greenfield FDI in the sector. The impact of FDI on the digital economy varies significantly across OECD and non-OECD countries. In developing countries, foreign firms contribute close to 3 times as much to value added in digital sectors as domestic firms, compared to twice as much in the OECD. FDI promotes digitalisation through knowledge spillovers, but digital foreign firms source few inputs locally and rely on foreign technologies.
Source: OECD (2025[7]), FDI Qualities Indicators Visualisation Platform, https://www.oecd.org/en/data/dashboards/fdi-qualities-indicators-visualisation-platform.html.
References
[5] Calvino, F. et al. (2018), “A taxonomy of digital intensive sectors”, OECD Science, Technology and Industry Working Papers, No. 2018/14, OECD Publishing, Paris, https://doi.org/10.1787/f404736a-en.
[6] Gönel, F. and T. Aksoy (2016), “Revisiting FDI-led growth hypothesis: the role of sector characteristics”, The Journal of International Trade & Economic Development, Vol. 25/8, pp. 1144-1166, https://doi.org/10.1080/09638199.2016.1195431.
[7] OECD (2025), FDI Qualities Indicators Visualisation Platform, http://www.oecd.org/en/data/dashboards/fdi-qualities-indicators-visualisation-platform.html.
[1] OECD (2024), OECD Digital Economy Outlook 2024 (Volume 1): Embracing the Technology Frontier, OECD Publishing, Paris, https://doi.org/10.1787/a1689dc5-en.
[4] OECD (2022), FDI Qualities Policy Toolkit, OECD Publishing, Paris, https://doi.org/10.1787/7ba74100-en.
[2] OECD (2020), OECD Digital Economy Outlook 2020, OECD Publishing, Paris, https://doi.org/10.1787/bb167041-en.
[3] OECD (2019), Going Digital: Shaping Policies, Improving Lives, OECD Publishing, Paris, https://doi.org/10.1787/9789264312012-en.