Do Foreign Direct Investment (FDI) and Trade Openness Explain the Disparity in ICT Diffusion between Asia-Pacific and the Islamic Middle Eastern Countries?

Introduction

In recent literature, Foreign Direct Investment (FDI) has been cited as a measure of globalization (Loungani & Razin, 2001) and trade liberalization (Santos-Paulino & Thrilwall, 2004) that can provide development opportunities to host economies (Soper et al., 2006). As developing economies become more open to international competition, organizations are increasingly forced to compete with multinational corporations (MNCs) in both domestic and foreign markets. In turn, FDI becomes an important component of the economic strategies of developing countries (UNCTAD, 2006a).

In the last decade, several economies in the Asia-Pacific region have witnessed profound progress in Information and Communication Technology (ICT) and FDI inflows. Middle Eastern economies, on the other hand, have not been able to attract FDI inflows to the same extent despite their success in ICTs and an increase in the capacity of FDI inflows for the period 1996-2005. FDI flows in the Middle East and North Africa (MENA) accounted for less than 10% of total FDI investment in 2007 (Delasnerie, 2007).

Delasnerie (2007) argues that 60% of investors consider MENA a high-risk region due to political situation in its countries, poor infrastructure, corruption, fear of terrorism and insufficient intellectual resources in R&D and other knowledge-based services. Similarly, Krogtrup and Matar (2005) claim that Arab economies are less likely to possess the absorptive capacity necessary to benefit from FDI, due to the poor quality of the education system, the financial sector, and technological and institutional development.

World leaders noted “the importance of removing barriers to bridging the digital divide, particularly those that hinder the full achievement of the economic, social and cultural development of economies and the welfare of their people, in particular, in developing economies” (ITU Tunis Agenda, 2005, section10).

There are many attempts made to “quantify” and “qualify” the global digital divide with different conceptual frameworks, sets of variables and methodologies (see Wong, 2002; Tipton, 2002; Grubesic & Murray, 2002; Brown & Licker, 2003; Oyelaran-Oyeyinka et al., 2003; Barroso & Martinez, 2005; Dutton et al., 2004; Lu, 2005; Yap et al., 2006; Cava- Ferreruela et al., 2006; La Rose et al., 2007; Zhao et al., 2007; Dwivedi & Lal, 2007; Hitt & Tambe, 2007; Picot & Wernick, 2007; Robertson et al., 2007; Trkman et al., 2008; Howick & Whalley, 2008).