ICT Diffusion and Foreign Direct Investment: A Comparative Study between Asia-Pacific and the Middle Eastern Economies

ICT Diffusion and Foreign Direct Investment: A Comparative Study between Asia-Pacific and the Middle Eastern Economies

Farid Shirazi (Ryerson University, Canada), Dolores Añón Higón (University of Valencia, Spain) and Roya Gholami (Aston Business School, UK)
DOI: 10.4018/978-1-61350-480-2.ch013
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Abstract

This chapter investigates the impact of inward and outward FDI on ICT diffusion in the Asia-Pacific and Middle East regions for the period 1996-2008. The results indicate that while inward FDI has generally had a positive and significant impact on ICT diffusion in Asia-Pacific economies, its impact on the Middle Eastern countries has been detrimental. In contrast, the results of this study also show that outward FDI has had, in general, the inverse effect, it has been in general positive and significant for the Middle East countries but insignificant for Asia-Pacific economies.
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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 countries 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 countries, 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 1996-2008. 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, sec.10).

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).

Though there has been an intense interest among international institutions (e.g. UNCTAD, UNDP, UNESCO) in terms of the access to and benefits and impacts of ICT at regional and country levels, little attention has focused on the potential impact of factors like FDI inflows, trade openness, and government interventions in economic activities on the ICT diffusion in developing economies. Therefore, the aim of this study is to fill this gap by analyzing the extent to which FDI inflows, trade openness, government interventions in economic activities, and other socio-economic factors affect the disparities among developing economies, specifically in the Asia-Pacific and Middle East regions for the period 1996-2008.

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