The Impact of Foreign Direct Investment (FDI) on Economic Growth in Developing Countries to Acceleration in Digitalization
DOI:
https://doi.org/10.35877/454RI.daengku3893Keywords:
Fiqh of Islamic Banking, Islamic Financial Institutions, Murabahah, Mudharabah, Musyarakah, Ijarah, Kafalah, Wakalah, HiwalahAbstract
This study aims to analyze the influence of Foreign Direct Investment (FDI) on regional economic growth in Indonesia through digitalization acceleration. Using a mixed-methods approach with a sequential explanatory design, the research was conducted in four provinces representing variations in digital readiness and FDI acceptance: West Java, East Java, South Sulawesi, and East Kalimantan. The quantitative results were analyzed using SEM-PLS regression, while the qualitative findings were examined through thematic coding. The study found that FDI significantly contributes to regional digitalization and has a positive impact on economic growth; however, this effect is significantly strengthened by local digital readiness. Digitalization proves to be an important mediator in enhancing the relationship between FDI and economic growth, particularly in terms of operational efficiency, expanding MSME markets, and technological innovation. Digital readiness disparities between regions act as limiting factors, where areas with weak ICT infrastructure and human resources show lower impacts. Therefore, cross-sector collaborative strategies involving local governments, academics, MSME actors, and foreign investors are necessary to build an inclusive and sustainable digital ecosystem. The research highlights the importance of data-driven policy design and local capacity building as prerequisites to maximize the economic benefits of digital-based FDI. These findings are expected to serve as a reference for policymakers, business actors, and researchers in supporting responsive and competitive regional digital economic transformation.
References
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Tang, Y. (2023). Global capital and local innovation: FDI’s role in Asia’s digital leap. Global Economics Review, 9(1), 67–84.
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Yuliana, D., Mahendra, D., & Kusnadi, E. (2023). Digital literacy gap and technology mismatch in Indonesian SMEs: A challenge to FDI synergy. Indonesia Digital Economy Review, 6(2), 94–110.
Zarei, M., & Tohidi, N. (2022). The spillover impact of digital-based FDI on local innovation ecosystems. Journal of Technology and Development Economics, 14(3), 203–222.
Zhang, D., Masron, T. A., & Lu, X. (2024). Digital transformation and foreign direct investment inflows in emerging economies: Empirical evidence from Asia. Asia-Pacific Journal of Business, 15(1), 40–56.
Adnan, M., et al. (2024). Membangun model ekonomi Islam yang berkelanjutan: Tantangan dan perspektif dari fiqih dan ushul fiqih. El-Arbah: Jurnal Ekonomi, Bisnis dan Perbankan Syariah, 8(1).
Ahmed, M., Hasan, R., & Bakri, A. (2021). FDI spillovers and digital labor transformation in Southeast Asia. Asian Economic Policy Review, 16(2), 242–259.
Alam, A., & Uddin, M. (2021). FDI inflow and ICT infrastructure: Evidence from ASEAN. Telecommunications Policy, 45(7), 102164.
Babawulle, D. H. (2020). An analysis of foreign direct investment (FDI) and economic growth: Empirical results from Nigeria. Journal of Economics and Sustainable Development, 11(8), 150–157. https://doi.org/10.7176/JESD/11-8-16
Barik, R., & Sahoo, S. (2023). Regional digital divide and FDI effectiveness: Empirical insights from developing countries. Journal of Regional Policy and Development, 17(2), 98–115.
Bayraktar, N. (2019). Foreign direct investment and productivity growth in emerging market economies. International Review of Economics & Finance, 64, 536–547.
Botelho, J., Khamidov, O., Burunova, O., Kulishov, V., & Mamanazarov, I. (2022). Foreign direct investment as a determinant of digital economy growth. In Proceedings of the 5th International Scientific Congress Society of Ambient Intelligence (pp. 399–406). SCITEPRESS. https://doi.org/10.5220/0011341800003350
Chen, X., Lee, M. H., & Sutopo, W. (2024). The role of FDI in enabling disruptive digital technologies in emerging markets. Technology in Society, 78, 102468.
Cho, H., & Prasetyo, Y. (2021). SME empowerment through FDI-based digital partnership: Evidence from ASEAN. Asian Journal of Innovation and Development, 9(1), 65–82.
Das, P., Roy, T., & Chen, S. (2020). Digital readiness and FDI absorption: Evidence from Asia-Pacific. Asia-Pacific Journal of Economics and Technology, 11(4), 201–218.
Dhungel, B. D., & Lamichhane, P. (2023). Impact of foreign direct investment on economic growth. Humanities and Social Sciences Journal, 15(1–2), 73–84. https://doi.org/10.3126/hssj.v15i1-2.63734
Eid, B. M. (2024). Digitalization, FDI, and sustainability: Exploring the impact of digital foreign direct investment on environmental and social well-being in Uzbekistan. Ilg?or Iqtisodiyot va Pedagogik Texnologiyalar, 1(2), 38–48. https://doi.org/10.60078/3060-4842-2024-vol1-iss2-pp38-48
Fernando, R., & Prasetya, R. H. (2024). Digital infrastructure and data-driven policymaking in regional development. Journal of Economic Governance, 19(1), 59–75.
Fikri, A., & Rahmawati, S. (2022). FDI and MSME digital transformation: Evidence from Indonesian provinces. Journal of Development Economics and Policy, 15(3), 115–131.
Grady, J. S., Her, M., Moreno, G., Perez, C., & Yelinek, J. (2019). Emotions in storybooks: A comparison of storybooks that represent ethnic and racial groups in the United States. Psychology of Popular Media Culture, 8(3), 207–217. https://doi.org/10.1037/ppm0000185
Hossain, M. I., & Roy, S. (2023). Role of foreign investment in digital economic transition: Bangladesh perspective. International Journal of Emerging Markets, 18(1), 34–50.
Jiang, Z., & Khan, A. (2022). FDI, digitalization, and SME competitiveness in Southeast Asia. Journal of Asian Business Strategy, 12(3), 140–155.
Kusairi, S., Setiawan, A., & Firmansyah, D. (2023). Digitalization, FDI and Economic Growth: Evidence from Developing Countries. Journal of International Development Studies, 10(2), 145–158.
Le, H. M., & Trinh, N. (2024). Local digital ecosystems and FDI integration in emerging markets. Journal of Innovation and Regional Development, 8(1), 25–39.
Lin, Y., Kusuma, R., & Pranoto, D. (2023). The role of regional policy in shaping digital infrastructure and foreign investment flow. Indonesian Journal of Technology Policy, 14(2), 45–62.
Liu, L., & Hartono, S. (2021). Building collaborative digital governance: Lessons from Indonesian local partnerships. Journal of Public Policy and Technology, 15(4), 205–223.
Mahmud, K., & Saeed, M. (2022). Multi-stakeholder collaboration for digital economic development in emerging countries. Global Digital Economy Review, 5(3), 132–149.
Malik, A. Z., & Thamrin, R. (2023). Why digital FDI fails? Policy readiness and digital governance in Indonesia. International Journal of Policy Innovation, 9(1), 31–47.
Mehta, R., & Liu, Y. (2021). Bridging the FDI-growth nexus through digital transformation: Evidence from emerging markets. International Journal of Economic Development, 25(2), 89–104.
Nasution, M., & Wahyuni, D. (2022). Mapping regional readiness for digital transformation in Indonesia. Journal of Indonesian Public Administration, 9(1), 88–101.
Oliveira, C., & Santos, R. (2023). Examining the role of foreign direct investment (FDI) in sustainable development. International Journal of Economics, Commerce, and Management, 1(1). https://doi.org/10.62951/ijecm.v1i1.302
Phan Le, H. T., Pham, H., & Do, N. T. T. (2024). Linking FDI, Digital Economy, and SME Growth: A Comparative Study. Humanities and Social Sciences Communications, 11, 154.
Ramadhan, R. A., Setiani, D., & Nugroho, T. (2021). Digital literacy and FDI adoption among SMEs in Indonesia. Small Business and Innovation Journal, 12(3), 134–150.
Rehman, A., Siddiqui, A., & Bakhtiar, A. (2024). Digitalization, Education and Economic Inclusion in Developing Countries. Journal of Economic Impact, 6(1), 1–10.
Riyanto, A. D., & Sutanto, H. (2023). Infrastructure readiness for FDI-driven digital economy: Lessons from Indonesia's fiber optic development. Journal of Infrastructure and Economic Development, 12(1), 78–95.
Sahoo, M., & Sethi, N. (2022). Does FDI accelerate digital innovation? Evidence from Indian states. Global Business Review, 23(5), 1172–1190.
Saleh, A. S., & Ndubisi, N. O. (2018). SME development and FDI spillovers: Evidence from Southeast Asia. Small Business Economics, 51(2), 425–438.
Shifa, I. N., & Nugroho, B. W. (2024). The rise of digital FDI: Implications for traditional investment models. SHS Web of Conferences, 204, 02006. https://doi.org/10.1051/shsconf/202420402006
Sudaryanto, T., & Suryani, E. (2020). Foreign investment and the development of Indonesia’s digital economy. Indonesian Journal of Development Planning, 4(3), 301–316.
Tang, Y. (2023). Global capital and local innovation: FDI’s role in Asia’s digital leap. Global Economics Review, 9(1), 67–84.
Wang, J., Nugroho, B., & Safitri, T. (2023). Digital mediation of foreign direct investment for sustainable economic growth. Sustainable Futures, 5, 101115.
Yuliana, D., Mahendra, D., & Kusnadi, E. (2023). Digital literacy gap and technology mismatch in Indonesian SMEs: A challenge to FDI synergy. Indonesia Digital Economy Review, 6(2), 94–110.
Zarei, M., & Tohidi, N. (2022). The spillover impact of digital-based FDI on local innovation ecosystems. Journal of Technology and Development Economics, 14(3), 203–222.
Zhang, D., Masron, T. A., & Lu, X. (2024). Digital transformation and foreign direct investment inflows in emerging economies: Empirical evidence from Asia. Asia-Pacific Journal of Business, 15(1), 40–56.
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Published
2025-05-23
How to Cite
Supriyanto, S., Widayani, H., Riri Cornellia, Rini Armin, & Irsyad Kamal. (2025). The Impact of Foreign Direct Investment (FDI) on Economic Growth in Developing Countries to Acceleration in Digitalization. Daengku: Journal of Humanities and Social Sciences Innovation, 5(3), 337–353. https://doi.org/10.35877/454RI.daengku3893
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