The Impact of ASEAN’s Digital Economy Development Level on China’s Foreign Direct Investment

Abstract

The development of digital economy has given rise to new industries, new business forms and new models, significantly influencing the direction of international investment flows. This study investigates the impact of the development level of digital economy of six ASEAN countries on China's foreign direct investment. On this basis, the paper introduces the Digital Economy Development (DEL) index, derived from four key components: business and institutional environment, digital infrastructure construction, digital innovation capability, and digital information technology application, constructed using the Entropy method. For the impact of the development level of digital economy on foreign direct investment, the extended gravity model with the digital economy development level is used as the framework.  The findings indicate that a 1% enhancement in a country's digital economy, as measured by the DEL index, corresponds to a notable 0.11% improvement in China's foreign direct investment stock. When examining the effects of each component of the DEL index, all four elements significantly contribute to the expansion of China's foreign direct investment. Notably, the business and institutional environment and the digital infrastructure construction components emerge as particularly influential factors in driving this expansion.