[Relationship between Information and Communication Technology (ICT) Development, Internet, and Foreign Direct Investment (FDI) in Developing countries]

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Chapter 1: Introduction

Background

The power of information and communication technologies (ICT), especially the Internet and Internet-based technologies and services, has been an important development shaping international production over the past decade. Internet users have grown from 361 million in December 2000 to 1.73 billion in September 2009.

Internet diffusion varies significantly across regions, ranging from 6.8 percent in Africa to 74.2 percent in North America. Asia leads in terms of number of Internet users, followed by Europe and North America. In China alone, there are 360 million users and Internet penetration is 26.9 percent as of September 2009. The Middle East, followed by Africa and Latin America and the Caribbean, leads the way in terms of Internet growth.

The large application of the internet is one of the major forces reshaping the world economy. With the aid of the internet, multinational corporations (MNCs) can electronically transfer text, imagery, and voice to facilitate the worldwide management of raw materials, parts, and skills from the manufacturing to sale processes. For example, doing business in more than 100 countries, General Motors has links with thousands of its suppliers through an Internet-based system that allows it to draft and negotiate contracts, collaborate visually on auto-part development, and track sales.

The growth of world foreign direct investment (FDI) in recent years has been notable. After four consecutive years of growth, global FDI inflows rose in 2007 by 30% to reach $1,833 billion, well above the previous all-time high set in 2000. Despite the financial and credit crises, which began in the second half of 2007, all the three major economic groupings - developed countries, developing countries and the transition economies of South East Europe and the Commonwealth of Independent States (CIS) - saw continued growth in their inflows. In developing countries FDI inflows reached their highest level ever ($500 billion) - a 21% increase over 2006. The least developed countries (LDCs) attracted $13 billion worth of FDI in 2007 - also a record high. At the same time, developing countries continued to gain in importance as sources of FDI, with outflows rising to a new record level of $253 billion. FDI inflows into South-East Europe and the CIS also surged, increasing by 50%, to reach $86 billion in 2007.

So far many factors like infrastructure, human capital, low wages, natural resources, political stability are mentioned in the literature as determinants of FDI, but we should also consider changes in the global economy, especially the new information and communication ...