Digital Transformation and Foreign Direct Investment: Evidence of a Time-Lagged Relationship

Abstract

This study examines the relationship between digital transformation and foreign direct investment (FDI) in European countries over 2012-2023 using Eurostat data. Digital transformation is measured by the share of the ICT sector in gross value added, while FDI is represented by annual investment flows. The analysis applies descriptive statistics, index analysis, synchrony assessment, lagged correlation analysis, and cluster analysis. The results show that digital transformation follows a relatively stable upward trend, whereas FDI is considerably more volatile. The findings also indicate that the impact of digitalization on FDI is delayed rather than immediate, with stronger effects emerging after one or two years. At the same time, significant cross-country heterogeneity is observed. Overall, digital transformation should be viewed as a medium-term factor of investment attractiveness rather than an immediate driver of FDI inflows.