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Double-edged sword effect of digital economy on FDI: evidence from Chinese cities

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  • Hongliang Li
  • Enshuo Liang

Abstract

Amid increasing global uncertainty, scholars are devoting increasing attention to the impact of the digital economy (DE) on foreign direct investment (FDI). However, previous studies have neglected the staged nature of DE development. Adopting a stage-based perspective, using panel data for 284 cities from 2011 to 2022, and employing a two-way fixed-effects model, this study investigates the U-shaped relationship between DE and FDI. By combining traditional and emerging FDI motives, this study further explores moderating mechanisms. The findings indicate that the impact of DE on FDI follows a U-shaped curve. In the early stage of DE, market maturity mitigates the negative relationship between DE and FDI, while digital infrastructure exacerbates it. In the mature stage, market maturity weakens the positive relationship between DE and FDI, whereas digital infrastructure and knowledge technology strengthen it. An unexpected result is that higher wage levels deter FDI in the early stage of DE but promote FDI once DE is mature. The results imply that, in the early stage of DE, policy support should prioritise market maturity and labour-related policies, whereas, in the mature stage, it should shift towards digital infrastructure and knowledge technology.

Suggested Citation

  • Hongliang Li & Enshuo Liang, 2025. "Double-edged sword effect of digital economy on FDI: evidence from Chinese cities," Post-Communist Economies, Taylor & Francis Journals, vol. 37(7), pages 974-1008, October.
    • Handle: RePEc:taf:pocoec:v:37:y:2025:i:7:p:974-1008
    DOI: 10.1080/14631377.2025.2517983
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