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MNEs in the Digital Economy


  • Lilach Nachum
  • Srilata Zaheer


Technological advances are changing many aspects of business activity and in particular the meaning of distance and geography. Such changes are likely to have profound impact on firms whose activities take place over distance, namely MNEs. Using the motivations for FDI identified in the literature as a theoretical framework, this study examines the motivations of firms producing and selling products that can be transferred electronically in real time and at little or no cost, to establish operations outside their home countries. The paper advances a set of hypotheses regarding the likely motivations for foreign activity under such circumstances and provides some statistical testing for their prevalence in US inward and outward FDI. The findings suggest that the investment motivations of firms operating in the digital economy differ from those of firms in the traditional world. The most important motivations for FDI in the digital economy appear to be efficiency and the quest for intangible assets, especially those embedded in human capital, while market seeking and the search for low cost export platforms appear to be the dominant motivations for FDI in the traditional economy.

Suggested Citation

  • Lilach Nachum & Srilata Zaheer, 2002. "MNEs in the Digital Economy," Working Papers wp236, Centre for Business Research, University of Cambridge.
  • Handle: RePEc:cbr:cbrwps:wp236
    Note: PRO-1

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    digital economy; FDI motivations; US FDI;

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General

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