Investment Policy Framework for Digital Transformation

A policy framework for investment in the digital economy is in many aspects comparable to an enabling environment that is conducive to investment in general. Policies conducive to FDI, however, may not automatically translate into investment in digital activities, technologies and infrastructure, nor into associated gains in productivity, innovation and skills upgrading. Policymakers need to improve specific enabling conditions for digital investment by developing policies, regulations, and support programmes that facilitate both investment and its knowledge and technology spillovers (OECD, 2020[1]; 2022[2]). This framework provides a comprehensive assessment of policy initiatives, from national strategies and regulations to financial incentives, technical assistance programmes and information services that influence FDI impacts on the digital transformation across advanced and developing economies. Table 2.1 outlines the four overarching principles along with the policy instruments that support their implementation.

The effective mobilisation of international investment for digital transformation depends on coherent strategies, strong institutional co‑ordination, and reliable monitoring frameworks. Effective governance is central to ensuring that international investment supports digital transformation. Clear institutional responsibilities, strong co‑ordination mechanisms and coherent policies help align investment promotion and digitalisation strategies, maximising their contribution to growth, innovation, and societal well-being. Due to the cross-cutting nature of digital technologies, whole‑of-government approaches are needed to avoid policy fragmentation and to ensure consistency across areas such as communication infrastructure, energy supply, digital skills and connectivity. Transparent and predictable investment policies, aligned with national digital strategies, can enhance investor confidence and generate broader development benefits.

Countries adopt different institutional models to govern investment and digital policies – from fragmented arrangements requiring formal co‑ordination, to highly integrated “mega‑agencies” – but all need mechanisms to bridge mandates across ministries and levels of government. In many OECD and partner economies, responsibilities are distributed across multiple ministries and agencies, requiring robust co‑ordination to overcome information asymmetries and reduce transaction costs. Co‑ordination is often facilitated through inter-ministerial councils, task forces, and working groups that bring together stakeholders at both strategic and operational levels. Increasingly, governance arrangements are being elevated to the Centre of Government – such as Prime Ministers’ or Presidents’ Offices – to ensure strategic coherence across policy domains. Examples include Singapore’s Smart Nation and Digital Government Office and Japan’s Digital Agency, both of which report directly to the Prime Minister’s Office.

In some countries, responsibilities are split between separate ministries for investment and digitalisation, requiring top-down mechanisms to maintain alignment. Uzbekistan and Costa Rica, for example, have ministries for digital policies alongside investment promotion agencies, with co‑ordination taking place through presidential decrees or high-level commissions. Other countries, such as Estonia, have adopted more integrated models, where a single “mega‑agency” manages investment, digital, and industrial policies under one institutional umbrella. This can improve efficiency and foster synergies, though it also risks diluting specialisation. In all cases, effective inter-institutional co‑ordination – both formal and informal – is key to ensuring that policies are coherent and mutually reinforcing.

National digital strategies are important tools to establish priorities, set goals, and outline actions across government. They provide a framework for aligning objectives across domains, including international investment. In Portugal, for example, the Action Plan for the Digital Transition supports enterprise digitalisation and regulatory reforms, while in Uzbekistan the Digital Uzbekistan 2030 Strategy defines investment goals for ICT growth and assigns institutional responsibilities and budgets (OECD, 2025[3]; 2022[4]). Investment promotion agencies (IPAs) can play a key role in ensuring that investment considerations are embedded in such strategies. OECD evidence shows that while many IPAs identify digitalisation as a priority, relatively few are actively involved in strategy design (Figure 2.1). Stronger engagement is needed to better align digital and investment objectives

Conversely, investment promotion strategies can explicitly integrate digitalisation goals. Ireland’s Trade and Investment Strategy 2022‑2026 places digitalisation at the core of efforts to strengthen competitiveness, supply chain resilience, and integration in global value chains. Similarly, sectoral action plans such as Egypt’s National AI Strategy or Costa Rica’s semiconductor roadmap set detailed priorities, training needs, and investment promotion initiatives tailored to specific technologies. These plans demonstrate how targeted approaches can reinforce broader digital transformation efforts and create clearer pathways for investment attraction.

Robust monitoring and evaluation (M&E) frameworks are needed to track how FDI contributes to digital transformation. Systematic collection of disaggregated data allows governments to assess how digital FDI supports the development of communication infrastructure, innovation, and technology adoption, and to adjust policies accordingly. The OECD FDI Qualities Indicators and Visualisation Platform provide tools for benchmarking and analysis, helping policymakers understand how digital investment aligns with their national development priorities (OECD, 2025[5]).

IPAs often have privileged access to investor information and can complement national datasets with operational insights. Few IPAs currently employ key performance indicators (KPIs) that capture digital economy outcomes, reflecting both data gaps and limited internal evaluation capacity. Strengthening collaboration between IPAs, innovation bodies, ICT regulators and statistical offices, and building internal expertise through dedicated evaluation units, would help ensure more systematic assessment of digital FDI impacts. At the international level, harmonising definitions and practices around digital investment data would further improve comparability and inform better policy responses.

Regulatory restrictions on foreign investment remain one of the most significant factors influencing the location and scale of digital FDI. In many economies, statutory barriers such as equity caps, joint venture mandates or data localisation requirements raise costs and uncertainty for multinational enterprises, potentially deterring digital investment projects. The OECD FDI Regulatory Restrictiveness Index shows that digital sectors tend to be more restrictive than others, with limitations particularly prevalent in telecommunications and media – sectors that are both strategically sensitive and essential for broader digitalisation (Figure 2.2). While governments often justify restrictions on grounds of strategic autonomy or protection of domestic firms, evidence suggests that such measures can reduce long-term competitiveness and undermine the diffusion of digital technologies. Where restrictions exist, they should be carefully assessed for proportionality, predictability and impact on market efficiency. Countries that avoid unnecessary restrictions benefit from stronger digital ecosystems, increased domestic innovation, and improved competitiveness in global markets.

Competition policy can play an important role in determining how digital FDI translates into economic benefits. MNEs may have high shares in certain digital sectors, contributing substantially to value added and productivity and their investments can spur competition, voluntary technology transfer on mutually agreed terms and efficiency gains, provided that strong competition policy guards against anti-competitive harms. Policymakers have taken varying approaches to competition policy in digital markets. Some jurisdictions, such as the EU through the Digital Markets Act, have taken the approach of ex ante regulations that impose obligations on large digital platforms with the aim of increasing contestability in some digital markets, alongside ex post enforcement of competition policy. In other jurisdictions, policymakers rely exclusively on ex post enforcement of competition laws, considering targeted action against anti-competitive conduct by digital MNEs as the primary means of protecting competition. In certain jurisdictions, measures addressing aspects of data portability, interoperability and algorithmic transparency are also being introduced aimed at promoting competition. International engagement is increasingly important given the global reach of digital MNEs and enforcers engage on these issues in many fora.

The rapid rise of emerging technologies – including AI, blockchain, cloud computing and IoT – underscores the need for agile legislative frameworks. Greenfield FDI in these technologies has expanded rapidly, particularly in AI. Such investment can strengthen domestic R&D, provide cloud infrastructure and foster innovation ecosystems. Certain technologies can also raise concerns around data privacy, and cybersecurity. Certain countries are adopting comprehensive legislative frameworks to address these challenges, such as the EU’s Artificial Intelligence Act or Viet Nam’s Digital Technology Industry Law. Singapore has also advanced this agenda internationally through its Digital Economy Agreements, which aim to promote cross-border interoperability, trust and innovation by establishing common rules in areas such as data flows, AI governance and digital trade. These initiatives seek to establish standards for safety, accountability and innovation while promoting regulatory consistency. Effective governance requires cross-sectoral approaches, clear responsibilities for digital security, and co‑ordination among relevant bodies to ensure responsive and predictable frameworks.

Intellectual property rights (IPRs) provide another cornerstone of the regulatory environment for digital investment. Clear protection and enforcement of IPR foster innovation, enable voluntary technology licensing on mutually agreed terms and encourage foreign firms to engage in local R&D partnerships. Complementary measures – such as incentives for partnerships between foreign investors and local institutions – can promote diffusion without resorting to performance requirements that may deter FDI. Protecting and enforcing IPRs will expand opportunities for technology access and is among the keys to a competitive digital economy.

Cross-border data flows are essential for digital FDI but have become a central source of regulatory uncertainty. Approaches vary widely across countries, from open safeguards that allow transfers with accountability mechanisms, to pre‑authorised regimes requiring certification of receiving jurisdictions, to restrictive ad hoc authorisation or localisation mandates. Evidence suggests that economies with open or pre‑authorised regimes attract a greater share of global digital FDI, while prohibitive approaches deter investment and increase compliance costs (Figure 2.3). Data localisation may also discourage broader digital sector investment if costs outweigh benefits. OECD studies have shown that over the long-term data localisation increases costs and decreases security. The OECD Digital Services Trade Restrictiveness Index shows that restrictive data flow regimes are more common in non-OECD economies. Risk-based approaches that combine strong safeguards for privacy and security with interoperability across jurisdictions are most conducive to investment. OECD instruments – including the Privacy Guidelines (OECD, 2002[7]) and the Recommendation on Enhancing Access to and Sharing of Data (OECD, 2021[8]) – provide internationally recognised principles to build trust in cross-border data flows.

National security concerns have gained prominence in relation to foreign investment in digital technologies and infrastructures. Governments have expanded investment screening mechanisms to cover sensitive digital technologies, such as semiconductors, AI and quantum technologies. These regimes have proliferated across OECD economies, with coverage broadening steadily since 2015. Emerging economies are also beginning to adopt such measures. Screening mechanisms allow governments to assess individual transactions for risks while remaining open to beneficial investment. OECD guidance, notably the 2009 Recommendation on Recipient Country Investment Policies relating to National Security, continues to provide principles of non-discrimination, proportionality and transparency to ensure that security-based measures are well designed (OECD, 2009[9]).

Responsible Business Conduct (RBC) can support a sound digital investment ecosystem. The OECD Guidelines for Multinational Enterprises provide recommendations for integrating RBC into digital value chains (OECD, 2023[10]; 2026[11]). Enterprises are encouraged to conduct risk-based due diligence across their operations, business relationships and supply chains. In some situations, public procurement and financial incentives for businesses are tied to acting consistently with RBC standards, using government leverage to encourage responsible practices. National Contact Points (NCPs) under the MNE Guidelines provide an avenue for addressing specific situations and promoting dialogue on RBC in digital sectors.

International trade and investment agreements increasingly address the digital economy, offering another layer of predictability and co‑operation. Provisions on e‑commerce, data flows, source code, consumer protection and cybersecurity are now embedded in many bilateral and multilateral agreements. Since 2020, some countries have developed Digital Economy Agreements, broadening co‑operation on issues such as AI and digital identity. Binding commitments on cross-border data flows, such as those in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) or the United States – Mexico – Canada Agreement (USMCA), prohibit forced localisation while allowing exceptions for public policy objectives. Provisions on intellectual property protection and enforcement, competition policy and source code disclosure also provide legal certainty and reduce investment risks. At the same time, exceptions ensure that governments retain the ability to regulate for legitimate purposes, including consumer protection and public procurement. Evolving treaty practice reflects a balance between protecting proprietary assets and safeguarding the right to regulate digital markets.

Tax and non-tax incentives have become widely used to stimulate investment in digital activities and technologies such as semiconductors, ICT services, and AI. OECD evidence shows that more than half of IPAs report incentives targeted at these sectors (Figure 2.4). Instruments include patent boxes, tax credits for R&D, and accelerated depreciation of digital equipment, as well as grants for data centres and AI laboratories. Some governments also condition support on contributions to skills development or regional development. For example, the Slovak Republic’s Regional Investment Aid Scheme provides grants, tax relief, and wage subsidies for projects in robotics, cybersecurity, and cloud computing, while Malaysia has revised its digital tax incentives to align with OECD/G20 standards and strengthen links with real economic activities.

While incentives can catalyse investment that would otherwise not materialise, their effectiveness is context dependent. Broad corporate tax exemptions risk eroding revenue bases without delivering additionality, whereas expenditure‑based incentives, such as R&D tax credits or accelerated depreciation, tend to be more cost-effective in targeting specific market failures. Governments are encouraged to regularly evaluate schemes, adjust them to technological developments, and ensure consistency with international tax standards, including the OECD/G20 Base Erosion and Profit Shifting framework. Complementary measures – such as skills development, improved regulatory predictability, and robust infrastructure – are often more decisive in shaping long-term investor confidence than fiscal incentives alone.

Reliable and affordable communication infrastructure underpins digitalisation and is a prerequisite for attracting digital-intensive investment. FDI has been a critical driver of connectivity through investment in broadband, mobile networks, data centres, and interconnection facilities. Multinational technology companies increasingly build and operate their own infrastructures to host data and provide cloud services, often in partnership with local operators. OECD data show that greenfield FDI in communication infrastructure and services accounts for around 10% of global FDI projects (OECD, 2025[5]), with particular significance in emerging markets where demand for connectivity is growing rapidly.

Yet infrastructure deployment faces challenges, especially in underserved regions. High upfront costs, complex licensing procedures, and energy constraints can deter private investment. To address these barriers, governments use direct support such as grants, concessional loans, or universal service funds, alongside public – private partnerships. Initiatives such as the United States’ Broadband Equity, Access and Deployment programme, Japan’s 5G promotion projects and Greece’s Ultra-Fast Broadband scheme illustrate how public funding can complement private investment to bridge connectivity divides. Simplifying regulatory procedures, adopting technology-neutral policies, and ensuring transparency in rights-of-way can further reduce costs and accelerate rollout.

Beyond infrastructure, digital FDI can generate positive spillovers through supplier linkages, voluntary technology transfer on mutually agreed terms, and knowledge diffusion. Foreign firms often adopt digital tools more intensively than their domestic counterparts, exposing local enterprises to new standards relating to cybersecurity, e‑payments, or cloud services. Backward linkages with local suppliers can embed foreign investors in the host economy, while joint ventures, R&D partnerships, and cluster initiatives help voluntarily transfer knowledge on mutually agreed terms.

Capturing these benefits requires targeted support. Small and medium-sized enterprises (SMEs) often lag behind in adopting advanced digital tools, limiting their ability to integrate into global value chains. Governments can bridge this gap through supply chain development programmes, digital readiness assessments, demonstration facilities, and innovation centres. Germany’s Mittelstand 4.0 Centres of Excellence, Portugal’s Technological Interface Centres and Egypt’s Industry 4.0 Innovation Centre illustrate approaches to providing technical assistance, training, and applied research to help SMEs upgrade capabilities and link with foreign tech investors. Online self-assessment tools and peer learning initiatives also offer scalable models for raising awareness and building managerial capacities in digital adoption.

Cluster development policies are particularly relevant for fostering collaboration between multinational enterprises and domestic firms in sectors such as semiconductors, AI, and advanced manufacturing. Secure data-sharing platforms, interoperable systems, and trust-building measures are equally important to facilitate co‑operation within clusters while addressing concerns regarding uneven adoption levels and cybersecurity.

The labour market effects of digital FDI are significant. Investments in ICT goods and services generate large numbers of jobs, particularly in R&D and training activities, and can accelerate structural transformation. However, digital FDI also reshapes job profiles, increasing demand for high-level digital skills while displacing some routine or manual tasks. While OECD evidence over the period between 2012 and 2022 suggests that automation and AI have not reduced overall employment, they are contributing to market changes and new risks for various professions (Lane, 2024[12]). Labour market policies, including ensuring workers’ voice, representation and negotiation, minimum wage frameworks, and access to social protections, can help ensure that digital FDI contributes to decent work and broad-based growth.

Persistent skills shortages remain one of the main barriers to investment in the digital economy. Employers across OECD and partner countries report difficulties recruiting software engineers, data specialists, and cybersecurity experts. Addressing these shortages requires co‑ordinated policies, including forward-looking skills anticipation systems, investment in vocational education and training, and partnerships between firms and educational institutions. Countries such as Portugal and Uzbekistan have launched comprehensive digital skills strategies aligned with investment promotion objectives, while Ireland and Costa Rica have linked their investment promotion agencies directly with training initiatives. Foreign enterprises themselves often play an important role in upskilling, establishing training centres and programmes in collaboration with host governments.

FDI in digital technologies and services can drive productivity, innovation, and digital inclusion, but its success often depends on the availability of reliable information and the efficiency of administrative processes. In many economies, insufficient or costly information creates barriers for investors and limits opportunities for integration into local ecosystems. IPAs are central to addressing these challenges. By bridging information gaps, supporting project facilitation, and advocating for reforms, they can play a catalytic role in ensuring that digital FDI contributes to broader development objectives.

IPAs across the OECD increasingly dedicate significant resources to attracting investment in the digital economy. Prior to the COVID‑19 pandemic, just over half of agencies devoted at least one‑quarter of their resources to digital investment promotion; today this share is closer to three‑quarters, with projections that nearly all will prioritise digital FDI in the near future. Target sectors typically include software development, data centres, communication infrastructure, digital health, and artificial intelligence. Some IPAs take a broad approach, targeting all major digital subsectors, while others focus more narrowly on areas of comparative advantage.

Tailored promotion strategies are key. Countries with strong cloud infrastructure may prioritise attracting data‑intensive services, while those with skilled software talent may focus on digital services or e‑commerce. To optimise efforts, many agencies are moving towards data-driven prioritisation and the use of outcome‑based indicators, for example by benchmarking projects against expected contributions to skills development, voluntary technology transfer on mutually agreed terms, or alignment with national digitalisation strategies. Around one‑third of OECD IPAs already use digital-related KPIs in their targeting.

Digital tools are also transforming how promotion takes place. Some agencies use AI to screen potential investors, predict market trends, or provide virtual investor support. AI-driven chatbots and automated content generation tools can extend the reach of promotion activities and provide timely responses to investors, particularly in fast-moving digital markets. Used effectively, these tools can enhance efficiency, reduce costs, and create a more user-friendly interface for investors.

Once projects are underway, facilitation and aftercare services are essential to ensuring that foreign investors embed themselves in the host economy and deliver spillovers. This includes guiding investors through regulatory requirements, supporting the acquisition of permits, and providing clarity on rules for telecommunications, data protection, and cybersecurity. Given the specific nature of digital business models, investors particularly value access to clear, up-to-date information on sectoral regulations and digital governance frameworks. Digitalisation of government services, such as online business registration, single‑window investment portals, and automated licensing processes, can reduce administrative burdens and transaction costs. This is especially important for digital services firms, which may operate without a large physical presence and depend on streamlined, remote processes.

Aftercare services play an equally important role but remain less common. Helping digital investors connect with domestic ICT providers, research institutions, or skilled workers is crucial for fostering spillovers. IPAs can co‑ordinate with ministries responsible for skills, innovation clusters, and local technology parks to align domestic capabilities with investor needs. Systematic collection of investor feedback can also identify regulatory bottlenecks and inform reforms, ensuring that facilitation services remain responsive.

IPAs are uniquely positioned at the interface between business and government. They can channel insights from investors into policy discussions, ensuring that emerging regulatory challenges in areas such as data governance, cybersecurity, or digital skills are addressed proactively. This advocacy role is increasingly important as digital markets evolve rapidly and require agile policy responses. In some economies, IPAs are also experimenting with AI tools to strengthen this advocacy role. Automated text and data analysis can help agencies compile investor feedback, identify recurrent challenges, and propose reforms more systematically. These insights can then be fed into broader industrial and digital strategies, ensuring coherence between investment promotion and national digital transformation objectives.

[12] Lane, M. (2024), “Who will be the workers most affected by AI?: A closer look at the impact of AI on women, low-skilled workers and other groups”, OECD Artificial Intelligence Papers, No. 26, OECD Publishing, Paris, https://doi.org/10.1787/14dc6f89-en.

[11] OECD (2026), OECD Due Diligence Guidance for Responsible AI, OECD Publishing, Paris, https://doi.org/10.1787/41671712-en.

[5] OECD (2025), FDI Qualities Indicators Visualisation Platform, http://www.oecd.org/en/data/dashboards/fdi-qualities-indicators-visualisation-platform.html.

[3] OECD (2025), Roadmap for Sustainable Investment Policy Reforms in Uzbekistan, OECD Investment Policy Reviews, OECD Publishing, Paris, https://doi.org/10.1787/20865f29-en.

[6] OECD (2023), FDI Regulatory Restrictiveness Index, http://www.oecd.org/en/topics/sub-issues/sustainable-investment/fdi-regulatory-restrictiveness-index.html.

[10] OECD (2023), OECD Guidelines for Multinational Enterprises on Responsible Business Conduct, OECD Publishing, Paris, https://doi.org/10.1787/81f92357-en.

[2] OECD (2022), Recommendation of the Council on Foreign Direct Investment Qualities for Sustainable Development [OECD-LEGAL-0476], https://legalinstruments.oecd.org/en/instruments/OECD-LEGAL-0476.

[4] OECD (2022), Strengthening FDI and SME Linkages in Portugal, OECD Publishing, Paris, https://doi.org/10.1787/d718823d-en.

[8] OECD (2021), Recommendation of the Council on Enhancing Access to and Sharing of Data [OECD-LEGAL-0463], https://legalinstruments.oecd.org/en/instruments/OECD-LEGAL-0463.

[1] OECD (2020), “Going Digital integrated policy framework”, OECD Digital Economy Papers, No. 292, OECD Publishing, Paris, https://doi.org/10.1787/dc930adc-en.

[9] OECD (2009), Recommendation of the Council on Guidelines for Recipient Country Investment Policies relating to national security [OECD-LEGAL-0372, https://legalinstruments.oecd.org/en/instruments/OECD-LEGAL-0372.

[7] OECD (2002), OECD Guidelines on the Protection of Privacy and Transborder Flows of Personal Data, OECD Publishing, Paris, https://doi.org/10.1787/9789264196391-en.