Evaluating the Spatial Effect of Foreign Direct Investment on Digital Economy Development in MENA Countries

Foreign Direct Investment (FDI) is a key factor in accelerating the growth and development of the digital economy across various countries.By facilitating technology transfer, improving digital infrastructure, and enhancing local workforce skills, FDI contributes to the formation of advanced digital ecosystems.In today's competitive environment, where countries are striving to attract FDI, they are implementing policies and incentives to draw foreign investors into critical sectors of the digital economy, such as information and communication technology.This study aims to evaluate the spatial impact of FDI, financial deepening, trade openness, government size, and economic growth on digital economy development in MENA countries from 2000 to 2023.To conduct statistical tests, we employ the dynamic spatial panel model using the Generalized Method of Moments (GMM) with the two-step Arellano-Bover/Blundell-Bond estimator.The results indicate that the first lag of the dependent variable has a positive effect (0.83) on digital economy development, meaning that the digital economy's growth in the current period is dependent on its development in the previous year.The first spatial lag is also positive and significant (0.005), demonstrating a positive spatial dependence among MENA countries.This suggests that an increase in digital economy development in one country positively affects neighboring countries, leading to spillover effects.Furthermore, according to technology transfer theory, FDI can introduce advanced technologies to the host country, which contributes to digital economy development in the region with a coefficient of 0.07.Additionally, financial deepening, economic growth, government size, and trade openness all have a positive and direct impact on digital economy development, with economic growth having the smallest estimated coefficient and trade openness having the largest.