The Costs of Digital Authoritarianism? Assessing the Investment Impacts of Government-ordered Internet Shutdowns

As digital connections become closely tied to political stability, governments are increasingly utilizing Internet shutdowns as part of their online control strategies. These shutdowns serve as instruments for curbing dissent and stabilizing regimes by restricting the flow of information, especially during periods of civil unrest. What are the political and economic repercussions of Internet shutdowns? This study explores the relationship between state-ordered Internet shutdowns and the international financial environment, focusing on perceptions of the investment climate and Foreign Direct Investment (FDI). I argue that Internet shutdowns negatively affect both investment freedom and FDI inflows, with the impact being more pronounced in autocracies compared to democracies. To test this argument, I draw on observational evidence measuring all state-ordered Internet shutdowns from 2016-2022. The findings reveal that Internet shutdowns are linked to declining perceptions of the investment climate, particularly in autocratic regimes, while no significant impact is observed on FDI patterns, which may be more responsive to long-term structural conditions. This study illuminates the role of systemic factors, often overlooked in traditional investment risk analyses, in shaping how state actions, such as Internet shutdowns, influence investor perceptions and preferences in international markets.