How does digital economy development influence foreign direct investment inflows?

This study explores the impact of digital economic development (DED) on foreign direct investment (FDI) inflows using panel data from the Yangtze River Delta (YRD) city cluster (2012–2023) and a two-way fixed-effects model. Empirical results demonstrate that DED significantly enhances FDI inflows. These findings remain robust across a series of endogeneity and robustness checks, including instrumental variable (IV) methods, difference-in-differences (DID), dynamic effect models, and propensity score matching-DID (PSM-DID). Mechanism analyses reveal that DED facilitates FDI by driving technological innovation, reducing transaction costs, and expanding consumer markets. Heterogeneity tests indicate that this positive effect is more pronounced in metropolitan areas characterized by robust intellectual property protection, advanced digital infrastructure, and superior economic development. Furthermore, DED exerts the most substantial influence on FDI in the YRD and Beijing–Tianjin–Hebei (BTH) regions. Spatial spillover analyses indicate that while DED stimulates local FDI inflows, it simultaneously diverts investment away from neighboring areas. Ultimately, this paper enriches the theoretical understanding of DED as a crucial determinant in FDI location decisions and offers actionable policy implications for leveraging the digital economy to attract foreign investment and stimulate regional economic growth. First published online 27 October 2026