The ability to renew your passport or driver’s license, pay a tax bill, or access government data with the click of a button or swipe of a screen, anytime and anywhere, has grown more important during the COVID-19 pandemic to prevent the spread of the virus. Beyond the obvious efficiency and transparency gains that digital government services provide, “e-government” can actually make an economy more attractive to foreign investors.
Recent IMF staff research has linked―for the first time―the accessibility of government information and services online to the volume of foreign direct investment a country receives. For many countries, this positive impact is likely to be stronger as the pandemic pushes governments to provide even more services and information online.
A review of foreign direct investment inflows in 178 host countries over a period of roughly 16 years finds that the presence of e-government services appears to stimulate the inflow of foreign direct investment. Specifically, countries that implement and adopt strong information and communication technologies, regardless of their level of development, are found to attract more inflows compared to countries with weaker internet access. As our chart of the week shows, the positive connection between e-government and foreign direct investment is clear.
The findings, at the same time, expose yet another potential point of divergence, namely the still vast global digital divide and technological disparities between higher and lower income economies. Many people worldwide still do not have access to the internet. According to the 2020 United Nations’ E-Government Development Index about half of the 193 countries covered by the index score below the world average of 0.60, while the average index score for countries in Africa is almost one-third lower than the index average. Denmark, the Republic of Korea, and Estonia lead the world in providing e-government services and electronic dissemination of information. Still, a number of developing countries such as Bhutan, Bangladesh, and Cambodia have become leaders in the development of e-government infrastructure. Those nations advanced from the middle group of countries in the index to become some of the highest ranked among developing countries in 2020.
This research suggests that countries should focus on the development of e-government services as part of their strategy for attracting more foreign direct investment. But in order to reduce the divide between higher- and lower-income economies and provide digital services to all people, governments need to push for better information and communications technology infrastructure. This is a critical component for effective e-government services. In tandem, governments should work to make the internet accessible, affordable, and secure to all.
- Ali Al-Sadiq is a senior economist in the Western Hemisphere Department of the IMF
Compliments of the IMF.