To Go Up, Go Out: Driving Domestic Upgrading through FDI and the Product Space

Investment authorities can drive domestic upgrading through targeting FDI promotion and facilitation to goods that are slightly more complex than the current basket being produced in the economy, using the Product Space. Three investment facilitation measures are particularly important: creating linkages between foreign and domestic firms, increasing absorptive capacity through training and partnerships, and establishing dialogue mechanisms to understand investor needs. Since digitalization is taking place across almost all areas of production, to support upgrading and grow competitiveness investment authorities should also target FDI into the digital economy, or digital FDI, especially to two sectors that are horizontal digital enablers across an economy: communications and software & IT services.