Roy, S. (2025). Artificial Intelligence and Foreign Direct Investment. Ecofunomics, 7(1), 14–21. https://doi.org/10.5281/zenodo.14684335
Abstract
This paper fundamentally investigates the intricate relationship between Artificial Intelligence (AI) and Foreign Direct Investment (FDI). Developed nations utilize FDI as a mechanism for transferring data and advanced technologies to developing economies, simultaneously optimizing labor costs and accessing new markets. Employing a 2×2 General Equilibrium Model, this study demonstrates that FDI inflows into a small, open economy will stimulate expansion in the capital-intensive AI sector while concurrently contracting the non-AI sector. A descriptive analysis of the Indian context further substantiates this observation, revealing a strong positive correlation between AI and FDI inflows, suggesting that increased FDI will significantly enhance AI penetration. The findings emphasize the crucial role of policies that facilitate technology transfer, foster innovation spillovers, and promote sustainable development through AI-driven FDI. The paper also delves into specific Indian case studies where companies have successfully attracted substantial FDI, further elucidating the mechanisms through which FDI contributes to AI penetration.
Keywords: Artificial Intelligence, Foreign Direct Investment, Technology Transfer, Economic Integration
JEL Classifications: F21, O33, O19, C68
Author
Dr. Shreya Roy
Chief Executive Office, Ecofunomics LLP.
Ph.D., Indian Institute of Foreign Trade.
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