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Initialize a package.json file in the root folder of your project:
npm init -y
Then install any npm package you need, for example:
npm install axios
A node_modules folder and a package-lock.json file will be created. Commit both (yes, you need to add the node_modules content to the repository you want to deploy; try to keep your dependencies as few as possible).
That’s it. You can now access those npm packages using require() in your Netlify Functions.