Transition to a digital economy

The digital economy — the application of Internet-based digital technologies to the production and trade of goods and services — is becoming an ever more important part of the global economy.

The transition to a digital economy can provide a boost to competitiveness across all sectors, new opportunities for business and entrepreneurial activity, and new avenues for accessing overseas markets. It also provides new tools for tackling persistent development and social problems.

However, it comes with a host of challenges — from the global digital divide, to potential negative social and development impacts, and complex, Internet-specific regulatory issues — which policymakers need to address. The opportunities and challenges associated with the digital economy are particularly important for developing countries.

The transition to a digital economy is a major policy priority for all countries. For developing countries, it poses both immense challenges and immense opportunities. They can derive significant economic benefits from digital development.

It can make overseas markets more accessible for exports, including by linking domestic companies and small and medium-sized enterprises (SMEs) to global value chains. It can create new markets, such as digital applications adapted to specific local conditions (eg in sectors such as agriculture, education and health) or open up niche sectors, such as in the creative economy. It makes possible new business models for developing-country entrepreneurs and SMEs.

Digitalisation can also contribute to addressing specific social or development challenges. Digital technologies can facilitate access to basic services such as health (for example e-health services), education (eg remote teaching) and financial services.

They can foster government transparency and effectiveness (eg e-government, including approaches such as UNCTAD’s eRegulations and eRegistrations systems) and support anti-corruption efforts. They can help governments better understand and respond to societal trends and developments, such as changes in migration patterns and migrants’ behaviour and needs.

Or they can facilitate the delivery of humanitarian and development assistance (eg information management and communications can strengthen crisis response to environmental disasters, health pandemics and population displacements).

In general, digitalisation can expand choices and lower transaction costs in social and economic interactions; improve livelihoods by allowing users to create, access, utilise and share information; and boost individual empowerment and collective engagement through the use of social media.

Implications of Digitalisation

Policymakers around the world are grappling with the implications of digitalisation, trying to capture the opportunities and address the challenges. The number of digital economy studies has mushroomed in recent years, both in the private sector (consultants, thinktanks) and in the public sector (public institutions, international organisations).

The varying scope of these studies reflects the many dimensions of the digital economy. They range from specific discussions on the impact of the Internet in economic interactions (e-commerce) to broader discussions on the use of new technologies in everyday life (e-health, e-education, the Internet of Things) and the adoption of digital technologies in business (robotics, big data), all driving a new industrial revolution.

The many studies on the digital economy contain multiple policy perspectives, ranging from implications and legislative needs driven by new technologies (eg privacy, data standards and protection, intellectual property rights, Internet governance, cyber security) to advice on tackling broader economic and societal implications, including effects on employment, equality, competition and tax systems.

The development perspective is equally well covered, with policy advice ranging from white papers focusing on how to improve connectivity and access to the Internet, to broad debates on new entrepreneurial and business development opportunities and greater access to overseas markets for SMEs in developing countries.

With such a broad array of policy advice on offer and with digital development widely considered a key avenue for economic growth, many governments, in both developed and developing countries, have formulated or are formulating policies for the development of the digital economy, from broadband plans to digital development strategies and Industry 4.0 visions.

  • Extracted from The World Investment Report 2017 by United Nations Conference on Trade and Development (UNCTAD).