Recommended
Recommended
More Related Content
What's hot
What's hot (19)
Similar to Digital Dividends: World Development Report 2016
Similar to Digital Dividends: World Development Report 2016 (20)
More from Namik Heydarov
More from Namik Heydarov (7)
Recently uploaded
Recently uploaded (20)
Digital Dividends: World Development Report 2016
- 5. DIGITAL DIVIDENDS world development report AWorld Bank Group Flagship Report
- 6. © 2016 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org Some rights reserved 1 2 3 4 19 18 17 16 This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Nothing herein shall constitute or be considered to be a limitation upon or waiver of the privileges and immunities of The World Bank, all of which are specifically reserved. Rights and Permissions This work is available under the Creative Commons Attribution 3.0 IGO license (CC BY 3.0 IGO) http://creativecommons.org /licenses/by/3.0/igo. Under the Creative Commons Attribution license, you are free to copy, distribute, transmit, and adapt this work, including for commercial purposes, under the following conditions: Attribution—Please cite the work as follows: World Bank. 2016. World Development Report 2016: Digital Dividends. Washington, DC: World Bank. doi:10.1596/978-1-4648-0671-1. License: Creative Commons Attribution CC BY 3.0 IGO Translations—If you create a translation of this work, please add the following disclaimer along with the attribution: This translation was not created byThe World Bank and should not be considered an official World Bank translation. The World Bank shall not be liable for any content or error in this translation. Adaptations—If you create an adaptation of this work, please add the following disclaimer along with the attribution: This is an adaptation of an original work by The World Bank. Views and opinions expressed in the adaptation are the sole responsibility of the author or authors of the adaptation and are not endorsed byThe World Bank. Third-party content—The World Bank does not necessarily own each component of the content contained within the work. The World Bank therefore does not warrant that the use of any third-party-owned individual component or part contained in the work will not infringe on the rights of those third parties. The risk of claims resulting from such infringement rests solely with you. If you wish to re-use a component of the work, it is your responsibility to determine whether permission is needed for that re-use and to obtain permission from the copyright owner. Examples of components can include, but are not limited to, tables, figures, or images. All queries on rights and licenses should be addressed to the Publishing and Knowledge Division, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2625; e-mail: pubrights@worldbank.org. ISSN, ISBN, e-ISBN, and DOI: Softcover ISSN: 0163-5085 ISBN: 978-1-4648-0671-1 e-ISBN: 978-1-4648-0672-8 DOI: 10.1596/978-1-4648-0671-1 Hardcover ISSN: 0163-5085 ISBN: 978-1-4648-0728-2 DOI: 10.1596/978-1-4648-0728-2 Interior design: Reboot (www.reboot.org), New York, New York, and George Kokkinidis, Design Language, Brooklyn, New York Cover photo: This 2013 World Press Photo of the Year shows migrants crowding the night shore of Djibouti City in an attempt to capture inexpensive cellphone signals from neighboring Somalia. © John Stanmeyer/National Geographic Creative. Used with the permission of John Stanmeyer/National Geographic Creative. Further permission required for reuse. Library of Congress Cataloging-in-Publication data has been requested.
- 7. v xiii Foreword xv Acknowledgments xix Abbreviations 1 Overview: Strengthening the analog foundation of the digital revolution 5 Digital transformations—digital divides 8 How the internet promotes development 11 The dividends: Growth, jobs, and service delivery 18 The risks: Concentration, inequality, and control 25 Making the internet universal, affordable, open, and safe 29 Analog complements for a digital economy 36 Global cooperation to solve global problems 38 Reaping digital dividends for everyone 38 Notes 39 References 42 Spotlight 1: How the internet promotes development 49 Part 1: Facts and analysis 50 Chapter 1: Accelerating growth 51 Connected businesses 55 More trade, higher productivity, and greater competition 70 Digital technologies can lead firms and countries to diverge 73 The nexus of technology and regulation 80 The future of markets 82 Notes 85 References 90 Sector focus 1: Agriculture 94 Spotlight 2: Digital finance 100 Chapter 2: Expanding opportunities 101 Connected people 104 Creating jobs, boosting labor productivity, and benefiting consumers 118 Labor market polarization can lead to greater inequality 120 The race between skills and technology Contents
- 8. vi CONTENTS 130 The future of jobs 135 Notes 138 References 146 Sector focus 2: Education 148 Spotlight 3: Social media 152 Chapter 3: Delivering services 153 Connected governments 155 Greater state capability and citizen participation 171 Digital technologies too often fail to empower citizens 177 The gap between technology and institutions 181 The future of public services 181 Notes 183 References 190 Sector focus 3: e-health 194 Spotlight 4: Digital identity 199 Part 2: Policies 200 Chapter 4: Sectoral policies 200 Making the internet universal, affordable, open, and safe 203 Shaping the digital economy 204 Supply-side policies: Availability, accessibility, and affordability 221 Demand-side policies: Open and safe internet use 228 Promoting the digital economy 232 Notes 235 References 240 Sector focus 4: Smart cities 244 Spotlight 5: The data revolution 248 Chapter 5: National priorities 248 Analog foundations for a digital economy 249 The interdependence between technology and complements 253 Regulations: Helping businesses connect and compete 258 Skills: Making the internet work for everyone 272 Institutions: Connecting for a capable and accountable government 279 Digital safeguards 281 Notes 282 References 288 Sector focus 5: Energy 292 Chapter 6: Global cooperation 292 Internet governance 297 Toward a global digital market 303 Leveraging information for sustainable development 317 Notes 318 References 322 Sector focus 6: Environmental management 326 Spotlight 6: Six digital technologies to watch
- 9. viiCONTENTS O.1 5 Frequently asked questions: The Report at a glance O.2 10 e-commerce with Chinese characteristics: Inclusion, efficiency, and innovation in Taobao villages O.3 15 Bridging the disability divide through digital technologies O.4 16 Digital dividends and the bottom billion O.5 20 What Facebook “Likes” reveal—the convenience-privacy trade-off O.6 26 Nailing Jell-O to the wall—restrictions on the flow of information O.7 27 Is the internet a public good? O.8 27 The four digital enablers O.9 29 Technology and complements: Lessons from academic research O.10 32 Opening the M-Pesa mobile money platform to competition O.11 33 Mobilizing technology in teaching in Rio’s Educopedia O.12 35 Can continuous monitoring and small sanctions improve provider performance? O.13 37 European Union: A fragmented market for digital trade S1.1 45 Three ways in which the internet promotes development 1.1 56 Tracing back growth to a single, new technology suffers from severe measurement problems 1.2 57 Is this time different? Predicting labor productivity growth at the technological frontier based on lessons from past industrial revolutions 1.3 59 Is the internet reshaping economic geography? Not yet. 1.4 61 Successful online platforms account for local context and institutions 1.5 63 The growth impact is largest when firms in traditional sectors use digital technologies to modernize their business 1.6 65 Do digital technologies embed productivity externalities? 1.7 69 Much of the benefit from the internet is unmeasured S2.1 95 Innovations in digital payments S2.2 98 Technology can help unveil illicit money flows 2.1 109 Business process outsourcing and jobs in the Philippines: Opportunities and challenges from technological change 2.2 110 The economics of online outsourcing 2.3 112 Expanding opportunities through online music 2.4 114 Bridging the disability divide through digital technologies 2.5 115 Using digital technologies to match workers with jobs: Souktel in West Bank and Gaza 2.6 116 The impact of digital technologies on remittances 2.7 123 Skills wanted: Key concepts 2.8 129 Concerns about technological unemployment are not new 2.9 133 The challenge of keeping up with new technologies in Mexico 2.10 134 Digital technologies and economic opportunities: A gender lens 3.1 158 Digital technology and crisis management 3.2 159 Empowering women through digitally enabled social programs 3.3 160 Targeted public transit benefits in Bogotá 3.4 161 Streamlining services through one-stop service centers 3.5 165 The high failure rate of e-government projects 3.6 169 Digitally enabled teacher management in private schools 3.7 173 Improving the integrity of elections through crowdsourcing and collaboration 3.8 178 Digital technologies can strengthen control 4.1 201 Policy challenges for digital development 4.2 204 Is the internet a public good? 4.3 207 Fragile states, resilient digital economies 4.4 209 How public-private partnership helped build the internet backbone in the Republic of Korea 4.5 212 The last (1,000) mile(s) 4.6 215 Guatemala: An early pioneer of spectrum auctions 4.7 219 How better ICT data can lead to cheaper services 4.8 223 The costs of cybercrime 4.9 229 Tech hubs in Africa 4.10 231 Israel as a startup nation S5.1 245 “Big data” and open data in action Boxes
- 10. viii CONTENTS 5.1 250 Three ideas about the interaction between technology and its complements 5.2 257 Mobile money: A success story and yet a regulatory minefield 5.3 261 The impact of digital technologies on cognitive capacities and socialization 5.4 261 One Laptop per Child: Strengthening analog foundations and careful evaluation 5.5 263 Khan Academy: A supplemental educational resource in and outside the classroom 5.6 264 Using digital technologies to foster collaboration and learning: Rio de Janeiro’s Educopedia 5.7 265 Emerging lessons from digital literacy programs 5.8 267 Building new economy skills: Escuela Nueva in Colombia and Vietnam 5.9 269 Building modern skills: Game-based learning and “gamifying” education 5.10 271 Massive open online courses (MOOCs): A promising tool for lifelong learning 5.11 276 Increasing the impact of e-government systems 5.12 277 Regular, small-stakes monitoring 5.13 279 Estonia’s X-Road 6.1 294 Categories of stakeholders in internet governance 6.2 297 European Union: A fragmented market for digital products 6.3 307 The Social Observatory and P-tracking 6.4 309 ICTs and the Sustainable Development Goals 6.5 310 Digital Green: “How-to” videos for agriculture and health 6.6 312 Disaster risk management 6.7 314 Can “big data” provide real-time, geographically detailed information on poverty? 6.8 316 Disruptive approaches to development S6.1 329 Using cellphones for medical diagnosis, thanks to 3D printing Figures O.1 3 Digital technologies have spread rapidly in much of the world O.2 3 The pessimism concerning the global outlook is not because of digital technologies, but in spite of them O.3 4 Why digital dividends are not spreading rapidly—and what can be done O.4 6 Digital transformation in action O.5 8 The internet remains unavailable, inaccessible, and unaffordable to a majority of the world’s population O.6 9 The digital divide in access is high in Africa, and the divide in capability is high in the European Union O.7 9 The internet promotes development through three main mechanisms O.8 11 Many digital transactions involve all three mechanisms and a two-sided market O.9 12 How the three mechanisms apply to businesses, people, and governments O.10 13 The size of the ICT sector and its contribution to GDP growth is still relatively modest O.11 13 Vietnamese firms using e-commerce have higher TFP growth, 2007–12 O.12 18 More complaints were resolved more quickly in the Nairobi water utility after the introduction of digital customer feedback O.13 18 Without strong analog complements, opportunities may turn into risks O.14 19 Factors explaining the lower adoption of digital technologies by businesses O.15 21 Labor shares of national income are falling in many countries, including some developing countries O.16 21 Falling labor shares in national income are associated with rising inequality O.17 22 The labor market is becoming more polarized in many developing countries O.18 23 From a technological standpoint, two-thirds of all jobs are susceptible to automation in the developing world, but the effects are moderated by lower wages and slower technology adoption O.19 25 Internet voting can increase voter participation but can be biased toward more privileged groups BO.6.1 26 Autocratic governments have promoted e-government while censoring the internet O.20 28 A policy framework for improving connectivity O.21 30 The quality of complements and technology rises with incomes O.22 31 Policy priorities for countries that are emerging, transitioning, or transforming O.23 33 The types of skills needed in a modern economy
- 11. ixCONTENTS O.24 35 Digital safeguards in the WDR’s framework S1.1 44 Internet users trade personal data for useful services SB1.1.1 45 A graphic representation of how the internet promotes development 1.1 51 A framework for the internet and economic growth 1.2 52 More firms are using broadband internet 1.3 53 Many advanced digital technologies have not yet diffused across firms in high-income countries, 2014 1.4 54 Higher-productivity firms are more likely to use the internet, 2010–14 1.5 54 African firms using the internet are more productive, 2014 1.6 55 Larger firms use the internet more intensively across all income groups, 2006–14 1.7 57 ICT capital accounted for nearly one- fifth of global growth, 1995–2014 B1.2.1 58 U.S. labor productivity during the electrification era (1890–1940) shares remarkably common patterns with the ICT era (1970–2012) 1.8 60 The internet enables more firms to reach new markets, 2001–12 B1.5.1 63 The ICT sector accounts for 4–7 percent of GDP in most OECD countries, 2011 1.9 65 Vietnamese firms using e-commerce have higher TFP growth, 2007–12 1.10 67 Firm entry rates rose after countries introduced online registration systems, 2006–12 1.11 67 Two out of three firms report competitive pressure from digital innovations, 2014 1.12 68 Prices of taxi medallions have started to decline following the entry of on-demand services and reduced demand for traditional taxis 1.13 71 Firms’ use of online banking varies substantially across countries at comparable incomes, 2003–06 and 2008–13 1.14 71 Firms’ use of the internet varies among six African countries, 2014 1.15 72 The share of firms in the retail sector that sell their products online varies substantially among Latin American countries, 2010 1.16 72 The share of firms using integrated customer relationship management platforms varies substantially among sectors and countries in Europe, 2014 1.17 73 Mobile money markets are often controlled by one or two operators, 2014 1.18 75 Firms’ ICT investments as a share of GDP in several countries are comparable to those of U.S. firms, but they invest much less in complementary skills and reorganization, 2006 1.19 76 Many countries still have poor postal delivery systems 1.20 78 Young firms use the internet more intensively in high-income countries— old firms, in low-income countries, 2010–14 1.21 78 Domestic firms use the internet more intensively when they face foreign competition, 2010–14 1.22 79 Firms in Mexico facing higher import competition from China use more ICTs more productively 1.23 80 Restrictive product market regulations in services and higher nontariff technical barriers to trade in manufacturing are associated with lower ICT use, 2010–14 1.24 81 The dominance of a few politically connected firms stifles competition and innovation in Morocco, 2004 and 2007 F1.1 91 Introducing mobile phone service reduces price dispersion in local markets S2.1 95 Kenya’s M-Pesa payment system reached 80 percent of households within four years 2.1 101 A framework for the internet and economic opportunities 2.2 103 All regions are converging in mobile phone access, but South Asia and Sub-Saharan Africa are falling behind in internet access 2.3 103 How people use mobile phones and the internet in Africa 2.4 104 The digital divide within countries remains wide, especially in internet use 2.5 107 Employment in the ICT sector and in ICT occupations remains small 2.6 108 In Brazil, internet and software use by firms throughout the economy is associated with higher earnings B2.2.1 110 Online labor markets provide work and fairly good pay for workers in developing countries 2.7 111 Online work expands women’s access to work
- 12. x CONTENTS 2.8 111 Flexibility in hours worked and the ability to work from home are the main advantages of online work, but relatively poor pay and lack of career prospects are concerns 2.9 113 Returns to education remain high despite significant expansion in the supply of educated workers, especially for tertiary education 2.10 113 Returns to education are particularly high in ICT-intensive occupations B2.5.1 115 Online platforms improve female labor force participation and access to higher- paying jobs 2.11 117 Mobile phones improve sense of security and save time 2.12 119 United States: Labor share in national income is falling, driven by routine labor 2.13 119 Labor shares in national income are falling in many countries, including some developing countries 2.14 120 Falling labor shares in national income are associated with rising inequality 2.15 121 The labor market is becoming polarized in both developed and developing countries 2.16 124 Employment is becoming more intensive in the use of digital technologies 2.17 124 Nonroutine skills are becoming more important over time 2.18 125 In developing countries, one-third of urban workers use digital technology at work 2.19 125 Employment becomes more intensive in ICT use as economies grow 2.20 126 Lack of ICT skills is often a constraint to employment 2.21 127 Nonroutine analytical and socioemotional skills are becoming more important, especially in jobs performed by younger cohorts 2.22 128 New economy skills, beyond levels of education, pay off 2.23 128 Digital technologies go hand in hand with nonroutine new economy skills 2.24 129 From a technological standpoint, two-thirds of all jobs are susceptible to automation in the developing world, but the effects are moderated by lower wages and slower technology adoption 2.25 131 The interaction between technology and jobs varies by occupation 2.26 132 The key policy challenge: Adapting the skills agenda to expected labor market disruptions 2.27 133 The less educated and the bottom 40 percent of the welfare distribution are most vulnerable to technological changes in the labor market 3.1 153 A framework for digital technologies and government service delivery 3.2 153 Low-income countries have invested heavily in e-government 3.3 154 The priority in low-income countries has been core e-government systems, 2014 3.4 155 Governments use digital technologies more intensively than private sector firms, 2014 3.5 156 Citizen use of e-government in Europe depends highly on income, 2014 3.6 156 Mobile phones are the main channel for citizens to interact with governments in Africa, 2014 3.7 159 e-government systems increase the transparency of government budgets, 2014 3.8 162 The likelihood of being visited and the number of visits by tax officials after e-filing was introduced vary in select European and Central Asian countries 3.9 163 e-filing and e-payment on average reduced the time required to prepare and pay taxes 3.10 163 e-procurement has no effect on firms’ likelihood of bidding for a government contract or of being solicited for a bribe in select European and Central Asian countries B3.5.1 165 Success rate of large public sector ICT projects B3.5.2 165 Performance of World Bank–funded ICT projects 3.11 166 More complaints were resolved more quickly in the Nairobi water utility after the introduction of digital customer feedback 3.12 167 Citizens using Indonesia’s national feedback portal (LAPOR) have few actionable complaints, and these are mostly for private goods, 2015 3.13 170 Government officials in Indonesia and the Philippines have generally low opinions of human resource management practices 3.14 172 Democracy has spread, but so have election irregularities—digital technologies can help make elections freer and fairer 3.15 175 Internet voting can increase voter participation but can be biased toward more privileged groups
- 13. xiCONTENTS B3.8.1 178 Autocratic governments have promoted e-government while censoring the internet 3.16 179 Digital technology projects funded by the World Bank are more successful in countries with higher-quality institutions 3.17 180 Classifying public services and activities as to their amenability to improvement through digital technology F3.1 191 Sequencing of e-health development in Montenegro S4.1 195 Different types of digital ID schemes across countries B4.1.1 201 Global ICT access B4.1.2 202 Network buildout (subscriptions per 100 population) in OECD and low- and middle-income countries, 1990–2014 B4.3.1 207 Somalia’s rising mobile economy B4.4.1 209 Broadband in the Republic of Korea and other selected economies B4.5.1 213 The effect of history on internet prices, Pacific B4.6.1 216 How greater spectrum availability led to lower prices in Latin America, 2003–09 4.1 217 Prices are falling for computer processing, storage, bandwidth, and smartphones 4.2 218 If you want to make a mobile phone call, go to Sri Lanka B4.10.1 231 How Israel stays ahead in high-tech entrepreneurship F4.1 241 Smart cities: From data to intelligence S5.1 245 World’s capacity to store information S5.2 245 Growth in telecommunications capacity S5.3 246 Readiness, implementation, and impact of open data 5.1 249 Risks from digital technologies in the absence of complements 5.2 251 Some services and sectors are more amenable to digital technology than others 5.3 253 The quality of complements and technology rises with incomes 5.4 254 Regulations that encourage competition also facilitate higher adoption of digital technologies 5.5 255 Digital products are taxed as luxury goods in some countries 5.6 256 Infrastructure complements 5.7 259 The types of skills needed in a modern economy 5.8 260 Education that upgrades skills also facilitates higher adoption of digital technologies 5.9 266 Even in advanced countries, youth are often unable to think critically and solve problems 5.10 273 Countries with more accountable governments also adopt more digital technologies 5.11 280 Digital safeguards in the WDR’s framework B6.1.1 294 Stakeholders in internet governance 6.1 294 Concerns that have fueled the debate on how the internet is governed 6.2 297 The multistakeholder model of internet governance enjoys greater support than other options B6.2.1 298 Perceived barriers to buying over the internet in 2009 B6.2.2 298 Obstacles for enterprises not selling online in 2013 6.3 299 Perception of U.S. firms on barriers to data flows as obstacles to trade, 2012 6.4 300 A majority of respondents agree that their online data and personal information should be physically stored on a secure server in their own country 6.5 301 Changes in GDP, investment, and exports due to regulatory restrictions on data flows 6.6 305 The evolution of development aid by information needs, 1973–2010 6.7 306 Proportion of international financial institution projects with successful outcomes 6.8 306 High-quality M&E improves project outcomes S6.1 327 Gartner “hype” cycle applied to selected digital technologies Maps O.1 7 The internet is more evenly spread than income 1.1 53 Many more firms are using the internet in Vietnam 1.2 61 China’s export destinations differ for firms using online platforms, 2006 and 2014 1.3 76 International online payment systems for businesses are unavailable in many parts of Africa and Central Asia, 2012–14 2.1 102 Mobile phones are the main source of connectivity in the developing world, but large gaps in internet access remain
- 14. xii CONTENTS B4.1.1 202 Price of mobile and fixed broadband services B4.5.1 212 The effect of geography on internet prices, Africa B4.6.1 215 Spectrum assignment in Latin America, in MHz blocks 4.1 222 Evidence of internet content filtering 4.2 226 National data protection and privacy laws and bills 4.3 230 African tech hubs 6.1 296 A divided world: Country positions on the International Telecommunication Regulations 6.2 315 Availability of reports from weather stations F6.1 323 Satellite estimates of average PM2.5 concentrations provide global coverage, 2010 Tables O.1 14 Benefits of digital technologies for workers and consumers: A scorecard O.2 24 Classifying the digital citizen engagement cases O.3 34 Priority policies for better service delivery 1.1 74 The internet impact is highest for data-intensive activities that involve easy-to-enforce contracts 1.2 74 Many firms use the internet without changing their organizational structures, limiting its impact, 2010–14 1.3 82 Economic activities with high potential for firms to use digital technologies more intensively are often protected from foreign or domestic competition in developing countries, reducing productivity growth 2.1 105 Digital technologies affect employment and earnings, the evidence shows 2.2 106 Benefits of digital technologies for workers and consumers: A scorecard 2.3 122 Interactions between technology and skills at work 2.4 122 Recent evidence on skill-biased technological change 2.5 132 Expected impacts of technological change on employment and earnings S3.1 149 Relationships in different types of social media 3.1 157 The impact of digital technology on government capability to deliver services: A scorecard 3.2 171 The impact of digital technology on citizen empowerment: A scorecard 3.3 176 Classifying the digital citizen engagement cases 4.1 206 A policy framework for the supply of internet service B4.4.1 210 Broadband investment program, Republic of Korea 4.2 224 A basic framework for assessing the costs of cybersecurity incidents 5.1 252 Policy priorities for emerging, transitioning, or transforming countries 5.2 262 Emerging countries: A skill development agenda for a modern labor market 5.3 266 Transitioning countries: A skill development agenda for a modern labor market 5.4 270 Transforming countries: A skill development agenda for a modern labor market 5.5 273 A framework for policies: How to improve services in different contexts 5.6 274 Emerging countries: An agenda for laying institutional foundations and improving services 5.7 277 Transitioning countries: An agenda for building capable and accountable institutions and improving services 5.8 279 Transforming countries: An agenda for deepening collaborative institutions and improving services 6.1 295 Multistakeholderism or multilateralism 6.2 301 Many countries have proposed comprehensive legislation on data flows 6.3 304 Information as feedback and as input, by expenditure type
- 15. xiii We find ourselves in the midst of the greatest information and communications revolution in human history. More than 40 percent of the world’s population has access to the inter- net, with new users coming online every day. Among the poorest 20 percent of households, nearly 7 out of 10 have a mobile phone. The poorest households are more likely to have access to mobile phones than to toilets or clean water. We must take advantage of this rapid technological change to make the world more prosperous and inclusive. This Report finds that traditional development challenges are preventing the digital revolution from fulfilling its transformative potential. For many people, today’s increase in access to digital technologies brings more choice and greater convenience. Through inclusion, efficiency, and innovation, access provides opportunities that were previously out of reach to the poor and disadvantaged. In Kenya, for example, the cost of sending remittances dropped by up to 90 percent after the introduction of M-Pesa, a digital payment system. New technologies allow women to participate more easily in the labor market—as e-commerce entrepreneurs, in online work, or in business-process outsourcing. The world’s 1 billion persons with disabilities—80 per- cent of whom live in developing countries—can lead more productive lives with the help of text, voice, and video communication. And digital ID systems can provide better access to public and private services for the 2.4 billion people who lack formal identification records, such as a birth certificate. While this is great progress, many are still left out because they do not have access to digital technologies. Those in extreme poverty have the most to gain from better commu- nication and access to information. Nearly 6 billion people do not have high-speed internet, making them unable to fully participate in the digital economy. To deliver universal digital access, we must invest in infrastructure and pursue reforms that bring greater competition to telecommunications markets, promote public-private partnerships, and yield effective regulation. The Report concludes that the full benefits of the information and communications transformation will not be realized unless countries continue to improve their business climate, invest in people’s education and health, and promote good governance. In countries where these fundamentals are weak, digital technologies have not boosted productivity or reduced inequality. Countries that complement technology investments with broader economic reforms reap digital dividends in the form of faster growth, more jobs, and better services. The World Bank Group stands ready to help countries pursue these priorities. We are already working with clients to promote competitive business environments, increase accountability, and upgrade education and skills-development systems to prepare people for the jobs of the future. Foreword
- 16. xiv FOREWORD While people around the world make more than 4 billion Google searches every day, 4 billion people still lack access to the internet. The findings of this Report should be used by all who are working to end extreme poverty and boost shared prosperity. The greatest rise of information and communications in history will not be truly revolutionary until it benefits everyone in every part of the world. Jim Yong Kim President The World Bank Group
- 17. xv This Report was prepared by a team led by Deepak Mishra and Uwe Deichmann and com- prising Kenneth Chomitz, Zahid Hasnain, Emily Kayser, Tim Kelly, Märt Kivine, Bradley Larson, Sebastian Monroy-Taborda, Hania Sahnoun, Indhira Santos, David Satola, Marc Schiffbauer, Boo Kang Seol, Shawn Tan, and Desiree van Welsum. The work was carried out under the general direction of Kaushik Basu, Indermit Gill, and Pierre Guislain. World Bank President Jim Yong Kim was an invaluable source of encouragement to the team. The team received guidance from an Advisory Panel cochaired by Kaushik Basu and Toomas Hendrik Ilves and consisting of Salim Sultan Al-Ruzaiqi, Carl Bildt, Yessica Car- tajena, Dorothy Gordon, Richard Heeks, Monica Kerretts-Makau, Feng Lu, N.R. Narayana Murthy, Paul Romer, and Hal Varian. The team would like to acknowledge the generous support of Canada’s Department of Foreign Affairs, Trade, and Development and the International Development Research Cen- tre; Estonia’s Ministry of Foreign Affairs and Office of the President; the French Develop- ment Agency; Germany’s Federal Ministry for Economic Cooperation and Development and the Deutsche Gesellschaft für Internationale Zusammenarbeit; Israel’s Ministry of Econ- omy; Norway’s Ministry of Foreign Affairs and the Norwegian Agency for Development Cooperation; Sweden’s Ministry of Foreign Affairs; the multidonor Knowledge for Change Program; and the World Bank Research Support Budget. Consultation events were held in Armenia, Belgium, China, the Dominican Republic, the Arab Republic of Egypt, Estonia, Finland, France, Germany, India, Indonesia, Ireland, Jamaica, Kenya, Morocco, the Netherlands, Oman, Pakistan, the Philippines, Somalia, Swe- den, Switzerland, Turkey, the United Arab Emirates, the United Kingdom, the United States, and Vietnam, with participants drawn from many more countries. Detailed information about these events can be found at http://www.worldbank.org/wdr2016/about. Interagency consultations were held with the European Commission, International Telecommunication Union, Organisation for Economic Co-operation and Development, United Nations Broad- band Commission, United Nations Conference on Trade and Development (UNCTAD), and United Nations Development Programme (UNDP). The initial findings of the Report were also discussed at several conferences and workshops, including at the Brookings-Blum Roundtable; Columbia University; Nairobi’s iHub; International Conference of Agricultural Economists in Milan; Oxford Internet Institute; the People-Centered Internet Conference at Stanford University; the Science, Technology and Innovation for Development conference in Seoul; the Swedish Program for Information and Communication Technology in Devel- oping Regions; the UbuntuNet Alliance Connect Conference in Mozambique; the University of West Indies at Mona, Jamaica; the U.S. State Department; the World Economic Forum; and the World Summit on the Information Society. The team thanks the participants in all of these events for helpful comments and suggestions. Bruce Ross-Larson was the principal editor of the Report. The production and logistics team for the Report comprised Brónagh Murphy, Mihaela Stangu, and Jason Victor, with Acknowledgments
- 18. xvi ACKNOWLEDGMENTS contributions from Laverne Cook, Gracia Sorenson, Roza Vasileva, and Bintao Wang. Reboot was the principal graphic designer. Phillip Hay, Vamsee Krishna Kanchi, Mikael Ello Reven- tar, and Roula Yazigi provided guidance on communication strategy. The World Bank’s Publishing and Knowledge Division coordinated the copyediting, typesetting, designing, printing, and dissemination of the Report. Nancy Morrison and Dana Lane copyedited the Report. Diane Stamm and Laura Wallace edited the background papers and framing notes, respectively. Special thanks to Denise Bergeron, Jose de Buerba, Mary Fisk, Yulia Ivanova, Patricia Katayama, Stephen McGroarty, Andres Meneses, Chiamaka Osuagwu, Stephen Pazdan, and Paschal Ssemaganda, as well as the Translation and Interpretation Unit’s Bouchra Belfqih and her team, and the Map Design Unit. The team would like to thank Vivian Hon, Jimmy Olazo, and Claudia Sepúlveda for their coordinating roles. Elena Chi- Lin Lee, Surekha Mohan, and Joseph Welch coordinated resource mobilization. Jean-Pierre Djomalieu, Gytis Kanchas, Nacer Megherbi, Manas Ranjan Parida, and Pratheep Ponraj provided IT support. The team would like to acknowledge several people for insightful discussions, including Jenny Aker, George Akerlof, Robert Atkinson, David Autor, Arup Banerji, Eric Bartelsman, Vint Cerf, Carol Corrado, Claudia Maria Costin, Augusto de la Torre, Asli Demirgüç-Kunt, Shantayanan Devarajan, Laurent Elder, Marianne Fay, Francisco Ferreira, Torbjorn Fredriksson, Carl Frey, Haishan Fu, Mark Graham, Caren Grown, Ravi Kanbur, Jesse Kaplan, Loukas Karabarbounis, Phil Keefer, Michael Kende, Homi Kharas, Taavi Kotka, Aart Kraay, Arianna Legovini, Norman Loayza, Epp Maaten, Michael Mandel, James Manyika, Magdy Martinez-Soliman, Njuguna Ndung’u, Nandan Nilekani, Ory Okolloh, Tapan Parikh, Rich Pearson, Lant Pritchett, Martin Rama, Vijayendra Rao, Ana Revenga, John Rose, Sudhir Shetty, Joseph Stiglitz, Randeep Sudan, Larry Summers, Jan Svejnar, Chad Syverson, Prasanna Tambe, Michael Thatcher, Hans Timmer, Kentaro Toyama, Nigel Twose, Bart van Ark, Tara Vishwanath, Stephanie von Friedeburg, Melanie Walker, and Darrell West. The contributors to the spotlight and sector focus pieces are Robert Ackland, Wajeeha Ahmad, Hallie Applebaum, Joseph Atick, Amparo Ballivian, Adis Balota, Biagio Bossone, Karan Capoor, Mariana Dahan, Alan Gelb, Aparajita Goyal, Dominic S. Haazen, Naomi Hale- wood, Mia Harbitz, Todd Johnson, Anna Lerner, Dennis Linders, Arturo Muente-Kunigami, Urvashi Narain, Thomas Roca, Zlatan Sabic, Marcela Sabino, Chris Sall, Randeep Sudan, Kyosuke Tanaka, Tatiana Tropina, Michael Trucano, and Darshan Yadunath. The Report draws on background papers and notes prepared by Karina Acevedo, Laura Alfaro, Maja Andjelkovic, Izak Atiyas, Ozan Bakis, Shweta Banerjee, Sheheryar Banuri, Johannes Bauer, Jessica Bayern, Zubair Bhatti, Miro Frances Capili, Xavier Cirera, Nicholas Crafts, Cem Dener, Joao Maria de Oliveira, Bill Dutton, Mark Dutz, Maya Eden, Ana Fer- nandes, Lucas Ferreira-Mation, Rachel Firestone, Jonathan Fox, Paul Gaggl, Jose Marino Garcia, Elena Gasol Ramos, Tina George, Daphne Getz, Itzhak Goldberg, Martin Hilbert, Sahar Sajiad Hussain, Leonardo Iacovone, Saori Imaizumi, Ali Inam, Melissa Johns, Todd Johnson, Patrick Kabanda, Chris Kemei, Doruk Yarin Kiroglu, Barbara Kits, Anna Kocha- nova, Gunjan Krishna, Arvo Kuddo, Filipe Lage de Sousa, Michael Lamla, Victoria Lemieux, Emmanuel Letouzé, Zahra Mansoor, Francisco Marmolejo, Aaditya Mattoo, Samia Melhem, Michael Minges, Martin Moreno, Huy Nygen, Stephen O’Connell, Brian O’Donnell, Alberto Osnago, Tiago Peixoto, Mariana Pereira-Lopez, Gabriel Pestre, Sonia Plaza, Rita Ramalho, Dilip Ratha, Seyed Reza Yousefi, Said Mohamed Saadi, Leo Sabetti, Simone Sala, Deepti Samant Raja, David Sangokoya, Bessie Schwarz, Sophiko Skhirtladze, Elisabeth Tellman, Kristjan Vassil, Patrick Vinck, Joanna Watkins, Robert Willig, Min Wu, Maggie Xu, Emilio Zagheni, and Irene Zhang. All background papers for the Report are available at http://www .worldbank.org/wdr2016 or through the WDR office at the World Bank. The team received expert advice during several rounds of reviews from Christian Aedo, Ahmad Ahsan, Mohamed Ihsan Ajwad, Omar Arias, Cesar Baldeon, Morgan Bazilian, Kath- leen Beegle, Luis Beneviste, Christian Bodewig, Stefanie Brodmann, Shubham Chaudhuri,
- 19. xviiACKNOWLEDGMENTS Karl Chua, Massimo Cirasino, Amit Dar, Ximena del Carpio, Deon Filmer, Adrian Fozzard, Samuel Freije, Roberta Gatti, Caren Grown, Mary Hallward–Driemeier, Robert Hawkins, Joel Hellman, Mohamed Ibrahim, Leora Klapper, Luis Felipe Lopez Calva, Charlotte V. McClain-Nhlapo, Atul Mehta, Samia Melham, Claudio Montenegro, Reema Nayar, David Newhouse, Anna Olefir, Pierella Paci, Cecilia Paradi-Guilford, Josefina Posadas, Siddhartha Raja, Dena Ringold, David Robalino, Jan Rutkowski, Carolina Sanchez-Paramo, Joana Silva, Jin Song, Renos Vakis, Alexandria Valerio, Joao Pedro Wagner de Azevedo, Aleem Walji, Michael Weber, and William Wiseman, as well as from the World Bank Group regions, global practices, cross-cutting solutions areas, Legal Department, Independent Evaluation Group, and other units. Many people inside and outside the World Bank Group provided helpful comments, made other contributions, and participated in consultative meetings. The team would like to thank the following: Jamal Al-Kibbi, Mavis Ampah, Dayu Nirma Amurwanti, James Anderson, Elena Arias, Andrew Bartley, Cyrille Bellier, Rachid Benmessaoud, Natasha Beschorner, Zubair Bhatti, Phillippa Biggs, Brian Blankespoor, Joshua Blumenstock, David Caughlin, Jean-Pierre Chauffour, Michael Chodos, Diego Comin, Pedro Conceicao, Paulo Correa, Eric Crabtree, Prasanna Lal Das, Ron Davies, Valerie D’Costa, James Deane, Donato de Rosa, Niamh Devitt, Ndiame Diop, Dini Sari Djalal, Khalid El Massnaoui, Oliver Falck, Erik Feiring, Xin Feng, Nicolas Friederici, Doyle Galegos, Rikin Gandhi, John Garrity, Diari- etou Gaye, Daphne Getz, Ejaz Syed Ghani, Soren Gigler, Chorching Goh, Itzhak Goldberg, Simon Gray, Boutheina Guermazi, Suresh Gummalam, Stefanie Haller, Nagy Hanna, Jeremy Andrew Hillman, Stefan Hochhuth, Anke Hoeffler, Bert Hofman, Mai Thi Hong Bo, Tim Hwang, William Jack, Sheila Jagannathan, Satu Kahkonen, Kai Kaiser, Jesse Kaplan, Rajat Kathuria, Anupam Khanna, Stuti Khemani, Zaki Khoury, Oliver Knight, Srivatsa Krishna, Kathie Krumm, Victoria Kwakwa, Somik Lall, Jason Lamb, Jessica Lang, Andrea Liverani, Steven Livingston, Augusto Lopez-Claros, Muboka Lubisia, Sean Lyons, Sandeep Mahajan, Shiva Makki, Will Martin, Selina McCoy, Stefano Mocci, Mahmoud Mohieldin, Partha Mukhopadhyay, Pauline Mwangi, Gb Surya Ningnagara, Tenzin Norbhu, Tobias Ochieng, Varad Pande, Douglas Pearce, Oleg Petrov, Jan Pierskalla, Maria Pinto, Martin Raiser, Achraf Rissafi, Nagla Rizk, Michel Rogy, Gabriel Roque, Karen Rose, Carlo Maria Rossotto, Frances Ruane, Onno Ruhl, Umar Saif, Daniel Salcedo, Apurva Sanghi, Arleen Seed, Shekhar Shah, Fred Shaia, Shehzad Sharjeel, Gurucharan Singh, Rajendra Singh, Alexander Slater, Karlis Smits, Vicenzo Spezia, Christoph Stork, Younas Suddique, Abdoulaye Sy, Maria Consuelo Sy, Noriko Toyoda, Rogier van den Brink, Adam Wagstaff, Ken Warman, Cynthia Wong, Bill Woodcock, Pat Wu, Elif Yonca Yukseker, and Breanna Zwart. The team also met with representatives from civil society and the private sector, includ- ing Airbnb; Alibaba (China); Babajob (India); Baidu (China); Diplo (Switzerland); Economic and Social Research Institute (ESRI; Ireland); Elance-oDesk (now Upwork); eLimu (Kenya); Enterprise Ireland; the Estonian e-Governance Academy; Facebook; Google; Groupe Speciale Mobile Association (GSMA); Human Rights Watch; Nairobi’s iHub; Internet Corporation for Assigned Names and Numbers (ICANN); Internet Society; Khan Academy; Let’s Do It! (Estonia); Lyft; MajiVoice (Kenya); McKinsey Global Institute; Microsoft; National Asso- ciation of Software and Services Companies (India); Nortal (Estonia); Olacabs (India); Postmates; Rovio Entertainment (Finland); Souktel (West Bank and Gaza); the Start-Up Jamaica Accelerator; TransferWise (Estonia/United Kingdom); Twitter; and Uber. The team apologizes to any individuals or organizations inadvertently omitted from this list.
- 21. xix 2G second-generation 3D three-dimensional 3G third-generation 4G fourth-generation 5G fifth-generation ADB Asian Development Bank AfDB African Development Bank AI artificial intelligence APEC Asia-Pacific Economic Cooperation ATM automated teller machine AV autonomous vehicles B2B business-to-business BIA Bridge International Academies BISP Benazir Income Support Programme (Pakistan) BPO business process outsourcing C2C consumer-to-consumer CAL computer-assisted learning CDRs call data records CERT computer emergency response team CRM customer relationship management CSIRT Computer Security Incident Response Team CSO civil society organization DAI Digital Adoption Index DFID Department for International Development (United Kingdom) DRM disaster risk management DSL digital subscriber line EBRD European Bank for Reconstruction and Development EC European Commission ERP economic resource planning; Electronic Road Pricing EU European Union FCC Federal Communications Commission (United States) FDI foreign direct investment G-8 Group of Eight (Canada, France, Germany, Italy, Japan, the Russian Federation, the United Kingdom, and the United States) G2B government-to-business G2C government-to-citizen G2G government-to-government Abbreviations
- 22. xx ABBREVIATIONS GDP gross domestic product GIS geographic information system GNI gross national income GPS global positioning system GSMA Groupe Speciale Mobile Association (aka Global System for Mobile communications Association) GTAP Global Trade Analysis Project HEWs Health Extension Workers HMIS Health Management Information System HS harmonized classification system I2D2 International Income Distribution Database (World Bank) IANA Internet Assigned Numbers Authority IATA International Air Transport Association ICANN Internet Corporation for Assigned Names and Numbers ICT information and communication technology ID identification IDRC International Development Research Centre (Canada) IETF Internet Engineering Task Force IFAD International Fund for Agricultural Development IFC International Finance Corporation (of the World Bank Group) IoT internet of things IP intellectual property; internet protocol IPRs intellectual property rights ISP internet service provider IT information technology ITRs International Telecommunication Regulations ITU International Telecommunication Union IXP internet exchange point KILM Key Indicators of the Labour Market LDCs least developed countries LLU local loop unbundling LPI Logistics Performance Index LTE Long Term Evolution M&E monitoring and evaluation MDGs Millennium Development Goals (United Nations) MFN most favored nation MLM multilateral model MOOC massive open online course MSM multistakeholder model NGO nongovernmental organization NTM nontariff measure OECD Organisation for Economic Co-operation and Development OLPC One Laptop per Child OSI online service index OTT over-the-top PC personal computer PFR Program for Results (World Bank) PIAAC Programme for the International Assessment of Adult Competencies PISA Programme for International Student Assessment PM2.5 particulates with a diameter of less than 2.5 micrometers
- 23. xxiABBREVIATIONS PMR Product Market Regulation POP point of presence PPP public-private partnership; purchasing power parity PTT public telephone and telegraph R&D research and development RFID radio frequency identification RSS Rich Site Summary SCM supply chain management SDGs Sustainable Development Goals (United Nations) SIM subscriber identification module SMEs small and medium enterprises SMS short message service STEM science, technology, engineering, and mathematics STEP Skills Towards Employability and Productivity (World Bank) SYNOP surface synoptic observations TFP total factor productivity TRCs Truth and Reconciliation Commissions UN United Nations UNCTAD United Nations Conference on Trade and Development USAID U.S. Agency for International Development USF Universal Service Fund VAT value added tax W3C World Wide Web Consortium WDI World Development Indicators (World Bank database) WDR 2016 team team for the 2016 World Development Report WEF World Economic Forum WIPO World Intellectual Property Organization WITS World Integrated Trade Solution (World Bank database) WTO World Trade Organization Units of measurement GB gigabyte Gbit/s gigabits per second GHz gigahertz kbps kilobits per second kWh kilowatt-hour Mbit/s megabits per second MHz megahertz Tbit/s terabits per second Currencies $A Australian dollar € euro K Sh Kenyan shilling Indian rupee US$ U.S. dollar Y Chinese yuan Country and economy codes AFG Afghanistan AGO Angola ALB Albania ARE United Arab Emirates ARG Argentina ARM Armenia AUS Australia AUT Austria AZE Azerbaijan BDI Burundi BEL Belgium BEN Benin ₹
- 24. xxii ABBREVIATIONS BFA Burkina Faso BGD Bangladesh BGR Bulgaria BHR Bahrain BIH Bosnia and Herzegovina BLR Belarus BLZ Belize BOL Bolivia BRA Brazil BRB Barbados BRN Brunei Darussalam BTN Bhutan BWA Botswana CAN Canada CHE Switzerland CHL Chile CHN China CIV Côte d’Ivoire CMR Cameroon COD Congo, Dem. Rep. COL Colombia CPV Cabo Verde CRI Costa Rica CYP Cyprus CZE Czech Republic DEU Germany DJI Djibouti DNK Denmark DOM Dominican Republic DZA Algeria ECU Ecuador EGY Egypt, Arab Rep. ESP Spain EST Estonia ETH Ethiopia FIN Finland FJI Fiji FRA France GAB Gabon GBR United Kingdom GEO Georgia GHA Ghana GIN Guinea GMB Gambia, The GRC Greece GRD Grenada GTM Guatemala GUY Guyana HND Honduras HRV Croatia HTI Haiti HUN Hungary IDN Indonesia IND India IRL Ireland IRN Iran, Islamic Rep. IRQ Iraq ISL Iceland ISR Israel ITA Italy JAM Jamaica JOR Jordan JPN Japan KAZ Kazakhstan KEN Kenya KGZ Kyrgyz Republic KHM Cambodia KOR Korea, Rep. KWT Kuwait LAO Lao PDR LBN Lebanon LBR Liberia LBY Libya LKA Sri Lanka LSO Lesotho LTU Lithuania LUX Luxembourg LVA Latvia MAR Morocco MDA Moldova MDG Madagascar MDV Maldives MEX Mexico MKD Macedonia, FYR MLI Mali MLT Malta MMR Myanmar MNE Montenegro MNG Mongolia MOZ Mozambique MRT Mauritania MUS Mauritius MWI Malawi MYS Malaysia NAM Namibia NER Niger
- 25. xxiiiABBREVIATIONS NGA Nigeria NIC Nicaragua NLD Netherlands NOR Norway NPL Nepal NZL New Zealand OMN Oman PAK Pakistan PAN Panama PER Peru PHL Philippines PNG Papua New Guinea POL Poland PRT Portugal PRY Paraguay PSE West Bank and Gaza QAT Qatar ROU Romania RUS Russian Federation RWA Rwanda SAU Saudi Arabia SEN Senegal SGP Singapore SLB Solomon Islands SLE Sierra Leone SLV El Salvador SOM Somalia SRB Serbia STP São Tomé and Príncipe SVK Slovak Republic SVN Slovenia SWE Sweden SWZ Swaziland SYC Seychelles TCD Chad TGO Togo THA Thailand TJK Tajikistan TKM Turkmenistan TLS Timor-Leste TON Tonga TTO Trinidad and Tobago TUN Tunisia TUR Turkey TZA Tanzania UGA Uganda UKR Ukraine URY Uruguay USA United States UZB Uzbekistan VEN Venezuela, RB VNM Vietnam YEM Yemen, Rep. ZAF South Africa ZMB Zambia ZWE Zimbabwe
- 28. e-commerce site, by significantly reducing coordi- nation costs, boosts efficiency in China’s economy and arguably the world’s. The M-Pesa digital pay- ment platform, by exploiting scale economies from automation, generates significant financial sector innovation, with great benefits to Kenyans and others. Inclusion, efficiency, innovation—these are the main mechanisms for digital technologies to promote development. Although there are many individual success sto- ries, the effect of technology on global productivity, expansion of opportunity for the poor and the middle class, and the spread of accountable governance has so far been less than expected (figure O.2).2 Firms are more connected than ever before, but global produc- tivity growth has slowed. Digital technologies are changing the world of work, but labor markets have become more polarized and inequality is rising—par- ticularly in the wealthier countries, but increasingly in developing countries. And while the number of democracies is growing, the share of free and fair elections is falling. These trends persist, not because of digital technologies, but in spite of them. So, while digital technologies have been spreading, digitaldividendshavenot.Why?Fortworeasons.First, nearly 60 percent of the world’s people are still offline Digital technologies—the internet, mobile phones, and all the other tools to collect, store, analyze, and share information digitally—have spread quickly. More households in developing countries own a mobile phone than have access to electricity or clean water, and nearly 70 percent of the bottom fifth of the population in developing countries own a mobile phone. The number of internet users has more than tripled in a decade—from 1 billion in 2005 to an estimated 3.2 billion at the end of 2015.1 This means that businesses, people, and governments are more connected than ever before (figure O.1). The digital revolution has brought immediate private bene- fits—easier communication and information, greater convenience, free digital products, and new forms of leisure. It has also created a profound sense of social connectedness and global community. But have mas- sive investments in information and communication technologies (ICTs) generated faster growth, more jobs, and better services? Indeed, are countries reap- ing sizable digital dividends? Technology can be transformational. A digital identification system such as India’s Aadhaar, by overcoming complex information problems, helps willing governments to promote the inclusion of dis- advantaged groups. Alibaba’s business-to-business OVERVIEW Strengthening the analog foundation of the digital revolution Digital technologies have spread rapidly in much of the world. Digital dividends—the broader development benefits from using these technologies—have lagged behind. In many instances digital technologies have boosted growth, expanded oppor- tunities, and improved service delivery. Yet their aggregate impact has fallen short and is unevenly distributed. For digital technologies to benefit everyone everywhere requires closing the remaining digital divide, especially in internet access. But greater digital adoption will not be enough. To get the most out of the digital revolution, countries also need to work on the “analog complements”—by strengthening regulations that ensure competition among businesses, by adapting workers’ skills to the demands of the new economy, and by ensuring that institutions are accountable.
- 29. 3OVERVIEW institutions, amplify the voice of elites, which can result in policy capture and greater state control. And because the economics of the internet favor natural monopolies, the absence of a competitive business environment can result in more concentrated markets, benefiting incumbent firms. Not surprisingly, the bet- ter educated, well connected, and more capable have received most of the benefits—circumscribing the gains from the digital revolution. and can’t participate in the digital economy in any meaningful way. Second, some of the perceived bene- fits of digital technologies are offset by emerging risks (figure O.3). Many advanced economies face increas- ingly polarized labor markets and rising inequality—in part because technology augments higher skills while replacing routine jobs, forcing many workers to com- pete for low-paying jobs. Public sector investments in digital technologies, in the absence of accountable Figure O.1 Digital technologies have spread rapidly in much of the world Source: WDR 2016 team. Data at http://bit.do/WDR2016-FigO_1. Note: The figures show the diffusion of digital technologies across countries as measured by the Digital Adoption Index compiled for this Report and described in detail in chapter 5 of the full Report. GDP = gross domestic product. Figure O.2 The pessimism concerning the global outlook is not because of digital technologies, but in spite of them Sources: Panel a: Conference Board (various years); WDR 2016 team. Panel b: Lakner and Milanovic 2013. Panel c: Bishop and Hoeffler 2014. Data at http://bit.do/WDR2016-FigO_2. 0 0.2 0.4 0.6 0.8 1.0 100 1,000 GDP per capita (constant 2005 US$) GDP per capita (constant 2005 US$) GDP per capita (constant 2005 US$) 10,000 100,000 a. Digital adoption by businesses b. Digital adoption by people c. Digital adoption by governments 0 0.2 0.4 0.6 0.8 1.0 100 1,000 10,000 100,000 0 0.2 0.4 0.6 0.8 1.0 100 1,000 10,000 100,000 Global average Global average Global average a. Global productivity b. Global inequality c. Global governance 0 2 4 6 1973 1979 1985 1991 1997 2003 2009 2015 0 25 50 75 100 1979198219851988199119941997200020032006200920122015 Five-year moving average of median growth of labor productivity per hour worked, in percent, in 87 countries Percentage change in real income between 1998 and 2008 at different levels of world income distribution in 2003 prices Share of elections that are free and fair (%) –10 90 70 50 30 10 5 15 25 35 45 Percentile of world income distribution 55 65 75 85 95
- 30. 4 WORLD DEVELOPMENT REPORT 2016 foundation, consisting of regulations that create a vibrant business climate and let firms leverage dig- ital technologies to compete and innovate; skills that allow workers, entrepreneurs, and public servants to seize opportunities in the digital world; and account- able institutions that use the internet to empower citizens. The long-term development impact is by no means definitive, being continuously shaped by the evolution of technology (connectivity) and the country’s choice of economic, social, and governance arrangements (complements).4 Countries that are able to swiftly adjust to this evolving digital economy will reap the greatest digital dividends, while the rest are likely to fall behind (figure O.3 and box O.1). The triple complements—a favorable business cli- mate, strong human capital, and good governance— will sound familiar—and they should because they are the foundation of economic development. But digital technologies add two important dimensions. First, they raise the opportunity cost of not undertak- ing the necessary reforms. They amplify the impact of good (and bad) policies, so any failure to reform means falling farther behind those who do reform. With digital technologies, the stakes have risen for developing countries, which have more to gain than high-income countries, but also more to lose. Second, while digital technologies are no shortcut to develop- ment, they can be an enabler and perhaps an accel- erator by raising the quality of the complements. Online business registries ease market entry for new and innovative firms. Well-designed internet-based training helps workers upgrade their skills. New media platforms can increase citizen participa- tion. And digital enablers—digital finance, digital identification, social media, and open data—spread To maximize the digital dividends requires better understanding of how technology interacts with other factors that are important for development—what the Report calls “analog complements.” Digital technol- ogies can make routine, transaction-intensive tasks dramatically cheaper, faster, and more convenient. But most tasks also have an aspect that cannot be auto- mated and that requires human judgment, intuition, and discretion. When technology is applied to auto- mate tasks without matching improvements in the complements, it can fail to bring broad-based gains. The digital revolution can give rise to new business models that would benefit consumers, but not when incumbents control market entry. Technology can make workers more productive, but not when they lack the know-how to use it. Digital technologies can help monitor teacher attendance and improve learn- ing outcomes, but not when the education system lacks accountability.3 What should countries do? Making the internet universally accessible and affordable should be a global priority. The internet, in a broad sense, has grown quickly, but it is by no means universal. For every person connected to high-speed broadband, five are not. Worldwide, some 4 billion people do not have any internet access, nearly 2 billion do not use a mobile phone, and almost half a billion live outside areas with a mobile signal. The unfinished task of con- necting everyone to the internet—one of the targets in the recently approved Sustainable Development Goals (SDGs)—can be achieved through a judicious mix of market competition, public-private partnerships, and effective regulation of the internet and telecom sector. Access to the internet is critical, but not sufficient. The digital economy also requires a strong analog Source: WDR 2016 team. Figure O.3 Why digital dividends are not spreading rapidly—and what can be done EFFICIENCY INNOVATIONINCLUSION Accessible Affordable Open and safe INEQUALITYCONTROL CONCENTRATION Reducing risks Spreading benefits Making the internet Digital development strategy Digital technologies Divide Connectivity ComplementsDividends
- 31. 5OVERVIEW Box O.1 Frequently asked questions: The Report at a glance What is the Report about? It explores the impact of the internet, mobile phones, and related technologies on economic development. Part 1 shows that potential gains from digital technologies are high, but often remain unrealized. Part 2 proposes policies to expand connectivity, accelerate complementary reforms in sectors beyond information and communication technol- ogy (ICT), and address global coordination problems. What are the digital dividends? Growth, jobs, and services are the most important returns to digital investments. The first three chapters show how digital technologies help businesses become more pro- ductive; people find jobs and greater opportunities; and governments deliver better public services to all. How do digital technologies promote development and generate digital dividends? By reducing information costs, digital technologies greatly lower the cost of economic and social transactions for firms, individuals, and the public sector. They promote innovation when transaction costs fall to essentially zero. They boost efficiency as existing activities and services become cheaper, quicker, or more convenient. And they increase inclusion as people get access to services that previously were out of reach. Why does the Report argue that digital dividends are not spreading rapidly enough? For two reasons. First, nearly 60 percent of the world’s peo- ple are still offline and can’t fully participate in the digital economy. There also are persistent digital divides across gender, geography, age, and income dimensions within each country. Second, some of the perceived benefits of the internet are being neutralized by new risks. Vested business interests, regulatory uncertainty, and limited contestation across digital platforms could lead to harmful concentra- tion in many sectors. Quickly expanding automation, even of mid-level office jobs, could contribute to a hollowing out of labor markets and to rising inequality. And the poor record of many e-government initiatives points to high fail- ure of ICT projects and the risk that states and corporations could use digital technologies to control citizens, not to empower them. What should countries do to mitigate these risks? Connectivity is vital, but not enough to realize the full devel- opment benefits. Digital investments need the support of “analog complements”: regulations, so that firms can leverage the internet to compete and innovate; improved skills, so that people can take full advantage of digital opportunities; and accountable institutions, so that gov- ernments respond to citizens’ needs and demands. Digital technologies can, in turn, augment and strengthen these complements—accelerating the pace of development. What needs to be done to connect the unconnected? Market competition, public-private partnerships, and effec- tive regulation of internet and mobile operators encourage private investment that can make access universal and affordable. Public investment will sometimes be necessary and justified by large social returns. A harder task will be to ensure that the internet remains open and safe as users face cybercrime, privacy violations, and online censorship. What is the main conclusion? Digital development strategies need to be broader than ICT strategies. Connectivity for all remains an important goal and a tremendous challenge. But countries also need to create favorable conditions for technology to be effective. When the analog complements are absent, the develop- ment impact will be disappointing. But when countries build a strong analog foundation, they will reap ample digital dividends—in faster growth, more jobs, and better services. benefits throughout the economy and society, fur- ther strengthening the interaction between technol- ogy and its complements. Digital transformations— digital divides The internet and related technologies have reached developing countries much faster than previous technological innovations. For Indonesia to reap the benefits of steamships took 160 years after their inven- tion and for Kenya to have electricity, 60 years; but for Vietnam to introduce computers, only 15 years. Mobile phones and the internet took only a few years. More households in developing countries own a mobile phone than have access to electricity or improved san- itation (figure O.4, panel a). Greater internet access has ledtoanexplosionintheproductionandconsumption
- 32. 6 WORLD DEVELOPMENT REPORT 2016 nearly 70 percent own a mobile phone. The lowest mobile penetration is in Sub-Saharan Africa (73 per- cent), against 98 percent in high-income countries. But internet adoption lags behind considerably: only 31 percent of the population in developing countries had access in 2014, against 80 percent in high-income countries. China has the largest number of internet users, followed by the United States, with India, Japan, and Brazil filling out the top five. The world viewed from the perspective of the number of internet users looks more equal than when scaled by income (map O.1)—reflecting the internet’s rapid globalization. Connected businesses Internet adoption has increased across businesses in all country income groups. Nearly 9 of 10 businesses in high-income OECD (Organisation for Economic Co-operation and Development) countries had a broadband internet connection in 2010–14, compared with 7 for middle-income countries and 4 for low-in- come countries. But adoption rates for more sophisti- cated technologies such as secure servers, enterprise network, inventory management, and e-commerce are much lower in most developing countries. Connected governments Governments are increasingly going digital, and a greater share of government jobs in developing coun- tries is ICT-intensive than in the private sector. By 2014, all 193 member states of the United Nations (UN) had national websites: 101 enabled citizens to create per- sonal online accounts, 73 to file income taxes, and 60 to register a business. For the most common core gov- ernment administrative systems, 190 member states had automated financial management, 179 used such systems for customs processing, and 159 for tax man- agement. And 148 of them had some form of digital identification, and 20 had multipurpose digital iden- tification platforms. So far, developing countries have invested more in automating back-office functions than in services directed at citizens and businesses. The divide in digital access and use persists The lives of the majority of the world’s people remain largely untouched by the digital revolution. Only around 15 percent can afford access to broadband internet. Mobile phones, reaching almost four-fifths of the world’s people, provide the main form of inter- net access in developing countries. But even then, nearly 2 billion people do not own a mobile phone, and nearly 60 percent of the world’s population has no access to the internet. The world’s offline population is of information around the world (figure O.4, panel b). But while the internet has reached almost all coun- tries quickly, the intensity of its use has been lower in poorer countries—in large part because it has not spread as widely within those countries. And despite many great examples of the uses of new technologies in developing countries, advanced economies have been using them even more effectively.5 Connected people On average, 8 in 10 individuals in the developing world own a mobile phone, and the number is steadily ris- ing. Even among the bottom fifth of the population, Sources: World Development Indicators (World Bank, various years); WDR 2016 team; http://www .internetlivestats.com/one-second/ (as compiled on April 4, 2015). Data at http://bit.do/WDR2016-FigO_4. Note: In panel a, for some years data for electricity are interpolated from available data. GB = gigabytes. b. A typical day in the life of the internet Figure O.4 Digital transformation in action 2.3 billion GB of WEB TRAFFIC YOUTUBE videos watched 8.8 billion 152 million SKYPE calls 36 million AMAZON purchases 207 billion E-MAILS sent 803 million TWEETS 4.2 billion GOOGLE searches 186 million INSTAGRAM photos a. Digital technologies are spreading rapidly in developing countries Improved sanitation Improved water Electricity Secondary school Internet Mobile phone Mobile broadband 1990 1995 2000 2005 2010 2015 %ofthepopulation 80 100 60 40 20 0
- 33. 7OVERVIEW Map O.1 The internet is more evenly spread than income Source: World Bank. Data at http://bit.do/WDR2016-MapO_1. Note: Countries’ sizes are rescaled in proportion to national income and internet population. The darker the shade, the higher the national income (panel a; GDP at market exchange rates) and the higher the internet population (panel b). a. Based on national income, 2014 b. Based on internet population, 2014 mainly in India and China, but more than 120 million people are still offline in North America (figure O.5). The digital divide within countries can be as high as that between countries. Worldwide, nearly 21 per- cent of households in the bottom 40 percent of their countries’ income distribution don’t have access to a mobile phone, and 71 percent don’t have access to the internet. Adoption gaps between the bottom 40 percent and the top 60 percent and between rural and urban populations are falling for mobile phones but increasing for the internet. In Africa, the digital divide across demographic groups remains consider- able (figure O.6, panel a). Women are less likely than men to use or own digital technologies. Gaps are even larger between youth (20 percent) and those more than 45 years old (8 percent). IBRD42010
- 34. 8 WORLD DEVELOPMENT REPORT 2016 government. And their use of e-government is highly uneven—citizens in the top 20 percent of income in the most connected EU country are 45 times more likely to use e-services than those in the bottom 20 percent of income in the least connected EU coun- try (figure O.6, panel b). Within countries, greater e-government use by individuals is associated with education, employment, urban residence, being male, and broadband access. How the internet promotes development Digital technologies have dramatically expanded the information base, lowered information costs, and created information goods. This has facilitated searching, matching, and sharing of information and contributed to greater organization and collaboration among economic agents—influencing how firms operate, people seek opportunities, and citizens inter- act with their governments. The changes are not lim- ited to economic transactions—they also influence the participation of women in the labor force, the The increased connectivity has had limited effect in reducing information inequality. For example, there are more contributions to Wikipedia from Hong Kong SAR, China, than from all of Africa com- bined, despite the fact that Africa has 50 times more internet users.6 The amount of information published on the web, and its origin, often corresponds to what one sees in the offline world as well. For instance, 85 percent of the user-generated content indexed by Google comes from the United States, Canada, and Europe, similar to the share of global scientific journals originating in these countries. In fact, the information produced and consumed in the digital economy has little bearing on the number of users of digital technologies. Given that nearly one-fifth of the world’s population is illiterate, the spread of digital technologies alone is unlikely to spell the end of the global knowledge divide. Countries that have bridged the digital-access divide often face a new divide in digital capabilities. In the European Union (EU), businesses are more likely than citizens to use the internet to interact with the government. Citizens use e-government mostly for getting information and not for transacting with Sources: World Bank 2015; Meeker 2015; ITU 2015; GSMA, https://gsmaintelligence.com/; UN Population Division 2014. Data at http://bit.do/WDR2016-FigO_5. Note: High-speed internet (broadband) includes the total number of fixed-line broadband subscriptions (such as DSL, cable modems, fiber optics), and the total number of 4G/LTE mobile subscriptions, minus a correcting factor to allow for those who have both types of access. 4G = fourth generation; DSL = digital subscriber line; ICT = information and communication technology; LTE = Long Term Evolution. Figure O.5 The internet remains unavailable, inaccessible, and unaffordable to a majority of the world’s population Mobile phones billion Within mobile coverage 7 billion5.2 billion~7.4 billion3.2 High-speed internet Total internet users Total global population 213 million Indonesia 165 million Pakistan 41 million Turkey 42 million Egypt, Arab Rep. 48 million Thailand 49 million Tanzania 51 million United States 52 million Vietnam 53 million Myanmar 54 million Iran, Islamic Rep. 55 million Russian Federation 148 million Bangladesh 111 million Nigeria 98 million Brazil 95 million Ethiopia 70 million Mexico 68 million Congo, Dem. Rep. 63 million Philippines 1.063 billion India Countries outside of the top 20 755 million China Total internet users billion3.2 a. ICT access by population b. A closer look at the world’s offline population billion1.1 High-speed internet billion1.1
- 35. 9OVERVIEW creditworthiness. Or a small firm that cannot connect with a potential buyer in another country and does not know whether to trust a new business partner. Or a freelancer willing to perform small tasks for a fee. Or a homeowner looking to rent her spare room to local visitors. Or remote or marginalized population groups who fall outside the reach of the services that gov- ernments provide. In all these cases, a fundamental ease of communication for people with disabilities, and the way people spend their leisure. By overcom- ing information barriers, augmenting factors, and transforming products, digital technologies can make development more inclusive, efficient, and innovative (figure O.7 and box O.2). Spotlight 1 in the full Report explores the links between these three mechanisms in the broader economic literature. The internet promotes inclusion Before the internet arrived, some transactions were so expensive that a market for them did not exist. Two types of transactions fall into this category. First is when two parties to a potentially beneficial transaction simply didn’t know about each other and faced exorbitantly high search and information costs. Second is when one party had a lot more information than the other. In the economics literature, such situa- tions are known as information asymmetries between buyers and sellers, and in the absence of trust and transparency, many transactions do not take place. By reducing the cost of acquiring information and making more information available transpar- ently, digital technologies can make new transac- tions possible.7 Consider a poor farmer who cannot access credit because the lender has no way to assess Source: WDR 2016 team. Search and information DIGITAL TECHNOLOGIES Automation and coordination Scale economies and platforms EFFICIENCY INNOVATIONINCLUSION Figure O.7 The internet promotes development through three main mechanisms Figure O.6 The digital divide in access is high in Africa, and the divide in capability is high in the European Union Sources: WDR 2016 team, based on data from Research ICT Africa (various years), ITU, and Eurostat (EC, various years). Data at http://bit.do/WDR2016-FigO_6. Note: For more details see figure 2.4 in the full Report. a. Africa Within-country digital divide can be significant b. European Union Poor households use e-government less than the rich 0 20 40 60 80 100 %ofindividuals(ages16–74) 0 20,000 40,000 60,000 80,000 GDP per capita (US$) 25 5 0 Individualswithinternetaccess(%) 10 15 20 Bottom 40% Upper 60% Mature (45+) Young (15–24) Rural Urban Women Men Income distribution (household) Age Location Gender 45:1 Top income quartile Third quartile Second quartile Bottom quartile
- 36. 10 WORLD DEVELOPMENT REPORT 2016 expanding trade, creating jobs, and increasing access to public services—and thus promoting inclusion.8 The internet promotes efficiency Perhaps the largest impact has been on transactions that existed before the arrival of the internet but are now quicker, cheaper, or more convenient to carry out. information problem makes it difficult to make a deal or a match. Mobile phone records, business-to- business e-commerce, the sharing economy, online reputation mechanisms, and digital identification sys- tems all help to overcome these information barriers. While they make the market more efficient, the big- gest benefit seems to be their market creation effects: Box O.2 e-commerce with Chinese characteristics: Inclusion, efficiency, and innovation in Taobao villages The dynamic growth and rapid spread of e-commerce in China is best illustrated by the Shaji phenomenon. The economy of Dongfeng village in Shaji town (Jiangsu Province) shifted from pig farming in the 1980s to plastic waste recycling in the 1990s. In 2006, a migrant from the village returned to open an online shop to sell simple furniture. His success encouraged other villagers to do likewise, and by the end of 2010, the village had 6 board processing factories, 2 metal parts factories, 15 logistics and shipping companies, and 7 computer stores serving 400 households engaged in online sales throughout China and even in neighboring countries. Shaji was one of the first “Taobao villages”—named after an online shopping platform run by the Alibaba Group—where at least 10 per- cent of households are engaged in online commerce.a The Taobao villages, and the rise of e-commerce in China more generally, illustrate how the internet promotes inclusion, efficiency, and innovation. Inclusion. While the economies of China’s coastal urban areas have grown rapidly over the last three decades, rural and western parts of the country have lagged behind. But China’s large investments in rural connectivity are beginning to pay off. More than 90 percent of villages will have fixed broadband access by the end of 2015. Online commerce has allowed producers in towns and villages to participate in the national and even global economy. At the end of 2014, there were more than 70,000 merchants in 200 Taobao villages, and many more in other rural areas. Most of the stores are small, with an average of 2.5 employ- ees. About one-third of owners are female, and one-fifth were previously unemployed. About 1 percent are persons with disabilities. One of Alibaba’s top “netpreneurs,” con- fined to a wheelchair after an accident, built a thriving online livestock business. Efficiency. Besides the Taobao e-commerce site for consumers, Alibaba and other Chinese firms operate business-to-business platforms. They facilitate intra- and inter-industry trade in China’s already efficient production sector, as well as exports. They also make it easier for for- eign firms to sell in China. Consumers benefit from greater selection and convenience on online retail sites. Online trade has not only helped raise rural incomes but also made shopping more efficient. Purchasing power in rural areas is only about one-third that in cities, but the aggre- gate consumption of China’s 650 million rural residents is vast, contributing to the national goal of moving from an export- and investment-driven economy to one that is more consumption based. And the boom in online trade has spawned numerous logistics companies that provide quick delivery—sometimes by bicycle in towns and villages. Innovation. Taobao and other e-commerce platforms are examples of innovation generated by the economies of scale that emerge when transaction costs drop drastically. Since these platforms are highly automated, fees can be kept low, and operations are often financed by advertising alone. Some problems cannot easily be solved solely by automation, such as creating trust in the market and pre- venting fraud. Online ratings, escrow services, and conflict resolution mechanisms address them. One of the most valuable assets Alibaba and other e-commerce operators accumulate is data. Each transaction contributes to better knowledge about the economy and consumer behavior. This information supports new business lines, such as extending credit to small firms based on automated eval- uations of creditworthiness. This can also advance financial inclusion. In early 2015, for instance, Alibaba’s Ant Financial teamed up with the International Finance Corporation to expand credit to female entrepreneurs in China. Sources: WDR 2016 team, based on information from the China State Information Center, China Association for Employment Promotion, and Alibaba company reports. a. http://www.alizila.com/report-taobao-villages-rural-china-grow-tenfold-2014.
- 37. 11OVERVIEW Many internet businesses or services use a platform or “two-sided market” model. The platforms match buyers with sellers or a service user with a provider. In a ride sharing service, the platform automatically matches drivers and passengers (innovation), the driver takes advantage of a flexible income-earning activity not otherwise accessible (inclusion), and the passenger benefits from greater convenience and often lower prices (efficiency). Online crowdfunding, job matching, room sharing, and music sites operate similarly (figure O.8). The dividends: Growth, jobs, and service delivery The benefits of digital technologies filter throughout the economy (figure O.9). For businesses, the internet promotes inclusion of firms in the world economy by expanding trade, raises the productivity of capital, andintensifiescompetitioninthemarketplace,which in turn induces innovation. It brings opportunities to households by creating jobs, leverages human capital, and produces consumer surplus. It enables citizens to access public services, strengthens government capa- bility, and serves as a platform for citizens to tackle collective action problems. These benefits are neither automatic nor assured, but in numerous instances digital technologies can bring significant gains. This mechanism operates in two ways. First, the dra- matic decline in the price of digital technologies has led businesses and governments to replace existing factors—labor and non-ICT capital—with ICT capital and to automate some of their activities. Airlines use online booking systems to fill planes. Supermarkets substitute cashiers with automated checkout count- ers. Manufacturers use real-time inventory and sup- ply chain management systems. And governments invest in information management systems and offer online services for a wide range of tasks—from issu- ing drivers’ licenses to filing taxes. Second, digital technologies augment the factors not substituted and make them more productive.They help managers to better supervise their workers, poli- ticians to monitor the service providers, and workers to use technology to become more productive, thus raising the returns to their human capital. By stream- lining tasks and raising the productivity of existing factors, the internet can greatly increase economic efficiency across firms, workers, and governments. The internet promotes innovation The extreme case of efficiency is when transactions are executed automatically, without human input, and transaction costs fall to essentially zero. This is the realm of the “new economy,” such as search or e-commerce platforms, digital payment systems, e-books, streaming music, and social media. The fixed cost of building the platform may be large, but the marginal cost of carrying out another transaction or adding another user is tiny. This gives rise to increas- ing returns to scale, which stimulate new business models and provide a major advantage to online firms competing with their offline counterparts. The zero marginal cost attracts new sellers and buyers to the firm’s platform, creating virtuous network effects, where the benefit to a buyer increases as more sellers join in, and vice versa. An auction site attracts more bidders the more the sellers use it, and a search engine learns and becomes more useful the more searches are performed. Scale and zero marginal costs also explain why many of the social network sites have become the preferred vehicles for social mobilization and political protests. By enabling almost frictionless communication and collaboration, the internet can support new delivery models, encourage collective action, and accelerate innovation. The 2016 WDR presents many examples of how the internet promotes inclusion, efficiency, and innovation. In the internet economy the three mecha- nisms often operate together. So the one-to-one map- ping in figure O.7 simplifies a more complex reality. Source: WDR 2016 team. Sellers INCLUSION Buyers EFFICIENCY Platforms INNOVATION Drivers, hosts, and freelancers Job seekers, travelers, entrepreneurs, and artists Traders and senders (money) On-demand/ sharing economy Matching platforms e-commerce and digital payments Riders, guests, and small businesses Employers, airlines and hotels, investors, and consumers Customers and recipients (money) Figure O.8 Many digital transactions involve all three mechanisms and a two-sided market
- 38. 12 WORLD DEVELOPMENT REPORT 2016 has become an essential part of a country’s infra- structure—and a factor of production in almost any activity in a modern economy. Isolating the impact of digital technologies is therefore difficult at an aggre- gate level. Firm-level analysis provides a more reli- able picture.9 The internet enables many small firms to participate in global trade, thus leading to more inclusion; it makes existing capital more productive, raising efficiency; and by stimulating competition, it encourages innovation. Expanding trade The internet enables more products to be exported to more markets, often by newer and younger firms. A 10-percent increase in internet use in the exporting country is found to increase the number of prod- ucts traded between two countries by 0.4 percent. A similar increase in internet use of a country pair increases the average bilateral trade value per prod- uct by 0.6 percent.10 Firms selling on eBay in Chile, Jordan, Peru, and South Africa are younger than firms in the offline markets.11 In Morocco, rural artisans, some of them illiterate, sell globally through the Anou crafts platform. At the other end of the spectrum, businesses trade on global e-commerce sites such as Alibaba’s in an online market that could reach more than US$6 trillion over the next five years. Online platforms overcome trust and information problems through feedback and rating systems and by offering escrow and dispute resolution mechanisms. Easier trade of intermediate products encourages further “unbundling” of production processes, not just in the markets for goods but also for services.12 Firms in India, Jamaica, and the Philippines have captured a share of these global markets for services that range from traditional back-office services to long-distance online tutoring. Improving capital utilization Perhaps the greatest contribution to growth comes from the internet’s lowering of costs and thus from raising efficiency and labor productivity in practi- cally all economic sectors. Better information helps companies make better use of existing capacity, opti- mizes inventory and supply chain management, cuts downtime of capital equipment, and reduces risk. In the airline industry, sophisticated reservation and pricing algorithms increased load factors by about one-third for U.S. domestic flights between 1993 and 2007. The parcel delivery company UPS famously uses intelligent routing algorithms to avoid left turns, saving time and about 4.5 million liters of petrol per year. Many retailers now integrate their suppliers in The internet can lead to more trade, better capital use, and greater competition The ICT sector is a fairly modest part of the overall economy. Its share in GDP is around 6 percent in OECD member countries and considerably less in developing countries (figure O.10, panel a). In the United States, home to 8 of the world’s 14 largest tech- nology companies by revenue, the contribution of the ICT sector to GDP is around 7 percent. The corre- sponding number for Ireland is 12 percent—a country that does not boast its own Silicon Valley, but attracts many foreign firms through its competitive business environment and favorable tax rates. In Kenya, which hosts one of the largest ICT sectors in Africa, the value added share of ICT services in GDP was 3.8 percent in 2013. The contribution of ICT capital to GDP growth has been fairly constant over the past two decades. In high-income countries, it has fallen from 0.7 per- centage points in 1995–99 to 0.4 percentage points in 2010–14 (figure O.10, panel b). In developing countries, the contribution of ICT capital to GDP growth has been fairly modest—around 15 percent of growth— reflecting lower digital adoption. With rapid diffusion of digital technologies into developing countries, this number could rise in the future. In addition, the indi- rect contributions of ICT capital to economic growth, through improvements in total factor productivity (TFP), could be large as well, although rigorous evi- dence linking the two is still missing. The rapid adoption of digital technologies in the economy has meant that its benefits are widely dispersed and its indirect growth impacts difficult to estimate. Like energy or transport, the internet Source: WDR 2016 team. Figure O.9 How the three mechanisms apply to businesses, people, and governments BUSINESSES PEOPLE GOVERNMENTS DIGITAL TECHNOLOGIES Trade Capital utilization Competition EFFICIENCY INNOVATIONINCLUSION Job opportunities Labor productivity Consumer welfare Participation Public sector capability Voice
- 39. 13OVERVIEW consumers based on search history, geographic loca- tion, or other information collected about buyers. The internet can also facilitate market entry. Inter- net firms can start and scale up quickly with relatively little staffing or capital investment. Cloud comput- ing—the leasing of computing and data storage real-time supply chain management to keep inventory costs low. Vietnamese firms using e-commerce had on average 3.6 percentage point higher TFP growth than firms that did not use it (figure O.11). Chinese car com- panies that are more sophisticated users of the inter- net turn over their inventory stocks five times faster than their less savvy competitors. And Botswana and Uruguay maintain unique ID and trace-back systems for livestock that fulfill requirements for beef exports to the EU, while making the production process more efficient. Advancing competition When fully automated internet-based services drive marginal transaction costs to zero, the consequences for market structure are somewhat ambiguous. Low marginal costs imply large economies of scale, which favor natural monopolies. In the offline world, such sectors—for example, electricity production—often require some form of regulation to protect consumer interests. But the characteristics of internet-based services could also encourage competition. Price- comparison websites, for example, should reduce prices for consumers, even though the evidence shows that price dispersion on the internet persists, in part because companies are getting better at price discrimination—offering different prices to different 0 1 2 3 4 5 6 7 1995–992000–042005–092010–14 1995–992000–042005–092010–14 0 2 4 6 8 10 12 14 Ireland Korea,Rep.Japan Switzerland U nited Kingdom H ungary U nited States Luxem bourgEstoniaSwedenFinland Slovak Republic C zech Republic D enm ark C anadaFrance G erm any N etherlands G reece Italy SloveniaSpain BelgiumIcelandPoland Portugal N orwayAustria Percent Percent ICT capital All other factors Developing countriesDeveloped countries a. Share in GDP, OECD countries, 2011 b. Contribution to GDP growth, 1995–2014 OECD average (6%) Figure O.10 The size of the ICT sector and its contribution to GDP growth is still relatively modest Sources: OECD 2014; Conference Board Total Economy Database, January 2014; WDR 2016 team. Data at http://bit.do/WDR2016-FigO_10. Note: GDP = gross domestic product; ICT = information and communication technology; OECD = Organisation for Economic Co-operation and Development. Figure O.11 Vietnamese firms using e-commerce have higher TFP growth, 2007–12 Source: Nguyen and Schiffbauer 2015 for the 2016 WDR. Data at http://bit .do/WDR2016-FigO_11. Note: For more details see figure 1.9 in the full Report. TFP = total factor productivity. Percentagepoints 1 0 2 3 4 Labor productivity growth effect TFP growth effect Internet use e-commerce
- 40. 14 WORLD DEVELOPMENT REPORT 2016 technology will have an advantage. But even the poor benefit to some extent through indirect job creation andbetteraccesstoworkandmarkets.Asgovernments and the private sector get better at tailoring digital ser- vices to the poor, those gains will likely increase. Creating jobs The number of direct jobs created by digital technol- ogies is fairly modest, but the number enabled by it can be large. In developing countries, the ICT sector accounts for only about 1 percent of the workforce on average: less than 0.5 percent in Bolivia and Ghana, and just under 2 percent in Colombia and Sri Lanka. In OECD countries, about 3–5 percent of the employ- ment is in this sector. Instagram, a photo sharing app, had just 13 employees in 2012 when it was bought by Facebook for US$1 billion. Facebook had 5,000 employ- ees at the time—compared with 145,000 at Kodak at its peak in photographic film in the 1990s. Yet Facebook’s market value is several times what Kodak’s was back then.13 ICT jobs, however, tend to pay well, and each high-tech job generates 4.9 additional jobs in other sectors in the United States.14 In Kenya, the M-Pesa digital payment system creates additional income for more than 80,000 agents. And China’s State Infor- mation Center estimates that the recent boom in the country’s e-commerce sector has created 10 million jobs in online stores and related services, about 1.3 percent of the country’s employment. New opportu- nities for entrepreneurship and self-employment are also growing rapidly in the digital economy. The internet’s ability to reduce transaction costs increases opportunities for people who face barriers in finding jobs or productive inputs. This promotes inclusion for women, for persons with disabilities, services—reduces startup costs and allows firms to add capacity as the need arises, which also reduces risk to investors. Although many internet firms seem to operate in separate markets, most if not all com- pete with offline firms. Instant messaging apps com- pete with telecoms, search engines and social media sites compete with traditional media for advertising revenue, e-commerce firms compete with brick-and- mortar firms, and mobile money competes with tra- ditional banks. Innovations triggered by this online- offline competition generally benefit consumers, especially when offline markets are distorted. Trans- port service companies such as Uber, Lyft, Olacabs, and Didi-Kuaidi Dache have disrupted taxi markets that tend to be overregulated with restricted entry and high prices. Similarly, TransferWise and Xoom have reduced regulatory rents in the financial sector and cut the prices of international currency transfers by up to 90 percent. In Uganda, eKeebo allows independent or amateur chefs to provide and share home-cooked meals, circumventing restaurant licenses. The internet supports job creation and makes workers more productive People have an enormous desire to communicate and connect. The personal welfare gain from having access to digital technology is clearly great. Does it also increase people’s economic opportunities? People certainly use mobile phones and the internet more for social purposes than for professional ones. But an emerging literature also indicates that people realize tangible economic benefits. Quantifying these benefits is difficult, but qualitative evaluation of the evidence shows that benefits accrue most to those already better off (table O.1). Those who have the skills to leverage Table O.1 Benefits of digital technologies for workers and consumers: A scorecard Channel Impact so far Potential impact Poor Nonpoor Poor Nonpoor Creating jobs In the ICT sector and occupations Negligible Negligible In sectors that use ICT Increasing worker productivity Increasing returns to human capital Connecting people to work and markets Benefiting consumers Increasing consumer surplus Source: WDR 2016 team. Note: Poor refers to the bottom 20 percent of the welfare distribution. The differential impact summarizes the discussion in chapter 2 in the full Report and is a qualitative assessment of the evidence. ICT = information and communication technologies; L = low; M = medium; H = high. L L L L L L M M M M M H H H H H H H