Introduction: Abe-lab starts a new activity “what we are reading” during remote working. We use the World Development Report 2016: Digital Dividends this time. The book is relevant for today’s remote working and each lab member reads the allocated part with the consideration to the current situation due to Covid-19. This book has 6 chapters and if a chapter is divided into three parts, then we have 18 sections. Currently there are 9 students in the lab so that a student will write two blog entries when all chapters are read and reviewed.
Reading report week 1 : Nadiya Pranindita (M2)
World Development Report 2016: Digital Dividends By: The World Bank
Chapter 1 / Accelerating Growth (Part 1)
Are you currently using the internet, mobile phones, and other tools to collect, store, analyses, and share information digitally? That means you are now enjoying all the benefits of digital technologies. But is that all that can be obtained from rapid digital technology development? What about the implications for the greater economic scale? The first chapter of this report explained the potential gains from digital technology adaptation by firms to economic growth based on evidence from developed and developing countries and discussed whether digital technology is capable of accelerating growth.
Summary
The adaptation of digital technology, especially broadband internet, for firms has increased globally in about eight years. This report stated that in high-income OECD countries, 92% of the total firms were reported to utilise internet connection from 2010 to 2014. While the share of firms using the internet in lower-middle-income countries reaches 68% and 38% for the low-income countries. In order to increase economic growth, the contribution of digital technology adaptation by the firms can be seen through three main mechanisms – inclusion, efficiency, and innovation.
Inclusion – digital technology can open more inclusive gateways for people accessing the global market and trade by overcoming information barriers. Through online platforms or marketplaces, more products are traded to the new markets, including new destinations, new consumers, even the international level trade. Moreover, increasing internet domains and user per capita has risen the volumes of exported products and its real value for the firms’ manufacturing export sectors. Another advantage is that further usage of communication and digital technology have facilitated the firms for handling the unbundling tasks. The digital technology enables the firms to outsource their production processes and services across borders. The firms headquarter can easily transmit the information, coordinate the product supply chain, and supervise the personnel in their branch factories.
Efficiency – digital technologies in the form of computers and software are allowing the firms to intensify the use of their capital and labor. The supply chain management software, for example, has replaced personnel/human resources, thus increasing management efficiency and declining production costs. By sharing the real-time data and information, it helps to manage inventory stocks as well as optimise the services for clients with real-time information and coordination. Online platforms and marketplaces, in terms of efficiency, play a role in reducing marketing, sales, and distribution cost, therefore resulting in cheaper, quicker, and more convenient goods and services trade activities.
Innovation – the existence of online platforms and services diminished the fixed cost to start the new business and widen its economic scale. Digital technology lets the firms fade out the constraints between online and offline economic activities by providing traditional sectors-based business in online platforms or marketplaces. These innovations resulted in shortfalls by putting competitive pressure for incumbent firms, such as mobile banking and other online financial services to traditional banking services, ride-sharing service to conventional taxi, Airbnb to the hotel industry, and cloud computing to hardware infrastructure.
In addition to these three mechanisms, there should carefully consider the variations in skills, infrastructure, and barriers which make the impact of digital technology in accelerating growth differs across countries or even different type of firms at the same country. The use of digital technology for expanding the markets should consider local market conditions, culture, and institutions, such as adapting the local language. The type and characteristic of goods and services, regarding personal taste and preferences, also influence the digital technology’s effects of distance matters. Those considerations correspond to the arguments that only the firms which are larger, fast-growing, skill-intensive, export-intensive, and located in the capital city tend to be able to reach maximum benefit of using digital technology and being more productive firms.
Although it can be generally concluded that digital technology can boost the economy, the real benefit of digital technology is still hard to be quantified and investigated empirically. The impact on growth then is not about ICT value-added contribution to GDP, rather the firms in traditional sectors which use digital technologies to increase their cost-effectiveness, production, and management process. Knowing that GDP excludes non-monetary transaction which may generate substantial benefit for consumers such as time saved, expanded choice, and access to more knowledge, alternative techniques to estimate consumer surplus from digital technology are developed through the price and quality outcome comparison between offline and online goods and service, and their willingness to pay for obtaining that satisfaction. For improving firms’ productivity, the roles of broadband infrastructure are also unclear whether it is spreading international technology, creating new products and processes, increasing the interaction with foreign technology companies, or ICT capital investment. In contrast, social networking sites, as one of the digital technology innovation, can potentially reduce productivity by destroying user concentration.
COVID-19 and digital technology
COVID-19 outbreaks indeed bring big impacts in every segment of the life of almost all people in the world. The policy of urging people to refrain from going out, social distancing, and the most extreme, fully lock down the city, is often taken by some countries to cut off the spread of the virus. As a result, school activities and office work must be done from home, which is impossible without ICT. The New York Times noticed that the use of remote work and study apps increase sharply in the United States, as the meetings and online classroom move to Zoom and Google Hangout, and school assignment and materials are distributed through Google classroom2. The order to stay at home also encourages people seeking alternative entertainment by video streaming and online shopping, as Forbes reported that online streaming services by Netflix and Disney+ in China and Italy grew up to 12% during this pandemic1. Consequently, changes in children’s behavior are widely discussed by experts regarding the role of parents in controlling the use of ICT for their children and preventing benefit leakage.
While in the economic context, electronic commerce is one of the most highlighted on whether it is capable of being a solution to keep running the economy in a time of crisis. The WTO (2020), in their first information note about e-commerce, trade, and COVID-19 pandemic, pointed out the expectation of e-commerce to facilitate the movement of goods and services and maintain the local economy at the micro, small and medium-sized enterprises (MSMEs) level. However, the lockdowns have led the e-commerce to supply disruption due to production and labor shortage and delivery-delay and order cancellation due to restrictions on transport and logistics services. Regardless of those obstacles, Forbes released the revenue of retailers’ online marketplaces in the United States remains proven to increase by 68% as of mid-April3.
The challenges are more severe faced by small producers, sellers, and consumers in developing countries, particularly in the least-developed countries (LDCs), those who live in rural areas and have low income. Affordable ICT services, such as telecommunication, computer, and other emerging technologies, reliable internet connections and higher bandwidth services, and consumer trust are crucial to carrying out online trading not only during the pandemic but also for long-term periods (WTO, 2020).
Although advanced digitalization is currently fundamental in combatting the pandemic, especially in providing individuals to have access to reliable and the most updated information, it is not the only instrument we can rely on. Government priority in facilitating e-commerce and other online-based infrastructure services will affect the impact of online trading in dealing with economic challenges during the pandemic. Private sectors, including technology inventors and telecommunication providers, must be integrated with government policies and work in harmony to ensure that this strategy is feasible to be carried out and accessible for all targeted subjects.
How the government responds to digital technology both for economic development in general and notably during the COVID-19 pandemic will be explained in the next reading report, so stay tuned on our webpage!
Reference
Beech, M. (2020, March 25). Forbes. Retrieved May 2020, from COVID-19 Pushes Up Internet Use 70% And Streaming More Than 12%, First Figures Reveal: https://www.forbes.com/sites/markbeech/2020/03/25/covid-19-pushes-up-internet-use-70-streaming-more-than-12-first-figures-reveal/#412718e03104
Koeze, E., & Popper, N. (2020, April 7). The New York Times. Retrieved May 2020, from The Virus, Changed the Way We Internet: https://www.nytimes.com/interactive/2020/04/07/technology/coronavirus-internet-use.html
Columbus, L. (2020, April 28). Forbes. Retrieved May 2020, from How COVID-19 Is Transforming E-Commerce: https://www.forbes.com/sites/louiscolumbus/2020/04/28/how-covid-19-is-transforming-e-commerce/#7526ca1b3544
WTO. (2020). E-Commerce, Trade, and Covid-19 Pandemic. World Trade Organization.