Accelerating Digital Trade in Developing countries: A policy guide
This new Nextrade report puts forth several new policy recommendations for developing country trade policymakers on how to spur digital trade -- and why doing so is critical for growth and development
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Disruptive technologies are revolutionizing the economics of global production and trade, and the prospects of developing countries in the global economy. 3D printing, ecommerce, and online payments, among other technologies riding on the Internet are empowering businesses of all sizes to cut costs, streamline supply chains, and market products and services worldwide with greater ease than ever before. Some one-half of all the value in the global economy will be created digitally by 2025.
The digital revolution is transforming participants in trade, content of trade, and trade transactions. It is opening opportunities for millions of micro entrepreneurs and small businesses to engage in cross-border trade, grow into multinational sellers, and craft their own global supply chains. It is enabling companies of all sizes to make, move, and market products and services faster and at a lower cost than ever before. It is helping consumers and companies access a vaster variety of goods and services – and without intermediation by retail chains and distributors. It is diversifying the makeup of trade, from goods shipped in containers to small parcels send by post, services sold online, and digital products and designs. It is speeding up trade transactions and payments, and lowering the minimum viable transaction. With the smartphone revolution bringing the Internet to 3 billion people in the developing world in the next five years, entirely new opportunities open for cross-border sales of digital goods, content, and services.
New technologies offer hope for the future of world trade, which in the past few years has grown very slowly, and, in a rare event in recent history, in 2016 grew at a slower pace than the world economy. However, the digital revolution does not only enable more trade. It creates significant economic benefits for developing countries, from faster productivity growth of firms to deeper specialization of workers, greater consumer welfare, and job creation. Digital technologies are the 21st century equivalents of steam engines, railroads, and containers: they dramatically expand the possibilities of trade to propel economic growth and job creation.
However, the gains from digitization to trade and growth are not automatic. There are several challenges that impede the translation of the new technologies into economic growth in developing countries, such as inadequate broadband connectivity and ICT skills; policy and regulatory issues increasing costs to digital companies, such as onerous legal liability regimes and data privacy rules; small businesses’ limited adoption and use of digital technologies, such as ecommerce or online payments; the traditional challenges to cross-border trade, such arcane customs procedures and expensive logistics; and national digital infrastructures and regulations that do not interoperate with those of other economies.
Much work remains ahead in all these areas. Most fundamentally, developing countries need to bridge the persistent digital divides and bolster their capacities to leverage digital technologies. In essence, they need to reconsider the entire enabling environment for trade and tailor it for the digital era, from IT infrastructures to logistics, online payments, ecommerce and digital regulations, e-skills, access to finance, and business environments. While there is as yet no theoretical and econometric model that would specify the components of an optimal enabling environment for trade as trade and economies digitize, it is clear that none of these facets of the enabling environment is sufficient on its own; rather, all are necessary for the digital economy to function.
For trade policymakers, these considerations herald changes to the entire set of tools to drive trade – design of trade rules, export promotion, trade facilitation, export credit, and trade infrastructures. In addition, in all these areas, trade policymakers intent on catalyzing digital trade need to work closely with IT and finance ministries and regulators, as well as the players that have a first-hand grasp of the challenges and opportunities for trade in the digital era, the private sector.
The purpose of this paper is to propose specific ways in which developing countries can best fuel trade in the digital era.