New research from The University of Manchester explores the strategies used by latecomer economies to play catch-up to the digital world.
With the emergence of the Internet, digital companies and capabilities have been primarily concentrated in advanced economies. As digital technologies, data and AI are becoming used across all areas of the economy, these limitations are becoming important barriers to economic development. This has left emerging and developing economies, such as those of Asia and Latin America, at a disadvantage when it comes to entering the digital race.
So how do they close this gap?
According to Drs Christopher Foster and Shamel Azmeh, from the University, there are two paths being taken. The first is open and global trade, and the second is pursuing interventionist policies on a national scale. In their recent paper, “Latecomer economies and national digital policy: an industrial policy perspective”, published in the Journal of Development Studies, they investigated these competing approaches as they are applied in emerging nations.
With the former – the more open approach – they found that it had mixed results. The “entrance of advanced foreign digital firms will lead to new efficiencies, information flows and services in these countries,” explains Dr Foster.
“However,” he adds, “in our research we find that these prescriptions can also lead to challenges in emerging nations. Foreign digital firms begin to dominate industries, and the entrance of international platforms can lead to a potential loss of local control of sectors.”
On the other side of the coin are the national digital policies being introduced in countries such as China, Indonesia, and Brazil. For the most part, these take the form of building global links to speed up the acquisition of new technologies and skills development. Under certain circumstances, however, “more interventionist approaches can be vital in countering structural challenges”, says Dr Foster.
Though controversial, national policies can provide better control of foreign digital firms, while nurturing local industries. “Under some circumstances,” notes Dr Foster, “these approaches can be successful, and lead to more balanced local growth of digital economies.”
The trade-off, most notably seen in the case of China, is that a strongly protectionist approach to the economy can invoke a strong response. They have been seen as a factor in the ‘trade war’ which has recently flared between the US and a number of other countries.