How the Internet and Data Help the Developing World

Joshua Meltzer, a fellow in Global Economy and Development at Brookings, released his new report, “Supporting the Internet as a Platform for International Trade,” and led a discussion on the Internet and global trade with an expert panel.

The discussion focused on the benefits that small and medium enterprises (SMEs) and developing country firms gained from the Internet’s transformative powers, the challenges SMEs may encounter, and the government policies and future international trade rules required to realize the full benefits of the Internet as a platform for international trade.

During the discussion, Meltzer noted that the Internet has developed “the ability to harness the collective input and intelligence of Internet users” such as Wikipedia or crowd-funding. Plus, “data is also the new byword … enabling information to be aggregated in enormous quantities, so-called big data. And with new computing power to analyze it, it’s producing a whole range of new insights.”

Another key dynamic of Web 2.0 is the capacity for collaboration networking and the use of new technologies to develop new businesses. And these factors have turned the Internet into a platform for commerce as well as a crucial business input. It’s enabling businesses to access services and improve productivity, and increase their competitiveness domestically and in overseas markets.

Meltzer explained that understanding the Internet as a platform for international trade highlights that this is no longer just an Internet-sector opportunity. It’s an economy-wide opportunity for all sectors from manufacturing through to services. Significantly, the Internet as a platform for international trade is actually where the opportunity starts. Because the Internet is becoming globally accessible at increasingly lower costs, it’s providing opportunities for small- and medium-sized enterprise, firms in developing countries—entities that have traditionally not been part of the global economy—to become international traders.

Robert Atkinson, president of the Information Technology for Innovation Foundation, commented that the research shows that “Internet penetration is positively correlated, positively causally related to increases in exports.”

One study a few years ago … found that a 10 percent increase in Internet penetration in a foreign country is associated with a 1.7 percent increase in exports and a 1.1 percent increase in imports. So, it’s not just about a platform for exports, it’s about a platform for two-way dynamic trade. Another study in 2003 found that Internet increases increase foreign direct investment.

But what’s interesting is that a number of studies have found the benefits of Internet access really are much more significant for developing countries. And the theory there is that developed countries already have a robust Internet system. It’s the developing countries where, when they get Internet, they see these big gains. …

I think one of the principle reasons why we should care about this is because the issue of scale. If you look at many, many developing countries, one of the biggest problems they have is they lack enterprises with any kind of scale … where in the U.S. you have a significant share of jobs, over two thirds of jobs are in the large enterprises, who are much, much more productive than smaller enterprises. … Big companies have higher productivity, they do more R&D, they do more trade, they pay higher wages, they provide more health care.

Commissioner Meredith Broadbent of the U.S. International Trade Commission observed that “small businesses trying to export have problems identifying customers, acquiring information in foreign markets, setting up relationships with distributors. This is one thing that they really appreciate the Internet for, they feel like it empowers them to be stronger and export more.” She also mentioned some domestic barriers to exporting in, for example, Africa, including a steady-supply of reasonably-priced electricity, which “is a big requirement for growing your ability to export.” And also just the access to the Internet will help these economies. She stated that at this point only about 60 percent of Africans in developing countries in Africa have Internet access.

Deepak Mishra, a Lead Economist at the World Bank, said that “We still are trying to understand better how the Internet actually has economic, social and political impact.” Expanding the scope of the discussion to the Industrial Revolution, where the Internet could be the third phase of that revolution, he said, citing new studies:

The good news is … that over time the adoption lags, which is the speed with which technology gets penetrated into a country, actually diffuses into a country … is actually falling. So it took nearly 120 years for the steam motorships, which was invented in [the] UK, to go into the rest of the world. It took about 60 years for electricity. And it takes 10 to 20 years for PCs, Internet and cell phones. And if you really think of the iPad and some the new generation ones, it will be in single digit numbers. So there is obviously the adoption lags of new innovation is falling and converging over time, which is a great thing. But at the same time … while the speed with which new technologies are being introduced into countries are falling, the speed with which that same technology is penetrating and being used within countries is actually widening across developing and developed countries.

Peter Allgeier, president of the Coalition of Services Industries, on the other hand, discussed the “ability and necessity to move data across borders.” Providing examples from health care services delivery to airlines tracking their planes, he said,

It’s essential that international trading rules allow this to happen and support this. But the last time that international rules in the trade sphere were negotiated for services at least, was 20 years ago. And if you think back, it was a completely different world 20 years ago in terms of how business was conducted and what happened in terms especially in the services area …

So there is a strong need, I would say a necessity, to update the trade rules on the movement the data. And it’s particularly important because countries, governments increasingly and routinely are starting to put barriers in the way of moving the data across borders. …

This has a lot of practical problems. Often this is done under the rubric of privacy or security. And as a matter of fact, in terms of security, companies are much better able to ensure the security, the confidentiality of their data, if they have it located in a limited number of places. If you have to have your data located in the 150 countries in which you are operating, you’ve got 150 security issues that you’ve got to deal with. If you have it in three places around the world, you are much better able to protect the security of the data, and the privacy frankly.

At the end of the discussion, panelists also talked about the influence of language challenges in the Internet to international trade, trust issues and the implication of the NSA surveillance revelations.

The full audio and video are available on the event’s page.

Mingwei Ma contributed to this post.