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As our world becomes increasingly digital, the digital divide has widespread implications, and the least developed countries (LDCs) are most likely to be negatively affected.
In addition to the three levels of the digital divide commonly explored in the literature (i.e. the access gap, differences in digital skills, and differences in beneficial outcomes), data inequality should be included as a new level of the digital divide. Data inequality can further be classified into three divides: access to data, representation of the world as data, and control over data flow.
International trade and investment are vital for economic development
International trade and investment are major drivers of global economic development. One study notes that international trade plays a key role in helping to attain several of the United Nation’s Sustainable Development Goals (SDGs), including SDG8: Decent Work and Economic Growth.
The World Economic Forum also articulates that promoting trade, attracting private investment, and achieving export diversification are key drivers in helping the world’s least developed countries (LDCs) shed this status.
To provide just one practical example of the potential benefits, we can turn to the landlocked former Soviet satellite state of Mongolia, which liberalised its trade policy in 1996. Between 1993 and 2019, Mongolia experienced a 22% gain in welfare from expanded import opportunities and a 35% boost in its human development index.
The nation’s GDP per capita, widely accepted as a proxy for standard of living, also tripled from $1350 to $4385 over this same time frame.
While multiple factors surely had a role in this growth, it is clear that trade and investment played a key role in this development.
The Least Developed Countries (LDCs) are most impacted by data inequality
The digital divide is most prevalent in the world’s LDCs, landlocked developing countries (LLDCs), and small-island developing states (SIDS). In LDCs, only 20% of the population uses the Internet – compared to 90% in developed economies – and when they do, download speeds are usually slow, and prices are high.
This divide between LDCs and the developed world is not getting smaller.
The International Telecommunication Union observes that the gap between LDCs and the world in terms of digital differences has increased from 27% in 2011 to 30% in 2022. Data collection on a society-wide level is also lacking for developing countries, which account for 99% of the estimated 48 million unregistered births globally, with South Asia and Sub-Saharan Africa alone accounting for 79%.
As the digital economy continues to grow and evolve, the data-related divide between developed nations and LDC grows alongside it. Developing countries risk becoming mere providers of raw data, with their data and associated value capture being concentrated in a few global digital corporations, which are almost exclusively located in the world’s most developed economies.
As long as developing countries lack ownership, equal access, and the autonomy to use their data, they will suffer severe economic and developmental disadvantages.
Data access and control facilitate cross-border trade and investment
When it comes to international trade and investment, data is a key driver.
One study exhibits that cross-border data flows can promote international trade, with free data flow clauses in trade agreements promoting the growth of goods and services trade between signatory nations.
This is partly because increased data flows from a nation reduce uncertainty at a firm level, decreasing the cost of market entry. These economic forces will guide investment and export opportunities away from nations that do not generate and promulgate data and towards nations that do.
The study also notes that the cross-border data flow provisions in bilateral trade agreements are more beneficial to economies with better digital environments. This means nations with greater access to digital infrastructure and data facilities will likely attract more foreign investments than those without.
Conversely, nations or regions without strong digital environments are poised to benefit less from data-sharing provisions since a lack of data infrastructure means they will have less access to and control of their own data flows.
Further, any data provided will likely be skewed to represent the most digitally active – and thus already most affluent – members of the nation, excluding the most in-need subsections of the population from being represented in the data.
This “scandal of invisibility” can lead to situations where those on the extreme end of the data inequality scale are passed over for desperately needed foreign aid.
Many countries with poor data are trapped in a reinforcing cycle of underdevelopment because funders and donor agencies prefer to work in areas with a data-demonstrated need and where they can measure the impact of interventions.
Limited data leads to limited aid, which, in turn, inhibits the ability of those nations and regions to develop the data infrastructure needed to attract development aid in the first place.
In all, whether it be in the form of limited organic investment and exports or reduced foreign aid, data-poor nations face challenges in the international economy.
Without collaborative efforts, trade digitalisation can exacerbate economic inequality
International trade – a traditionally paper-based industry – is currently experiencing a significant push towards digitalisation.
Countless digital trade solutions are being developed, with experts speculating that only outdated and digitally unfriendly legislation in many jurisdictions stands in the way of rapid growth.
However, many G7 and emerging nations are now updating their laws and enacting legislation based on the United Nations Commission On International Trade Law’s (UNCITRAL) Model Law on Electronic Transferable Records (MLETR), which is designed to enable digital-first trade documents to be used in practice.
Further, in July 2023, the UK – whose common law system forms the basis of the legal systems in around 80 countries – passed its own electronic trade documents bill. Many experts anticipate that the UK’s role as a major trading economy and key precedent-setting jurisdiction will catalyse similar digital trade legislation in other jurisdictions.
As with any industry that becomes progressively digitalised, increased trade digitalisation will lead to an exponential increase in the volume of trade data generated. Unfortunately, the low data capacity of LDCs means that, in relative terms, the data gains they experience will be lower than developed economies experience.
Since data availability lowers market entry costs and increases international trade and investment flows, widespread digitalisation will make international trade and investment relatively more risky and expensive in data-poor nations, incentivising economic actors towards more data-rich and, thus, less expensive environments. This asymmetric data environment can exacerbate the worsening global economic inequality if left to market forces alone.
According to one literature review on the digital divide, “Without collaborative efforts to frame international trade agreements by the international trade bodies and other stakeholders, the data divide in digital trade will become the new face of inequality and creates barriers to reaching the agreed 2030 SDGs”.
The bottom line
Growing data inequality will amplify global disparities and economic inequality as digitalisation continues to reshape the landscape of international trade.
We began by underscoring the significance of international trade and investment as pivotal drivers of economic progress before looking at how data inequality disproportionately affects the world’s least developed nations.
Next, we delved into the relationship between data accessibility and international trade and investment, emphasising the positive outcomes of the data’s existence and the adverse consequences of its absence. The discussion then explored recent digital advancements in international trade that are poised to bring about a transformative phase in cross-border commerce.
We saw, however, that the prospect of expanded data inequality casts a foreboding shadow on trade digitalisation, with potential repercussions for global economic inequality.
In essence, the ongoing digital transformation presents opportunities and challenges, with data inequality playing a pivotal role in shaping the trajectory of economic equality. As the digital revolution gains momentum, addressing data inequality remains central to fostering a more balanced and sustainable global economic environment.