world development report

MAIN MESSAGES

Digital dividends

Digital technologies have spread rapidly in much of the world. There are indeed many compelling examples of
Digital dividends—that is, the broader development benefits how information and communication technologies
from using these technologies—have lagged behind. In many (ICTs) have benefited firms, people, and governments.
instances, digital technologies have boosted growth, expanded They do so mostly by significantly reducing the costs
opportunities, and improved service delivery. Yet their aggre- of economic and social transactions: the costs of
gate impact has fallen short and is unevenly distributed. For searching for and acquiring information, bargaining
digital technologies to benefit everyone everywhere requires and making decisions, and monitoring and enforcing
closing the remaining digital divide, especially in internet transactions. These technologies yield real benefits:
access. But greater digital adoption will not be enough. To get
• They expand the information base. Many of the poor
the most out of the digital revolution, countries also need to
now have access to financial services because
work on the “analog complements”—by strengthening regula-
lenders can monitor creditworthiness using
tions that ensure competition among businesses, by adapting
mobile phone records. Online traders in remote
workers’ skills to the demands of the new economy, and by
areas can connect to global markets. And digital
ensuring that institutions are accountable.
identification gives more people access to public
services. The most important benefit is greater
Digital technologies can inclusion.

be transformational • They lower the information cost. Activities become

cheaper, faster, and more convenient as transaction
By promoting inclusion, efficiency,
costs fall. Firms can more easily coordinate produc-
and innovation
tion, workers can become more productive, and
Digital technologies—the internet, mobile phones, and
governments can provide services at lower cost.
all the other tools for collecting, storing, analyzing,
Businesses, people, and governments benefit from
and sharing information—have spread quickly. More
greater efficiency.
households in developing countries own a mobile
phone than have access to electricity or clean water; • They create information goods. Something special hap-
among those in the bottom fifth of the economic scale, pens when processes and sometimes production
nearly 70 percent own a mobile phone. The number of are completely automated and the marginal trans-
internet users has more than tripled in a decade—to an action costs fall to almost zero, as with e-commerce
estimated 3.2 billion at the end of 2015. This has brought platforms, digital music, and online news. More
immediate private benefits: easier communication, than inclusion and efficiency, services that rely
more information sources, and new forms of leisure. on near-zero transaction costs to provide match-
Has it also generated large digital dividends in the form making or information are associated with the new
of faster growth, more jobs, and better services? economy, fostering greater innovation.
2 WORLD DEVELOPMENT REPORT 2016

Benefits often remain The digital divide is

unrealized still wide
Development impacts have fallen short Both in access and in capability
While there are many success stories, the aggregate Six billion people do not have high-speed broad-
impacts of digital technologies have so far been band internet, almost four billion do not have any
smaller than expected. Firms are more connected internet access, and nearly two billion do not have a
than ever before, but global productivity growth has mobile phone. Digital divides persist across income,
slowed. Digital technologies are changing the world of age, geography, and gender. In Africa, the richest 60
work, but labor markets have become more polarized, percent are almost three times more likely to have
and within-country inequality is on the rise in many internet access than the bottom 40 percent, and the
countries. And while the internet facilitates broad dis- young and urban have more than twice the access of
course, some governance indicators such as the share older and rural citizens. Among those connected, dig-
of free and fair elections are worsening. These trends ital capabilities vary greatly. In the European Union,
are worrying not because they are caused by the rapid three times more citizens use online services in the
spread of technologies, but because they have persisted richest countries than in the poorest, with a similar
in spite of them. Why? For two reasons (figure 1). gap between the rich and the poor within each country.
First, the digital divide is still large. Nearly 60 Making the internet universally accessible and
percent of the world’s people are still offline and can’t affordable thus remains an urgent priority. Technology
fully participate in the digital economy. Second, some costs have dropped, but consumer access costs still
of the benefits of digital technologies are offset by vary greatly. In 2013, the price of typical mobile phone
emerging risks. Public sector investments in these services in the most expensive country was 50 times
technologies, in the absence of accountable institu- that in the cheapest. For broadband, the charges vary a
tions, amplify the voice of elites, resulting in greater hundredfold. The main reason: policy failures, such as
control. New jobs are being created, but the automa- troubled privatization, excessive taxation, and monop-
tion of mid-level jobs has contributed to a hollowing oly control of international gateways. What works in
out of the labor market. And because the economics overcoming the failures? Competitive telecom mar-
of the internet favor natural monopolies, the absence kets, public-private partnerships, and effective sector
of a competitive business environment is resulting in regulation. Reforms must start at the point the internet
more concentrated markets, benefiting incumbent enters a country (the first mile) and continue when it
firms. Not surprisingly, the better educated, the well passes through the country (the middle mile) to reach
connected, and the more capable have received most the end user (the last mile) and must also include
of the benefits—and the gains from the digital revolu- broader policy issues such as managing spectrum and
tion have not been widely shared. taxation of ICT products (the “invisible mile”).

Figure 1 Why digital dividends are not spreading rapidly—and what can be done

Making the internet

Divide Connectivity
Accessible Affordable Open and safe

Digital
Digital Spreading benefits development
technologies
strategy
INCLUSION EFFICIENCY INNOVATION

Dividends Reducing risks Complements

CONTROL INEQUALITY CONCENTRATION

Source: WDR 2016 team.

 MAIN MESSAGES 3

More difficult is keeping the internet open and safe. • Many governments have used digital technologies
Content filtering and censorship impose economic effectively for better information provision, easy-to-
costs and, as with concerns over online privacy and monitor services such as issuing business licenses,
cybercrime, reduce the socially beneficial use of tech- and running elections. But they have not solved two
nologies. Must users trade privacy for greater conve- of the most difficult governance problems: how to
nience online? When are content restrictions justified, improve service provider management and how
and what should be considered free speech online? to increase citizen voice. A significant gap remains
How can personal information be kept private, while between technology and institutions, and where public
also mobilizing aggregate data for the common good? sector accountability is low, digital technologies
And which governance model for the global internet often help control rather than empower citizens.
best ensures open and safe access for all? There are no
simple answers, but the questions deserve a vigorous
global debate.
The digital revolution
needs a strong analog
foundation
The largest barriers are
Regulations, skills, and institutions
not in technology Closing the remaining digital divide is necessary for
The digital revolution brings benefits— taking full advantage of the opportunities that the
but also risks internet and related technologies present. But it is not
To maximize digital dividends requires better under- sufficient. Countries also need to strengthen impor-
standing of how technology interacts with other essen- tant analog complements: regulations that allow
tial elements of development. When technology is firms to connect and compete; skills that technology
applied to automate tasks without matching improve- augments rather than replaces; and institutions that
ments in other factors—what the Report calls “analog are capable and accountable. Policy priorities change
complements”—broad-based gains will remain elusive. as countries advance through the digital transforma-
tion (figure 2):
• A country’s business environment shapes how
firms adopt and use technology. Among non-ICT • For countries with low internet access where the
sectors, a poor business climate and vested inter- digital economy is still emerging, the task is to
ests often hold back digital adoption. Among create the conditions for greater adoption and
online firms, the economics of the internet may use. Reforms include removing such fundamental
enable natural monopolies to exploit their domi- barriers as a lack of basic ICT and supporting infra-
nant position, hurting consumers and suppliers. structure, excessive regulation of product markets,
And where online and offline firms compete, regu- and high tariffs for digital goods—more than 25
lators struggle to safeguard consumer and worker percent in some countries. Education systems need
interests in a world where the largest taxi com- to focus on basic literacy and numeracy skills, con-
pany has no cars and the largest hospitality firm nect teachers to content, and promote adult literacy.
owns no real estate. This nexus between technology And small steps to promote institutional change in
and regulation implies that governments need to the public sector include providing simple informa-
ensure a business climate in which all firms can tion services using mobile phones, strengthening
easily connect and compete. monitoring, and leveraging nonstate provision.

• The shift of income from labor to capital and the fall • For countries transitioning to a digital economy
in the share of mid-level jobs in many countries is with fairly high technology use, the task is to ensure
at least in part due to the rising automation even that opportunities are open to all. For effective
of many white-collar jobs. When workers have the competition, countries should develop regulations
skills to leverage technologies, they become more that open protected sectors and strengthen enforce-
productive and their wages increase. When they ment. The skills agenda needs to focus on teaching
do not, they compete with others for low-level jobs, advanced cognitive and socioemotional skills—pre-
pushing wages even lower. This is the latest stage paring for careers rather than specific jobs—since
in the race between technology and skills, in which edu- fewer than half of today’s schoolchildren can expect
cation, social protections, and labor markets need to work in an occupation that exists today. And
to adapt to a world of work that demands different governments can introduce or strengthen such
skills and much more flexibility. e-government tools as digital IDs, financial man-
4 WORLD DEVELOPMENT REPORT 2016

Figure 2 The quality of complements and technology rises with income

1.0

TRANSFORMING FIN CHE

SGP
CAN
NOR
0.9
NZL AUS DNK
SWE NLD
IRL
BEL
USA
GBR EST
SVN ISL LUX
0.8 DEU
CYP FRA
LTU LVA JPN
PRT KOR
MYS MLT AUT
BRB ARE
CZE CHL
0.7 HUN QAT ISR
MUS ESP
POL SVK
GEO HRV
ROU ITA
TTO CRI
BGR
SYC GRC MKD URY
0.6 BWA
PAN JOR
SRB ARM
GUY ALB RUS
LKA UKR
Complements

MEX KAZ
ZMB SLV TUN MNG TUR
KGZ THA COL
GHA RWA ZAF SAU BHR
0.5 LSO BLZ PHL MAR
PER BRN
BEN UZB CHN
SEN VNM ARG
IDN DOM
LBR TJK KWT
SWZ GAB NIC IRN
NAM KEN GTM
TZA ECU BRA
BGD
0.4 LAO
CMR
NPL IND
BDI SLE
GMB HND EGY
MOZ PRY
PAK BOL
MWI DZA
MRT NGA

TRANSITIONING
0.3 ETH YEM
ZWE
MLI
LBY
AGO
VEN
KHM
0.2
HTI

0.1

0
EMERGING
0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0
Technology

High-income Lower-middle-income
Upper-middle-income Low-income

Source: WDR 2016 team. For more details see figure 5.3 in the full Report. Data at http://bit.do/WDR2016-Fig5_3.
Note: Technology is measured by the Digital Adoption Index (DAI). DAI is based on three sectoral subindexes covering businesses, people, and governments,
with each subindex assigned an equal weight: DAI (Economy) = DAI (Businesses) + DAI (People) + DAI (Governments). Each subindex is the simple average
of several normalized indicators measuring the adoption rate for the relevant groups. Similarly, Complements is the average of three subindicators: starting a
business; years of education adjusted for skills; and quality of institutions.

agement systems, and e-services for citizens and ration between all parts of government, enable full
businesses while also changing provider incentives integration of public and private services, and bring
and increasing transparency. greater involvement of citizens in truly participa-
tory policy making.
• For countries already transforming into a digital
economy, the main task is to address the difficult
problems that the internet causes. In the business
* * *
sector, this involves tasks such as ensuring that dig- The main message of the Report is that digital development
ital platforms do not abuse their dominant position strategies need to be much broader than ICT strategies. “Con-
and promoting fair competition between the online nectivity for all” remains an important goal and a tremendous
and offline services. Education and training sys- challenge. But to bring the largest benefits, countries also need
tems should put more emphasis on advanced ICT to create the right environment for technology. When analog
skills and—especially in rapidly aging societies— complements to digital investments are absent, the develop-
offer more opportunities for lifelong learning. And ment impact will often be disappointing. But when countries
where basic e-government functions are already build strong analog foundations, they will reap ample digital
effective, digital tools can facilitate closer collabo- dividends—in faster growth, more jobs, and better services.
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