Cross-border data flows and economic value
I had the opportunity to recently speak at an event hosted by Asia House and Cheung Kong Graduate School of Business (CGSB) on the global data landscape. In this talk, I discussed the following points:
1. Today, cross-border data flows account for a larger share of global GDP than the trade in manufactured goods. This is going to increase.
2. Data has emerged as a fifth factor of production alongside land, labour, capital, and entrepreneurship. It is being used to create new forms of value. Much of this value can be generalizable more broadly which will drive more need for movements of data and delivery of digital services.
3. These data flows enable firms to lower cost of access to new markets and countries, such as through ecommerce or platforms. For example, a company based in country A can, through participation in the digital economy, make their goods and services available to country B, C and D without the need to establish physical presence in those markets.
4. The resilience of a country can actually increase by diversifying access to digital technologies beyond those available domestically – similar to how supply chains can be made more resilient by mitigating choke points and ensuring a diversity of suppliers and trading partners.
5. There are emerging forms of employment, such as digital labor markets, that will require data to move cross-border. As transaction costs for discovering, contracting, and managing these new decenteralised work forces lowers, these flows will increase. As talent is distributed globally, this is an important source of value for firms too as they can widen their aperture to engage skills globally.
6. There are new forms of technology that are currently emergent and only available via the cloud, such as quantum. Access is democratized via cross-border data flows which enables firms to take advantage of capabilities that would otherwise be unaccessible in their country.
7. No country has a monopoly on innovation. There is value in being able to access the best ideas and capabilities globally.
8. For these reasons, restrictions of data flows can, according to World Bank estimates, reduce GDP by up to 2%, investments by approximately 4%, and exports by nearly 2%. The impacts are likely to be greater for developing world.
9. As with the physical world, there is a debate around “deglobalization” that is spilling over into the digital economy. There needs to be a balance where the important objective of digital sovereignty is addressed whilst still participating in and taking advantage of the benefits of the global digital economy.
9. The answer is to take a risk-based approach approach to regulation versus broad data localization requirements; and for countries to focus on agreeing principles versus trying to harmonise laws.
10. Digital free trade agreements will be an important mechanism to facilitate this, where countries can agree to movement of data/provision of services provided certain agreed principles are maintained.
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