A tiered approach to measuring digital competitiveness of Asian Economies

As digital transformations continue to happen at breakneck speeds around the world, the rise of the digital economy has become impossible to ignore. How long can you survive at work, school, or even otherwise without access to the internet? The value of the digital economy in our lives rests in answer to the question. As the importance and influence of digital economic factors rise, effective digital economy management becomes a concern for policymakers. Even before that, the challenge of measuring the dynamic and wide-scoped digital economy – what to include and what not to include surfaces. This is essential for domestic policymaking as well as for enhancing the competitiveness of the economy at the global level. The hazy boundaries of the digital economy and the multitude of definitions make the policymakers’ job more difficult. Researchers at ACI have developed a tiered analytical framework that can evaluate the digital competitiveness of an economy to identify key strengths and weaknesses.

Given the prevalence of ICT and digital technologies, international organizations like OECD, UNCTAD, and the IMF have formulated their digital economy definitions and frameworks of varying degrees of breadth. Drawing on a vast body of studies, literature, and statistical databases, the authors develop a tiered approach to address the broad issue of competitiveness. A composite index was constructed where five categories – called ‘environments’ – were identified. These include Institutional Capacity, Digital Infrastructure, Core Inputs, Digital Utilization, and Digital Outputs. Each environment holds an equal weight of 20% in the overall index, which is further equally divided among the 11 sub-environments. The index currently consists of 60 indicators. For each of the indicators, a standardized score is calculated, which is relative to other economies in the study. Missing data points are imputed where possible or set to the average of other economies otherwise.

To demonstrate its utility, the index was calculated for 11 Asian economies at different stages of development. The economies included are China, Hong Kong SAR, India, Indonesia, Japan, Malaysia, Philippines, Singapore, South Kore (ROK), Thailand, and Vietnam. These economies feature increasing usage of digital technologies and a growing share of digitally deliverable service exports over the years. The analysis enabled by the resultant index is discussed in detail in the paper. The overall index correlates well with the economy’s real GDP per capita except for China (see Fig 1). This reflects the importance of digital economic competitiveness toward future development and the relevance of this framework.

The study validates the view that the digital and the broader economies are closely intertwined. As they become increasingly synonymous, the study finds that more digitally competitive economies are economically more developed. Further, some of the critical challenges of the digital economy are rooted in the broader issue of unequal access. This offers policymakers insights into the effective management of the digital economy. Fostering economic development and competitiveness now requires equitable access to digital technologies.

By GUPTA, Shubhangi

Researchers: TAN, Kway Guan, NG, Wee Yang, ZHANG, Xuyao

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