Publication: Digitalization and Inclusive Growth: A Review of the Evidence
Loading...
Date
2024-10-15
ISSN
Published
2024-10-15
Author(s)
Editor(s)
Abstract
This paper summarizes the evidence on the growth and distributional effects of digitalization through four channels: average productivity growth, employment and wages, access to markets, and government finances. First, digitalization has increased average productivity growth by better matching demand and supply, improving the efficiency of business processes, and boosting the accumulation of intangible capital. For developing economies, the productivity gains from “smart” automation and artificial intelligence that reduce labor costs may be lower than from the previous wave of information and communications technologies, which improved the matching of sellers to buyers by reducing search and coordination costs. Second, there is little evidence that use of information and communications technologies has reduced aggregate employment or resulted in job polarization in developing economies, unlike the experience of advanced economies. However, distributional challenges within countries might increase to the extent that “smart” robots and artificial intelligence need complementary skills. Third, digitalization has enhanced market access for rural households, small firms, and unbanked populations in developing economies through improving information flows. Fourth, digitalization has improved the efficiency of government spending on, and revenue mobilization for, public services and welfare programs through its effect on transparency, accountability, simplification of bureaucratic processes, and adoption of new delivery models.
Link to Data Set
Citation
“Nayyar, Gaurav; Pleninger, Regina; Vorisek, Dana; Yu, Shu. 2024. Digitalization and Inclusive Growth: A Review of the Evidence. Policy Research Working Paper; 10941. © World Bank. http://hdl.handle.net/10986/42243 License: CC BY 3.0 IGO.”
Associated URLs
Associated content
Other publications in this report series
Publication Disentangling the Key Economic Channels through Which Infrastructure Affects Jobs(Washington, DC: World Bank, 2025-04-03)This paper takes stock of the literature on infrastructure and jobs published since the early 2000s, using a conceptual framework to identify the key channels through which different types of infrastructure impact jobs. Where relevant, it highlights the different approaches and findings in the cases of energy, digital, and transport infrastructure. Overall, the literature review provides strong evidence of infrastructure’s positive impact on employment, particularly for women. In the case of electricity, this impact arises from freeing time that would otherwise be spent on household tasks. Similarly, digital infrastructure, particularly mobile phone coverage, has demonstrated positive labor market effects, often driven by private sector investments rather than large public expenditures, which are typically required for other large-scale infrastructure projects. The evidence on structural transformation is also positive, with some notable exceptions, such as studies that find no significant impact on structural transformation in rural India in the cases of electricity and roads. Even with better market connections, remote areas may continue to lack economic opportunities, due to the absence of agglomeration economies and complementary inputs such as human capital. Accordingly, reducing transport costs alone may not be sufficient to drive economic transformation in rural areas. The spatial dimension of transformation is particularly relevant for transport, both internationally—by enhancing trade integration—and within countries, where economic development tends to drive firms and jobs toward urban centers, benefitting from economies scale and network effects. Turning to organizational transformation, evidence on skill bias in developing countries is more mixed than in developed countries and may vary considerably by context. Further research, especially on the possible reasons explaining the differences between developed and developing economies, is needed.Publication Economic Consequences of Trade and Global Value Chain Integration(World Bank, Washington, DC, 2025-04-04)This paper introduces a new approach to measuring Global Value Chains (GVC), crucial for informed policy-making. It features a tripartite classification (backward, forward, and two-sided) covering trade and production data. The findings indicate that traditional trade-based GVC metrics significantly underestimate global GVC activity, especially in sectors like services and upstream manufacturing, and overstate risks in early trade liberalization stages. Additionally, conventional backward-forward classifications over-estimate backward linkages. The paper further applies these measures empirically to assess how GVC participation mediates the impact of demand shocks on domestic output, highlighting both the exposure and stabilizing potential of GVC integration. These new measures are comprehensively available on the World Bank’s WITS Platform, providing a key resource for GVC analysis.Publication Participation in Pension Programs in Low- and Middle-Income Countries(Washington, DC: World Bank, 2025-04-24)Low- and middle-income countries are aging rapidly but stagnation of growth in participation in pension programs, due to widespread informal employment, presents a major fiscal challenge. Some claim that improving the design of pension program rules can encourage more pension contributions, while others push for universal non-contributory pensions. This paper reviews the recent academic literature on the determinants of active participation in pension systems in high- informality settings. An emerging body of evidence shows that participation responds significantly to financial incentives as well as nonfinancial obstacles. At the same time, pensions are imperfect substitutes for other strategies to cover longevity risk, including support through the family, which will remain crucial for many older people in fiscally constrained environments. Therefore, policy makers should integrate the design of contributory pensions, social pensions, and policies that facilitate other forms of elderly support and consider how all three interact. To inform such efforts, these interactions must be more systematically investigated, and the empirical evidence must be expanded beyond a small number of middle-income countries.Publication Capitalizing on Digital Transformation to Enhance the Effectiveness of Property Institutions(Washington, DC: World Bank, 2025-04-14)Property registries have long been a pillar of state capacity and a basis for private market activity. While registry establishment and operation traditionally were costly and time consuming, digital technology makes low-cost registry operation and wide outreach easier. To guide developing countries aiming to establish such registries and measure progress, this paper develops indicators (in terms of digital coverage, interoperability, and property taxation for local service delivery and public land management) of effective digital registry service provision. Data from 85 countries highlight vast differences and provide suggestions for strategic reforms as well as a basis for measuring progress over time. Expanding geographical coverage and collecting these indicators on a regular basis could provide guidance to improve the way in which, by protecting property, the state creates the basis for widely shared prosperity and a livable environment.Publication Bridging the Gap(Washington, DC: World Bank, 2025-04-21)This paper examines tax revenue shortfalls in South Asian countries. On average during 2019–23, South Asian revenues totaled 18 percent of GDP—well below the average 24 percent among emerging market and developing economies (EMDEs). Econometric estimates from stochastic frontier analysis, which control for tax rates and the size of potential tax bases, suggest that tax revenues in the region are 1 to 7 percentage points of GDP below potential, with shortfalls in five of the region’s eight countries larger than in the average EMDE. Even after controlling for country characteristics, such as widespread informal economic activity outside the tax net and large agriculture sectors, sizable tax gaps remain, suggesting the need for improved tax policy and administration. The paper discusses and provides evidence from international experience with reforms to raise government revenues.
Journal
Journal Volume
Journal Issue
Collections
Related items
Showing items related by metadata.
Publication Spillovers in ICT Adoption from Formal to Informal Firms(Washington, DC: World Bank, 2024-04-22)This paper examines spillovers in the use of digital technologies from formal to informal businesses by exploring differences in geographic proximity. Using a unique set of geocoded data from the 2019 World Bank Enterprise Surveys in Zambia, the findings indicate that closer geographic proximity to formal firms is associated with a significantly higher likelihood of digital adoption by informal businesses. The finding holds for various types of digital technologies, ranging from computers, tablets, and cell phones to mobile money transactions, and is robust to various measures of geographic proximity and model modifications. The results vary by the owner’s level of education and business age. The results also suggest that the spillovers in information and communications technology use can be explained by competition in the local market and learning through enhanced interactions.Publication Digitalization, Remote Work and Firm Resilience(Washington, DC: World Bank, 2024-10-16)Using Business Pulse Survey data for 61 countries during the COVID-19 pandemic, this paper presents novel findings on remote work, enabled by digitalization, as a source of resilience for firms. The results suggest the following. First, firms in sectors with greater amenability to remote work experienced a smaller adverse impact of the pandemic in countries with better digital infrastructure. Second, these effects apply to both exporting and non-exporting firms. Third, there are differences across sectors. Among firms in the manufacturing sector, the benefits of remote work in countries with better digital infrastructure accrue more to exporters relative to non-exporters, thereby reflecting a premium to exporting. This exporting premium is not observed in the service sector, which largely comprises firms in non-knowledge intensive services in the sample. Fourth, the effects of the amenability to work remotely in countries with better digital infrastructure do not dissipate over time.Publication Buffer or Bottleneck? Employment Exposure to Generative AI and the Digital Divide in Latin America(Washington, DC: World Bank, 2024-08-01)Empirical evidence on the potential impacts of generative artificial intelligence (GenAI) is mostly focused on high-income countries. In contrast, little is known about the role of this technology on the future economic pathways of developing economies. This paper contributes to fill this gap by estimating the exposure of the Latin American labor market to GenAI. It provides detailed statistics of GenAI exposure between and within countries by leveraging a rich set of harmonized household and labor force surveys. To account for the slower pace of technology adoption in developing economies, it adjusts the measures of exposure to GenAI by using the likelihood of accessing digital technologies at work. This is then used to assess the extent to which the digital divide across and within countries will be a barrier to maximize the productivity gains among occupations that could otherwise be augmented by GenAI tools. The findings show that certain characteristics are consistently correlated with higher exposure. Specifically, urban-based jobs that require higher education, are situated in the formal sector, and are held by individuals with higher incomes are more likely to come into interaction with this technology. Moreover, there is a pronounced tilt toward younger workers facing greater exposure, including the risk of job automation, particularly in the finance, insurance, and public administration sectors. When adjusting for access to digital technologies, the findings show that the digital divide is a major barrier to realizing the positive effects of GenAI on jobs in the region. In particular, nearly half of the positions that could potentially benefit from augmentation are hampered by lack of use of digital technologies. This negative effect of the digital divide is more pronounced in poorer countries.Publication Firms’ Digitalization during the COVID-19 Pandemic(World Bank, Washington, DC, 2023-01)The COVID-19 pandemic accelerated the digital transformation of businesses. Using a unique global panel dataset, this paper documents the patterns of digital adoption during the pandemic across firms in 57 (mostly developing) countries. The data show the tale of two stories. On one hand, the pandemic drove firms to increase the use of digital platforms and invest in digital solutions. On the other hand, there is evidence that the digital divide increased. There remain substantial gaps between small and large firms as well as across sectors, particularly for new investments in digital solutions. Firms that did not use any digital platform or channel before the pandemic, also lagged in their response to the pandemic, increasing the gap with those that were more digitally ready. Moreover, although the share of online sales across firms for all size groups increased, there is a growing concentration of online sales among top firms. The paper discusses some of the factors associated with this increase in the digital divide and find that changes in digitalization remain even after mobility restrictions have eased. The analysis suggests that the pandemic has accelerated digitalization, but some firms disproportionately benefited from the digital transformation, potentially increasing the digital divide.Publication Minimum Income and Social Inclusion Pathways – A review of selected European Union programs(Washington, DC: World Bank, 2024-08-26)Across European Union (EU) countries, the institutional design of Minimum Income (MI) programs varies widely in terms of the benefits and services provided to recipients, despite significant convergence toward a similar MI model and shared common approaches. This discussion paper investigates the delivery of social inclusion pathways, i.e., non-monetary support components to foster MI recipients’ social inclusion and highlights common challenges and good practices across eight EU case study countries (Belgium, France, Germany, Greece, Italy, Portugal, Spain, and Sweden). The paper shows that while some countries prioritize labor activation for workforce reintegration of MI recipients, others aim for broader social inclusion, recognizing the challenges in integrating such recipients into the labor market due to their complex needs. Moreover, the paper examines how the social inclusion pathway and case management interventions in MI programs affect recipient’s welfare within poverty-targeted programs. It notes the lack of evidence on the effectiveness and impact of social inclusion pathways within MIs and mentions ongoing evaluations in Spain, Italy, and France to address this gap.
Users also downloaded
Showing related downloaded files
Publication Digital Progress and Trends Report 2023(Washington, DC: World Bank, 2024-03-05)Digitalization is the transformational opportunity of our time. The digital sector has become a powerhouse of innovation, economic growth, and job creation. Value added in the IT services sector grew at 8 percent annually during 2000–22, nearly twice as fast as the global economy. Employment growth in IT services reached 7 percent annually, six times higher than total employment growth. The diffusion and adoption of digital technologies are just as critical as their invention. Digital uptake has accelerated since the COVID-19 pandemic, with 1.5 billion new internet users added from 2018 to 2022. The share of firms investing in digital solutions around the world has more than doubled from 2020 to 2022. Low-income countries, vulnerable populations, and small firms, however, have been falling behind, while transformative digital innovations such as artificial intelligence (AI) have been accelerating in higher-income countries. Although more than 90 percent of the population in high-income countries was online in 2022, only one in four people in low-income countries used the internet, and the speed of their connection was typically only a small fraction of that in wealthier countries. As businesses in technologically advanced countries integrate generative AI into their products and services, less than half of the businesses in many low- and middle-income countries have an internet connection. The growing digital divide is exacerbating the poverty and productivity gaps between richer and poorer economies. The Digital Progress and Trends Report series will track global digitalization progress and highlight policy trends, debates, and implications for low- and middle-income countries. The series adds to the global efforts to study the progress and trends of digitalization in two main ways: · By compiling, curating, and analyzing data from diverse sources to present a comprehensive picture of digitalization in low- and middle-income countries, including in-depth analyses on understudied topics. · By developing insights on policy opportunities, challenges, and debates and reflecting the perspectives of various stakeholders and the World Bank’s operational experiences. This report, the first in the series, aims to inform evidence-based policy making and motivate action among internal and external audiences and stakeholders. The report will bring global attention to high-performing countries that have valuable experience to share as well as to areas where efforts will need to be redoubled.Publication EdTech in Developing Countries(Published by Oxford University Press on behalf of the World Bank, 2021-08-02)The emergence of educational technology (“EdTech”) in developing countries has been received as a promising avenue to address some of the most challenging policy questions within educational systems. In this paper, I review and synthesize all existing studies with credible causal identification frameworks of EdTech interventions in developing countries. While other studies review the evidence for EdTech interventions in developed countries, there is currently no equivalent study for developing contexts, in spite of the rising number of studies being produced. I classify studies into four thematic categories based on the type of EdTech intervention analyzed: Access to technology; technology-enabled behavioral interventions; improvements to instruction; and self-led learning. I find that EdTech interventions centered around self-led learning and improvements to instruction are the most effective forms of EdTech at raising learning outcomes. Similarly, technology-enabled behavioral interventions are less promising for generating large effects but highly cost-effective given their typically low marginal costs. Although expanding access to technology alone is not sufficient to improve learning, it is a necessary first step for some other types of interventions. More broadly, the overall success of interventions rests on the thoughtful customization of the EdTech solution to the policy constraints at hand. Finally, EdTech interventions across all thematic areas can and should act as complements by leveraging their respective comparative advantages to address deficiencies within educational systems in developing countries.Publication World Development Report 2014(Washington, DC, 2013-10-06)The past 25 years have witnessed unprecedented changes around the world—many of them for the better. Across the continents, many countries have embarked on a path of international integration, economic reform, technological modernization, and democratic participation. As a result, economies that had been stagnant for decades are growing, people whose families had suffered deprivation for generations are escaping poverty, and hundreds of millions are enjoying the benefits of improved living standards and scientific and cultural sharing across nations. As the world changes, a host of opportunities arise constantly. With them, however, appear old and new risks, from the possibility of job loss and disease to the potential for social unrest and environmental damage. If ignored, these risks can turn into crises that reverse hard-won gains and endanger the social and economic reforms that produced these gains. The World Development Report 2014 (WDR 2014), Risk and Opportunity: Managing Risk for Development, contends that the solution is not to reject change in order to avoid risk but to prepare for the opportunities and risks that change entails. Managing risks responsibly and effectively has the potential to bring about security and a means of progress for people in developing countries and beyond. Although individuals’ own efforts, initiative, and responsibility are essential for managing risk, their success will be limited without a supportive social environment—especially when risks are large or systemic in nature. The WDR 2014 argues that people can successfully confront risks that are beyond their means by sharing their risk management with others. This can be done through naturally occurring social and economic systems that enable people to overcome the obstacles that individuals and groups face, including lack of resources and information, cognitive and behavioral failures, missing markets and public goods, and social externalities and exclusion. These systems—from the household and the community to the state and the international community—have the potential to support people’s risk management in different yet complementary ways. The Report focuses on some of the most pressing questions policy makers are asking. What role should the state take in helping people manage risks? When should this role consist of direct interventions, and when should it consist of providing an enabling environment? How can governments improve their own risk management, and what happens when they fail or lack capacity, as in many fragile and conflict-affected states? Through what mechanisms can risk management be mainstreamed into the development agenda? And how can collective action failures to manage systemic risks be addressed, especially those with irreversible consequences? The WDR 2014 provides policy makers with insights and recommendations to address these difficult questions. It should serve to guide the dialogue, operations, and contributions from key development actors—from civil society and national governments to the donor community and international development organizations.Publication Global Economic Prospects, January 2025(Washington, DC: World Bank, 2025-01-16)Global growth is expected to hold steady at 2.7 percent in 2025-26. However, the global economy appears to be settling at a low growth rate that will be insufficient to foster sustained economic development—with the possibility of further headwinds from heightened policy uncertainty and adverse trade policy shifts, geopolitical tensions, persistent inflation, and climate-related natural disasters. Against this backdrop, emerging market and developing economies are set to enter the second quarter of the twenty-first century with per capita incomes on a trajectory that implies substantially slower catch-up toward advanced-economy living standards than they previously experienced. Without course corrections, most low-income countries are unlikely to graduate to middle-income status by the middle of the century. Policy action at both global and national levels is needed to foster a more favorable external environment, enhance macroeconomic stability, reduce structural constraints, address the effects of climate change, and thus accelerate long-term growth and development.Publication China Economic Update, June 2024(Washington, DC: World Bank, 2024-06-14)Economic activity picked up in China in early 2024, buoyed by stronger exports. Meanwhile, growth in domestic demand moderated. Manufacturing and infrastructure investment and consumer spending on services remained robust, while the property market correction continued. In the long term, China’s rapidly aging population will have wide-ranging economic impacts, but with the right policies the demographic transition is manageable. The economic challenges from an aging population can be overcome with policies that increase labor force participation and extend productive working lives. Affordable childcare, better work-life balance, elimination of gender bias in hiring, a higher retirement age, skills upgrading, and lifelong learning are measures that could expand China’s workforce and make it more productive.