WORLD DEVELOPMENT REPORT 2016 12 Figure O.9 How the three mechanisms apply to has become an essential part of a country’s infra- businesses, people, and governments structure—and a factor of production in almost any activity in a modern economy. Isolating the impact of DIGITAL digital technologies is therefore difficult at an aggre- TECHNOLOGIES gate level. Firm-level analysis provides a more reli- 9 able picture. The internet enables many small firms to participate in global trade, thus leading to more inclusion; it makes existing capital more productive, INCLUSION EFFICIENCY INNOVATION raising efficiency; and by stimulating competition, it encourages innovation. BUSINESSES Trade Capital utilization Competition Expanding trade The internet enables more products to be exported to PEOPLE Job opportunities Labor productivity Consumer welfare more markets, often by newer and younger firms. A 10-percent increase in internet use in the exporting GOVERNMENTS Participation Public Voice country is found to increase the number of prod- sector capability ucts traded between two countries by 0.4 percent. A similar increase in internet use of a country pair Source: WDR 2016 team. increases the average bilateral trade value per prod- 10 The internet can lead to more trade, better uct by 0.6 percent. Firms selling on eBay in Chile, capital use, and greater competition Jordan, Peru, and South Africa are younger than firms 11 The ICT sector is a fairly modest part of the overall in the offline markets. In Morocco, rural artisans, economy. Its share in GDP is around 6 percent in some of them illiterate, sell globally through the Anou OECD member countries and considerably less in crafts platform. At the other end of the spectrum, developing countries (figure O.10, panel a). In the businesses trade on global e-commerce sites such as United States, home to 8 of the world’s 14 largest tech- Alibaba’s in an online market that could reach more nology companies by revenue, the contribution of than US$6 trillion over the next five years. Online the ICT sector to GDP is around 7 percent. The corre- platforms overcome trust and information problems sponding number for Ireland is 12 percent—a country through feedback and rating systems and by offering that does not boast its own Silicon Valley, but attracts escrow and dispute resolution mechanisms. Easier many foreign firms through its competitive business trade of intermediate products encourages further environment and favorable tax rates. In Kenya, which “unbundling” of production processes, not just in the markets for goods but also for services.12 hosts one of the largest ICT sectors in Africa, the value Firms added share of ICT services in GDP was 3.8 percent in India, Jamaica, and the Philippines have captured in 2013. a share of these global markets for services that range The contribution of ICT capital to GDP growth from traditional back-office services to long-distance has been fairly constant over the past two decades. online tutoring. In high-income countries, it has fallen from 0.7 per- centage points in 1995–99 to 0.4 percentage points in Improving capital utilization 2010–14 (figure O.10, panel b). In developing countries, Perhaps the greatest contribution to growth comes the contribution of ICT capital to GDP growth has from the internet’s lowering of costs and thus from been fairly modest—around 15 percent of growth— raising efficiency and labor productivity in practi- reflecting lower digital adoption. With rapid diffusion cally all economic sectors. Better information helps of digital technologies into developing countries, this companies make better use of existing capacity, opti- number could rise in the future. In addition, the indi- mizes inventory and supply chain management, cuts rect contributions of ICT capital to economic growth, downtime of capital equipment, and reduces risk. In through improvements in total factor productivity the airline industry, sophisticated reservation and (TFP), could be large as well, although rigorous evi- pricing algorithms increased load factors by about dence linking the two is still missing. one-third for U.S. domestic flights between 1993 and The rapid adoption of digital technologies in 2007. The parcel delivery company UPS famously the economy has meant that its benefits are widely uses intelligent routing algorithms to avoid left turns, dispersed and its indirect growth impacts difficult saving time and about 4.5 million liters of petrol per to estimate. Like energy or transport, the internet year. Many retailers now integrate their suppliers in