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Asia’s digital divides mean some can’t afford tech upgrade they need to compete

International Monetary Fund report suggests 'diffusion' - a kind of tech trickle-down - might sort things out

Asia is the biggest user of industrial robots, its residents account for nearly 60 percent of the world's online retail sales, and the region's researchers created the same proportion of patents in digital tech before the pandemic. Yet a report published this week by the International Monetary Fund (IMF) asserts that the region is not digitizing fast enough to avoid a slowdown in productivity growth, and attendant economic unpleasantness.

“Asia’s strong economic rebound from the pandemic is losing steam as tightening financial conditions, reduced export demand, and China’s sharp and uncharacteristic slowdown dim the outlook,” warned the report's authors.

“Asia has risen to become an innovation powerhouse,” the report observes.

But the document also points out that the region has not one but two digital divides.

One is that nations like Singapore, Korea, Japan and China are plugged in to today’s latest and greatest tech.

The report characterises those nations as “frontier countries” that experienced a sharp increase in technology development, thanks to access to R&D budgets and skilled researchers.

But other nations don't do as well: "non-frontier" countries like Indonesia have extremely low internet usage rates (around 25 percent of the population are online) while connections in Vietnam and Bangladesh are often frustratingly slow.

The other divide is affordability.

“Small and medium-sized enterprises (SMEs) face significant barriers to access and use of digital technologies,” the IMF report states, detailing that nearly half of SMEs and a third of large firms in emerging and developing Asia report difficulty obtaining financing as a top barrier to adopting technology.

A skills shortage also hurts SMEs.

Low affordability also hurts because it means giant players can access tech that smaller rivals cannot, making innovative challengers less likely to develop.

The IMF thinks the divides between nations are being bridged: the report suggests frontier countries create “technology diffusion” that sees technology and tech-powered services reach their less-advanced neighbors.

Yet frontier countries can create that tech partly through accessing human capital in and/or from less-developed nations. That can nourish those non-frontier countries, but also lure away some of their best talent.

The IMF report advises closing productivity gaps, alleviating financing constraints faced by SMEs, enhancing non-frontier digital infrastructure, and educating the workforce of emerging countries across Asia.

But all of these suggested improvements from the IMF seem to lump Asian countries together into a cohesive unit. While the Association of Southeast Asian Nations (ASEAN) is a trade bloc that covers ten nations, it is less influential than the European Union (EU) in terms of driving digital infrastructure development.

What incentive do Asian frontier countries have for increasing the technological capacity of their neighbors when the more developed nations will see less benefit?

According to IMF, “Significant productivity-enhancing spillovers accrue from the technological leaders (frontier firms) in Asia and benefit most firms that are positioned at the next level (top non-frontier firms). In the same vein, the impact of digitalization on productivity growth is higher for non-frontier firms closer to the technology frontier.”

For the record, Singapore did donate upwards of $20 million to IMF efforts to assist vulnerable low-income countries dealing with COVID-19 economic fallout in 2021. It has also lent its tech building expertise to less developed countries in other ways.

Innovation by diffusion, which includes direct technology transfers and knowledge spillovers and similar, does mean even frontier level countries lose out and are slowed down when they have no peers to inspire, rely on, or co-create their innovation.

More tech, in more Asian nations, therefore benefits the entire region. ®

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