IMD World Digital Competitiveness

1. The first ingredient in the recipe for a successful digital nation is digital infrastructure. It will surprise many readers that, in our assessment of digital competitive ness, China is not in the top 10. One fundamental reason for this is that the quality of its digital infrastructure is not uniform across the country. On top of that, the country’s internet bandwidth speed ranks just 18 th out of 64 economies and the quality of its communications technology ranks 14 th . The World Bank has identified five countries that account for 75% of the total investment in digital infrastructure in the world in 2023: China, Brazil, India, Indonesia, and Vietnam. These countries captured $68.3 billion in investments. 1 Seen in terms of per-capita contributions, the figures are modest for China though. 2. Infrastructure development requires both data gover nance and digital governance. Regulation is paramount for making sure that the benefits of technology are captured by society and not mis-used or indeed exploited by corporations. Ironically, the top country in this year’s ranking — the United States — ranks just 37 th in Private Protection by Law Content ; an indicator measuring the extent to which private data is protected. By contrast, it should not be surprising that many European coun tries populate the list of the most digitally advanced nations (there are five in just the top 10) and that this is largely due to the fact that the EU Data Governance Act (DGA), enacted in 2022 and taking effect in September 2023, has established robust procedures to facilitate the safe utilization of certain protected public-sector data subject to the rights of individual citizens, such as trade secrets, personal data, and data protected by intellectual property. 2 3. One salient distinctive factor among the most digital of nations is a good availability of digital identity programs. They take the form of technology-driven ID solutions, like in Denmark or Estonia, or personal IDs based on biometric individual characteristics such as Aadhaar in India. Digital identity is the main tool for making e-government solutions feasible, but also for integrating private-sector applications of technology into citizens’

daily lives. National ID programs also differ in terms of how extended they are across the population and range from being mandatory (e.g., Estonia and Saudi Arabia) to voluntary (e.g., the EU), where take-up is subsequently lower. 3 4. A combination of digital infrastructure and digital governance is needed to make technology available to citizens. Then, a final requirement for making a digital nation is the cultural acceptance of technology. Such acceptance can be endogenous to both infrastructure and regulation in the sense that people’s trust in their national framework can be jeopardized by either weak data protection or unsafe digital infrastructure, or a combination of both. This results in different degrees of technology utilization across countries. For instance, Estonia ranks first in the 2023 World Digital Competitive ness Ranking in the E-Participation indicator, followed by South Korea, the United States, and Japan. Botswana, Jordan, and Venezuela come last, but Belgium (56 th ) and Qatar (57 th ) are also stragglers. What are the social and economic benefits of national digital transformation? Estonia’s digital signature has saved the country 2% of its GDP each year, according to data from the OECD. Additionally, its ICT sector contrib utes 7% to the country’s output. Thus, digital nations are more efficient and cheaper to manage than their non-digital counterparts and allow the digital economy to develop faster and get bigger. 4 Using data from the World Bank Development Indicators, Figure 1 plots the relationship between internet usage and GDP per capita in developing economies. There is a strong correlation between the two (the R-Squared of the relationship is 70%), although it is not possible to conclude what the right causality is. Our rankings show the same relationship as this, as the correlation between the 2023 IMD World Competitiveness Ranking and the 2023 IMD World Digital Competitiveness Ranking is also very high.

1 https://www.worldbank.org/en/news/press-release/2023/04/24/data-show-private-infrastructure-investment-continues-to-improve following-pandemic-slump 2 See EU Data Governance Act 2022 3 The updated EU digital identity framework allows citizens to identify and authenticate themselves online without having to resort to commercial providers. However, it’s not explicitly stated whether this is mandatory or voluntary. 4 OECD (2019), Digital Opportunities for Better Agricultural Policies, OECD Publishing, Paris, https://doi.org/10.1787/571a0812-en.

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