July 2, 2018 Print

A new and groundbreaking index reveals that many leading economies put significant restrictions on digital trade, driving up costs for businesses and consumers. The European Centre for International Political Economy (ECIPE), an Atlas Network partner based in Brussels, has released a new Digital Trade Restrictiveness Index (DTRI), which measures how 64 countries throughout the world restrict digital trade.

“Free digital trade provides consumers with better access to services and goods, and helps businesses in all sectors of the economy to become more efficient and reach new customers,” said Erik van der Marel, a senior economist at ECIPE. “With the future importance of the digital economy, digital trade openness contributes to prospective growth.”

ECIPE’s index shows that China has the most restricted digital trade. China applies regulatory measures to all aspects of digital trade, including trade in digital goods and services, investment in the IT sector, and the movement of data and IT professionals. Russia, India, Indonesia, and Vietnam round out the rest of the top five most restricted countries.

Source: ECIPE; Ferracane et al. (2018)

“Generally, the countries that have the most restricted digital trade are emerging economies,” continued van der Marel. “China belongs to that group, but it is also an outlier, since it imposes substantially higher restrictions on digital trade than the other four emerging economies. Just like China, Russia also applies more burdensome digital trade restrictions than could be expected given its level of economic development.”

New Zealand has the most open digital trade, followed by Iceland, Norway, Ireland, and Hong Kong. All five countries are comparatively small economies and are more dependent on global markets.

“[These countries top the list] because digital openness boosts productivity and investments in so-called knowledge-based intangibles such as research & development, design, digital training, and data, all of which are mostly services,” said van der Marel. “Moreover, most services are shown to be ‘digital-intense,’ using a vast amount of digital services.”

In Europe, the two most digitally restricted countries are France and Germany. Both countries have more restrictive digital trade policies than most other developed countries. France is also the only European country that is part of the top ten most restricted countries in digital trade worldwide.

“Digital trade is already one of the main driving forces behind sustained economic growth; it helps countries to improve productivity, a key indicator for technological advancement and the chief source of future economic welfare,” said van der Marel. “The high level of digital trade restrictions in emerging economies is worrying, because these restrictions undermine their capacity to develop their economies on the back of new technologies in an increasingly data-based global economy. The digital transformation underway affects all sectors and businesses, and a restrictive regulatory environment for digital trade will weigh down many non-digital sectors.”

According to the index, the United States is home to many successful digital companies, but it applies various restrictive policies in digital trade. The U.S. has a level of digital restrictiveness that is close to the average level of restrictiveness in all countries the survey covered.

“The policy choices that these countries make will certainly have an impact on how global digital policies will take shape” concluded van der Marel. “In short, openness to digital trade supports future economic prosperity, and restricting digital trade would undermine sustained economic growth. For everyone to take advantage of the new opportunities in the digital economy, governments need to stop restricting digital trade. They harm the pace of digitization and economic growth.”