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Closing the Global Economy’s New Digital Divide

As the global economy is transformed by new technologies, developing countries are at risk of losing out. While overcoming the resource constraints that limit developing countries’ investment in the digital economy will not be easy, failing to do so will carry a steeper price.

LONDON – From cloud computing to artificial intelligence, technology is beginning to revolutionize how the world economy functions. But while these shifts are enriching many in the advanced economies, the developing world is at risk of being left behind. To improve the global South’s economic prospects and avoid a deepening of inequality, developing-country policymakers must take seriously the implications of these shifts for their economies and their countries’ position in the global economy.

For years, the “digital divide” was narrowly defined in terms of Internet connectivity. But today, it manifests itself in the way businesses in rich countries use technology to strengthen their control of global value chains and extract a larger share of the value-added created in the developing world.

Consider, for example, how recent innovations threaten the export-oriented industrialization strategy that has fueled many countries’ development in recent decades. By using abundant and low-cost labor, developing countries were able to increase their share of global manufacturing activities, creating jobs, attracting investment and, in some cases, kick-starting a broader industrialization process. But, for the firms that took advantage of the opportunity to reduce costs by shifting manufacturing to the developing world, there was always a trade-off: offshore production meant limited ability to respond quickly to shifts in consumer demand.

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