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DIGITAL DIVIDENDSworld development report DIGITAL DIVIDENDSworld development reportA World Bank Group Flagship Report © 2016 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org Some rights reserved 1 2 3 4 19 18 17 16 This work is a product of the staff of The World Bank with external contributions.
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ISSN, ISBN, e-ISBN, and DOI: Softcover ISSN: 0163-5085 ISBN: 978-1-4648-0671-1 e-ISBN: 978-1-4648-0672-8 DOI: 10.1596/978-1-4648-0671-1 Hardcover ISSN: 0163-5085 ISBN: 978-1-4648-0728-2 DOI: 10.1596/978-1-4648-0728-2 Interior design: Reboot (www.reboot.org), New York, New York, and George Kokkinidis, Design Language, Brooklyn, New York Cover photo: This 2013 World Press Photo of the Year shows migrants crowding the night shore of Djibouti City in an attempt to capture inexpensive cellphone signals from neighboring Somalia.
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Contents xiii xv xix Foreword Acknowledgments Abbreviations 1 Overview: Strengthening the analog foundation of the digital revolution Digital transformations—digital divides 5 How the internet promotes development 8 The dividends: Growth, jobs, and service delivery 11 18 The risks: Concentration, inequality, and control 25 Making the internet universal, affordable, open, and safe 29 36 38 38 39 Analog complements for a digital economy Global cooperation to solve global problems Reaping digital dividends for everyone Notes References 42 Spotlight 1: How the internet promotes development 49 Part 1: Facts and analysis 50 Chapter 1: Accelerating growth Connected businesses 51 55 More trade, higher productivity, and greater competition 70 73 80 82 85 Digital technologies can lead ﬁ rms and countries to diverge The nexus of technology and regulation The future of markets Notes References 90 94 Sector focus 1: Agriculture Spotlight 2: Digital ﬁ nance 100 Chapter 2: Expanding opportunities 101 104 118 120 Connected people Creating jobs, boosting labor productivity, and beneﬁ ting consumers Labor market polarization can lead to greater inequality The race between skills and technology v vi CONTENTS 130 135 138 The future of jobs Notes References 146 Sector focus 2: Education 148 Spotlight 3: Social media 152 Chapter 3: Delivering services 153 155 171 177 181 181 183 Connected governments Greater state capability and citizen participation Digital technologies too often fail to empower citizens The gap between technology and institutions The future of public services Notes References 190 Sector focus 3: e-health 194 Spotlight 4: Digital identity 199 Part 2: Policies 200 Chapter 4: Sectoral policies Shaping the digital economy Supply-side policies: Availability, accessibility, and affordability Demand-side policies: Open and safe internet use Promoting the digital economy 200 Making the internet universal, affordable, open, and safe 203 204 221 228 232 Notes 235 References 240 Sector focus 4: Smart cities 244 Spotlight 5:
 The data revolution 248 Chapter 5: National priorities Analog foundations for a digital economy The interdependence between technology and complements Regulations: Helping businesses connect and compete Skills: Making the internet work for everyone Institutions: Connecting for a capable and accountable government 248 249 253 258 272 279 Digital safeguards 281 Notes 282 References 288 Sector focus 5: Energy 292 Chapter 6: Global cooperation 292 297 303 317 318 Internet governance Toward a global digital market Leveraging information for sustainable development Notes References 322 Sector focus 6: Environmental management 326 Spotlight 6: Six digital technologies to watch CONTENTS vii Frequently asked questions: The Report at a glance 2.2 2.3 110 The economics of online outsourcing 112 Expanding opportunities through Boxes O.1 5 O.2 10 e-commerce with Chinese characteristics: Inclusion, efﬁ ciency, and innovation in Taobao villages O.3 15 Bridging the disability divide through digital technologies O.4 O.5 16 Digital dividends and the bottom billion 20 What Facebook “Likes” reveal—the convenience-privacy trade-off O.6 26 Nailing Jell-O to the wall—restrictions O.7 O.8 O.9 on the ﬂ ow of information 27 Is the internet a public good?
27 The four digital enablers 29 Technology and complements: Lessons from academic research O.10 32 Opening the M-Pesa mobile money platform to competition O.11 33 Mobilizing technology in teaching in Rio’s Educopedia O.12 35 Can continuous monitoring and small sanctions improve provider performance?
O.13 37 European Union: A fragmented market for digital trade S1.1 45 Three ways in which the internet promotes development 1.1 56 Tracing back growth to a single, 1.2 57 new technology suffers from severe measurement problems Is this time different?
Predicting labor productivity growth at the technological frontier based on lessons from past industrial revolutions online music 2.4 114 Bridging the disability divide through digital technologies 2.5 115 Using digital technologies to match workers with jobs: Souktel in West Bank and Gaza 2.6 116 The impact of digital technologies on remittances 2.7 2.8 123 Skills wanted: Key concepts 129 Concerns about technological unemployment are not new 2.9 133 The challenge of keeping up with new technologies in Mexico 2.10 134 Digital technologies and economic opportunities: A gender lens 3.1 158 Digital technology and crisis management 3.2 159 Empowering women through digitally enabled social programs 3.3 160 Targeted public transit beneﬁ ts in Bogotá 3.4 161 Streamlining services through one-stop service centers 3.5 165 The high failure rate of e-government projects 3.6 169 Digitally enabled teacher management in private schools 3.7 173 Improving the integrity of elections through crowdsourcing and collaboration 3.8 178 Digital technologies can strengthen control 1.3 59 Is the internet reshaping economic geography?
Not yet.

4.1 201 Policy challenges for digital development 1.4 61 Successful online platforms account for local context and institutions 1.5 63 The growth impact is largest when ﬁ rms in traditional sectors use digital technologies to modernize their business 1.6 65 Do digital technologies embed productivity externalities?
1.7 69 Much of the beneﬁ t from the internet is unmeasured S2.1 95 Innovations in digital payments S2.2 98 Technology can help unveil illicit money ﬂ ows 2.1 109 Business process outsourcing and jobs in the Philippines: Opportunities and challenges from technological change 4.2 4.3 4.4 4.5 4.6 204 Is the internet a public good?
207 Fragile states, resilient digital economies 209 How public-private partnership helped build the internet backbone in the Republic of Korea 212 The last (1,000) mile(s) 215 Guatemala: An early pioneer of spectrum auctions 4.7 219 How better ICT data can lead to cheaper services 223 The costs of cybercrime 229 Tech hubs in Africa 231 Israel as a startup nation 245 “Big data” and open data in action 4.8 4.9 4.10 S5.1 viii CONTENTS 5.1 250 Three ideas about the interaction between technology and its complements 5.2 257 Mobile money: A success story and yet a regulatory mineﬁ eld 5.3 5.4 261 The impact of digital technologies on cognitive capacities and socialization 261 One Laptop per Child: Strengthening analog foundations and careful evaluation 5.5 263 Khan Academy: A supplemental educational resource in and outside the classroom 5.6 264 Using digital technologies to foster collaboration and learning: Rio de Janeiro’s Educopedia 5.7 265 Emerging lessons from digital literacy programs 5.8 5.9 5.10 267 Building new economy skills: Escuela Nueva in Colombia and Vietnam 269 Building modern skills: Game-based learning and “gamifying” education 271 Massive open online courses (MOOCs): A promising tool for lifelong learning 5.11 276 Increasing the impact of e-government systems 5.12 5.13 6.1 277 Regular, small-stakes monitoring 279 Estonia’s X-Road 294 Categories of stakeholders in internet governance 6.2 297 European Union: A fragmented market for digital products O.4 O.5 6 Digital transformation in action 8 The internet remains unavailable, inaccessible, and unaffordable to a majority of the world’s population O.6 9 The digital divide in access is high in Africa, and the divide in capability is high in the European Union O.7 9 The internet promotes development through three main mechanisms O.8 11 Many digital transactions involve all three mechanisms and a two-sided market O.9 12 How the three mechanisms apply to businesses, people, and governments O.10 13 The size of the ICT sector and its contribution to GDP
 growth is still relatively modest O.11 13 Vietnamese ﬁ rms using e-commerce have higher TFP growth, 2007–12 O.12 18 More complaints were resolved more quickly in the Nairobi water utility after the introduction of digital customer feedback O.13 18 Without strong analog complements, opportunities may turn into risks O.14 19 Factors explaining the lower adoption of digital technologies by businesses O.15 21 Labor shares of national income are falling in many countries, including some developing countries O.16 21 Falling labor shares in national income are associated with rising inequality 6.3 6.4 307 The Social Observatory and P-tracking O.17 22 The labor market is becoming more 309 ICTs and the Sustainable Development polarized in many developing countries Goals O.18 23 From a technological standpoint, 6.5 310 Digital Green: “How-to” videos for 6.6 6.7 6.8 S6.1 agriculture and health 312 Disaster risk management 314 Can “big data” provide real-time, geographically detailed information on poverty?
316 Disruptive approaches to development 329 Using cellphones for medical diagnosis, thanks to 3D printing Figures O.1 3 Digital technologies have spread rapidly in much of the world two-thirds of all jobs are susceptible to automation in the developing world, but the effects are moderated by lower wages and slower technology adoption Internet voting can increase voter participation but can be biased toward more privileged groups O.19 25 BO.6.1 26 Autocratic governments have promoted e-government while censoring the internet O.20 28 A policy framework for improving connectivity O.21 30 The quality of complements and technology rises with incomes O.2 3 The pessimism concerning the global outlook is not because of digital technologies, but in spite of them O.22 31 Policy priorities for countries that are emerging, transitioning, or transforming O.3 4 Why digital dividends are not spreading O.23 33 The types of skills needed in a modern rapidly—and what can be done economy O.24 35 Digital safeguards in the WDR’s framework platforms varies substantially among sectors and countries in Europe, 2014 S1.1 44 Internet users trade personal data for useful services 1.17 73 Mobile money markets are often controlled by one or two operators, 2014 SB1.1.1 45 A graphic representation of how the 1.18 75 Firms’ ICT investments as a CONTENTS ix internet promotes development 1.1 51 A framework for the internet and economic growth 1.2 52 More ﬁ rms are using broadband internet 1.3 1.4 53 Many advanced digital technologies have not yet diffused across ﬁ rms in high-income countries, 2014 54 Higher-productivity ﬁ rms are more likely to use the internet, 2010–14 1.5 54 African ﬁ rms using the internet are 1.21 more productive, 2014 1.6 55 Larger ﬁ rms use the internet more intensively across all income groups, 2006–14 1.7 57 ICT capital accounted for nearly one- ﬁ fth of global growth, 1995–2014 1.23 B1.2.1 58 U.S. labor productivity during the electriﬁ cation era (1890–1940) shares remarkably common patterns with the ICT era
 (1970–2012) 1.8 60 The internet enables more ﬁ rms to reach new markets, 2001–12 B1.5.1 63 The ICT sector accounts for 4–7 percent of GDP in most OECD countries, 2011 F1.1 91 1.9 65 Vietnamese ﬁ rms using e-commerce have higher TFP growth, 2007–12 1.10 67 Firm entry rates rose after countries introduced online registration systems, 2006–12 1.11 67 Two out of three ﬁ rms report competitive pressure from digital innovations, 2014 2.2 1.12 1.13 68 Prices of taxi medallions have started to decline following the entry of on-demand services and reduced demand for traditional taxis 71 Firms’ use of online banking varies substantially across countries at comparable incomes, 2003–06 and 2008–13 1.14 71 Firms’ use of the internet varies among six African countries, 2014 1.15 72 The share of ﬁ rms in the retail sector that sell their products online varies substantially among Latin American countries, 2010 1.16 72 The share of ﬁ rms using integrated customer relationship management share of GDP in several countries are comparable to those of U.S. ﬁ rms, but they invest much less in complementary skills and reorganization, 2006 1.19 76 Many countries still have poor postal delivery systems 1.20 78 Young ﬁ rms use the internet more intensively in high-income countries— old ﬁ rms, in low-income countries, 2010–14 78 Domestic ﬁ rms use the internet more intensively when they face foreign competition, 2010–14 1.22 79 Firms in Mexico facing higher import competition from China use more ICTs more productively 80 Restrictive product market regulations in services and higher nontariff technical barriers to trade in manufacturing are associated with lower ICT use, 2010–14 1.24 81 The dominance of a few politically connected ﬁ rms stiﬂ es competition and innovation in Morocco, 2004 and 2007 Introducing mobile phone service reduces price dispersion in local markets S2.1 95 Kenya’s M-Pesa payment system reached 80 percent of households within four years 2.1 101 A framework for the internet
 and economic opportunities 103 All regions are converging in mobile phone access, but South Asia and Sub-Saharan Africa are falling behind in internet access 2.3 103 How people use mobile phones and the internet in Africa 2.4 104 The digital divide within countries remains wide, especially in internet use 2.5 2.6 107 Employment in the ICT sector and in ICT occupations remains small 108 In Brazil, internet and software use by ﬁ rms throughout the economy is associated with higher earnings B2.2.1 110 Online labor markets provide work and fairly good pay for workers in developing countries 2.7 111 Online work expands women’s access to work x CONTENTS 2.8 111 Flexibility in hours worked and the 2.27 133 The less educated and the bottom 40 ability to work from home are the main advantages of online work, but relatively poor pay and lack of career prospects are concerns 2.9 113 Returns to education remain high despite signiﬁ cant expansion in the supply of educated workers, especially for tertiary education 2.10 113 Returns to education are particularly high in ICT-intensive occupations B2.5.1 115 Online platforms improve female labor force participation and access to higher- paying jobs 2.11 117 Mobile phones improve sense of security and save time 2.12 2.13 2.14 2.15 119 United States: Labor share in national income is falling, driven by routine labor 119 Labor shares in national income are falling in many countries, including some developing countries 120 Falling labor shares in national income are associated with rising inequality 121 The labor market is becoming polarized in both developed and developing countries 2.16 124 Employment is becoming more intensive in the use of digital technologies 2.17 124 Nonroutine skills are becoming more important over time 2.18 125 In developing countries, one-third of urban workers use digital technology at work 2.19 125 Employment becomes more intensive in ICT use as economies grow 2.20 126 Lack of ICT skills is often a
 constraint to employment 2.21 127 Nonroutine analytical and socioemotional skills are becoming more important, especially in jobs performed by younger cohorts 2.22 128 New economy skills, beyond levels of education, pay off 2.23 128 Digital technologies go hand in hand with nonroutine new economy skills 2.24 129 From a technological standpoint, two-thirds of all jobs are susceptible to automation in the developing world, but the effects are moderated by lower wages and slower technology adoption 2.25 2.26 131 The interaction between technology and jobs varies by occupation 132 The key policy challenge: Adapting the skills agenda to expected labor market disruptions percent of the welfare distribution are most vulnerable to technological changes in the labor market 3.1 153 A framework for digital technologies and government service delivery 3.2 153 Low-income countries have invested heavily in e-government 3.3 154 The priority in low-income countries has been core e-government systems, 2014 3.4 155 Governments use digital technologies more intensively than private sector ﬁ rms, 2014 3.5 3.6 156 Citizen use of e-government in Europe depends highly on income, 2014 156 Mobile phones are the main channel for citizens to interact with governments in Africa, 2014 3.7 159 e-government systems increase the transparency of government budgets, 2014 3.8 162 The likelihood of being visited and the number of visits by tax ofﬁ cials after e-ﬁ ling was introduced vary in select European and Central Asian countries 3.9 163 e-ﬁ ling and e-payment on average reduced the time required to prepare and pay taxes 3.10 163 e-procurement has no effect on ﬁ rms’ likelihood of bidding for a government contract or of being solicited for a bribe in select European and Central Asian countries B3.5.1 165 Success rate of large public sector ICT projects B3.5.2 165 Performance of World Bank–funded ICT projects 3.11 166 More complaints were resolved more quickly in the Nairobi water utility after the
 introduction of digital customer feedback 3.12 3.13 3.14 167 Citizens using Indonesia’s national feedback portal (LAPOR) have few actionable complaints, and these are mostly for private goods, 2015 170 Government ofﬁ cials in Indonesia and the Philippines have generally low opinions of human resource management practices 172 Democracy has spread, but so have election irregularities—digital technologies can help make elections freer and fairer 3.15 175 Internet voting can increase voter participation but can be biased toward more privileged groups CONTENTS xi 260 Education that upgrades skills also facilitates higher adoption of digital technologies 266 Even in advanced countries, youth are often unable to think critically and solve problems B3.8.1 178 Autocratic governments have promoted 5.8 e-government while censoring the internet 3.16 179 Digital technology projects funded by 5.9 the World Bank are more successful in countries with higher-quality institutions 3.17 180 Classifying public services and activities as to their amenability to improvement through digital technology F3.1 191 Sequencing of e-health development in Montenegro S4.1 195 Different types of digital ID schemes across countries B4.1.1 201 Global ICT access B4.1.2 202 Network buildout (subscriptions per 100 population) in OECD and low- and middle-income countries, 1990–2014 B4.3.1 207 Somalia’s rising mobile economy B4.4.1 209 Broadband in the Republic of Korea and other selected economies B4.5.1 213 The effect of history on internet prices, Paciﬁ c B4.6.1 216 How greater spectrum availability led to lower prices in Latin America, 2003–09 4.1 217 Prices are falling for computer processing, storage, bandwidth, and smartphones 4.2 218 If you want to make a mobile phone call, go to Sri Lanka B4.10.1 231 How Israel stays ahead in high-tech entrepreneurship F4.1 S5.1 241 Smart cities: From data to intelligence 245 World’s capacity to store information 5.10 273 Countries with more accountable
 governments also adopt more digital technologies 5.11 280 Digital safeguards in the WDR’s framework B6.1.1 294 Stakeholders in internet governance 6.1 294 Concerns that have fueled the debate on how the internet is governed 6.2 297 The multistakeholder model of internet governance enjoys greater support than other options B6.2.1 298 Perceived barriers to buying over the internet in 2009 B6.2.2 298 Obstacles for enterprises not selling online in 2013 6.3 299 Perception of U.S. ﬁ rms on barriers to data ﬂ ows as obstacles to trade, 2012 6.4 300 A majority of respondents agree that their online data and personal information should be physically stored on a secure server in their own country 6.5 301 Changes in GDP, investment, and exports due to regulatory restrictions on data ﬂ ows 6.6 305 The evolution of development aid by information needs, 1973–2010 6.7 306 Proportion of international ﬁ nancial institution projects with successful outcomes S5.2 245 Growth in telecommunications 6.8 306 High-quality M&E improves project capacity outcomes S5.3 246 Readiness, implementation, and impact S6.1 327 Gartner “hype” cycle applied to selected of open data digital technologies 5.1 249 Risks from digital technologies in the absence of complements 5.2 251 Some services and sectors are more amenable to digital technology than others 5.3 253 The quality of complements and technology rises with incomes 5.4 254 Regulations that encourage competition also facilitate higher adoption of digital technologies 5.5 255 Digital products are taxed as luxury 5.6 5.7 goods in some countries 256 Infrastructure complements 259 The types of skills needed in a modern economy Maps 7 O.1 The internet is more evenly spread than income 1.1 53 Many more ﬁ rms are using the internet in Vietnam 1.2 61 China’s export destinations differ for 1.3 76 ﬁ rms using online platforms, 2006 and 2014 International online payment systems for businesses are unavailable in many parts of Africa and Central Asia, 2012–14 2.1
 102 Mobile phones are the main source of connectivity in the developing world, but large gaps in internet access remain xii CONTENTS B4.1.1 202 Price of mobile and ﬁ xed broadband 2.5 132 Expected impacts of technological services change on employment and earnings B4.5.1 212 The effect of geography on internet S3.1 149 Relationships in different types of prices, Africa social media B4.6.1 215 Spectrum assignment in Latin America, 3.1 157 The impact of digital technology 4.1 4.2 4.3 6.1 in MHz blocks 222 Evidence of internet content ﬁ ltering 226 National data protection and privacy laws and bills 230 African tech hubs 296 A divided world: Country positions on the International Telecommunication Regulations 6.2 315 Availability of reports from weather stations F6.1 323 Satellite estimates of average PM2.5 concentrations provide global coverage, 2010 Tables O.1 14 Beneﬁ ts of digital technologies for workers and consumers: A scorecard O.2 24 Classifying the digital citizen engagement cases O.3 34 Priority policies for better service delivery 1.1 74 The internet impact is highest for data-intensive activities that involve easy-to-enforce contracts 1.2 1.3 74 Many ﬁ rms use the internet without changing their organizational structures, limiting its impact, 2010–14 82 Economic activities with high potential for ﬁ rms to use digital technologies more intensively are often protected from foreign or domestic competition in developing countries, reducing productivity growth 2.1 105 Digital technologies affect employment and earnings, the evidence shows 2.2 106 Beneﬁ ts of digital technologies for workers and consumers: A scorecard 2.3 122 Interactions between technology and skills at work 2.4 122 Recent evidence on skill-biased technological change on government capability to deliver services: A scorecard 3.2 171 The impact of digital technology on citizen empowerment: A scorecard 3.3 176 Classifying the digital citizen engagement cases 4.1 206 A policy framework for the
 supply of internet service B4.4.1 210 Broadband investment program, Republic of Korea 4.2 5.1 224 A basic framework for assessing the costs of cybersecurity incidents 252 Policy priorities for emerging, transitioning, or transforming countries 5.2 262 Emerging countries: A skill development agenda for a modern labor market 5.3 266 Transitioning countries: A skill development agenda for a modern labor market 5.4 270 Transforming countries: A skill development agenda for a modern labor market 5.5 273 A framework for policies: How to improve services in different contexts 5.6 274 Emerging countries: An agenda for laying institutional foundations and improving services 5.7 277 Transitioning countries: An agenda for building capable and accountable institutions and improving services 5.8 6.1 6.2 279 Transforming countries: An agenda for deepening collaborative institutions and improving services 295 Multistakeholderism or multilateralism 301 Many countries have proposed comprehensive legislation on data ﬂ ows 6.3 304 Information as feedback and as input, by expenditure type Foreword We ﬁ nd ourselves in the midst of the greatest information and communications revolution in human history.
More than 40 percent of the world’s population has access to the inter- net, with new users coming online every day.

Among the poorest 20 percent of households, nearly 7 out of 10 have a mobile phone.

The poorest households are more likely to have access to mobile phones than to toilets or clean water.

We must take advantage of this rapid technological change to make the world more prosperous and inclusive.
This Report ﬁ nds that traditional development challenges are preventing the digital revolution from fulﬁ lling its transformative potential.

For many people, today’s increase in access to digital technologies brings more choice and greater convenience.

Through inclusion, efﬁ ciency, and innovation, access provides opportunities that were previously out of reach to the poor and disadvantaged.
In Kenya, for example, the cost of sending remittances dropped by up to 90 percent after the introduction of M-Pesa, a digital payment system.

New technologies allow women to participate more easily in the labor market—as e-commerce entrepreneurs, in online work, or in business-process outsourcing.

The world’s 1 billion persons with disabilities—80 per- cent of whom live in developing countries—can lead more productive lives with the help of text, voice, and video communication.
And digital ID systems can provide better access to public and private services for the 2.4 billion people who lack formal identiﬁ cation records, such as a birth certiﬁ cate.

While this is great progress, many are still left out because they do not have access to digital technologies.

Those in extreme poverty have the most to gain from better commu- nication and access to information.

Nearly 6 billion people do not have high-speed internet, making them unable to fully participate in the digital economy.
To deliver universal digital access, we must invest in infrastructure and pursue reforms that bring greater competition to telecommunications markets, promote public-private partnerships, and yield effective regulation.

The Report concludes that the full beneﬁ ts of the information and communications transformation will not be realized unless countries continue to improve their business climate, invest in people’s education and health, and promote good governance.
In countries where these fundamentals are weak, digital technologies have not boosted productivity or reduced inequality.

Countries that complement technology investments with broader economic reforms reap digital dividends in the form of faster growth, more jobs, and better services.

The World Bank Group stands ready to help countries pursue these priorities.
We are already working with clients to promote competitive business environments, increase accountability, and upgrade education and skills-development systems to prepare people for the jobs of the future.

xiii xiv FOREWORD While people around the world make more than 4 billion Google searches every day, 4 billion people still lack access to the internet.

The ﬁ ndings of this Report should be used by all who are working to end extreme poverty and boost shared prosperity.
The greatest rise of information and communications in history will not be truly revolutionary until it beneﬁ ts everyone in every part of the world.
Jim Yong Kim President The World Bank Group Acknowledgments This Report was prepared by a team led by Deepak Mishra and Uwe Deichmann and com- prising Kenneth Chomitz, Zahid Hasnain, Emily Kayser, Tim Kelly, Märt Kivine, Bradley Larson, Sebastian Monroy-Taborda, Hania Sahnoun, Indhira Santos, David Satola, Marc Schiffbauer, Boo Kang Seol, Shawn Tan, and Desiree van Welsum.

The work was carried out under the general direction of Kaushik Basu, Indermit Gill, and Pierre Guislain.
World Bank President Jim Yong Kim was an invaluable source of encouragement to the team.

The team received guidance from an Advisory Panel cochaired by Kaushik Basu and Toomas Hendrik Ilves and consisting of Salim Sultan Al-Ruzaiqi, Carl Bildt, Yessica Car- tajena, Dorothy Gordon, Richard Heeks, Monica Kerretts-Makau, Feng Lu, N.R.

Narayana Murthy, Paul Romer, and Hal Varian.
The team would like to acknowledge the generous support of Canada’s Department of Foreign Affairs, Trade, and Development and the International Development Research Cen- tre; Estonia’s Ministry of Foreign Affairs and Ofﬁ ce of the President; the French Develop- ment Agency; Germany’s Federal Ministry for Economic Cooperation and Development and the Deutsche Gesellschaft für Internationale Zusammenarbeit; Israel’s Ministry of Econ- omy; Norway’s Ministry of Foreign Affairs and the Norwegian Agency for Development Cooperation; Sweden’s Ministry of Foreign Affairs; the multidonor Knowledge for Change Program; and the World Bank Research Support Budget.
Consultation events were held in Armenia, Belgium, China, the Dominican Republic, the Arab Republic of Egypt, Estonia, Finland, France, Germany, India, Indonesia, Ireland, Jamaica, Kenya, Morocco, the Netherlands, Oman, Pakistan, the Philippines, Somalia, Swe- den, Switzerland, Turkey, the United Arab Emirates, the United Kingdom, the United States, and Vietnam, with participants drawn from many more countries.

Detailed information about these events can be found at http://www.worldbank.org/wdr2016/about.
Interagency consultations were held with the European Commission, International Telecommunication Union, Organisation for Economic Co-operation and Development, United Nations Broad- band Commission, United Nations Conference on Trade and Development (UNCTAD), and United Nations Development Programme (UNDP).
The initial ﬁ ndings of the Report were also discussed at several conferences and workshops, including at the Brookings-Blum Roundtable; Columbia University; Nairobi’s iHub; International Conference of Agricultural Economists in Milan; Oxford Internet Institute; the People-Centered Internet Conference at Stanford University; the Science, Technology and Innovation for Development conference in Seoul; the Swedish Program for Information and Communication Technology in Devel- oping Regions; the UbuntuNet Alliance Connect Conference in Mozambique; the University of West Indies at Mona, Jamaica; the U.S. State Department; the World Economic Forum; and the World Summit on the Information Society.
The team thanks the participants in all of these events for helpful comments and suggestions.

Bruce Ross-Larson was the principal editor of the Report.

The production and logistics team for the Report comprised Brónagh Murphy, Mihaela Stangu, and Jason Victor, with xv xvi ACKNOWLEDGMENTS contributions from Laverne Cook, Gracia Sorenson, Roza Vasileva, and Bintao Wang.

Reboot was the principal graphic designer.


Phillip Hay, Vamsee Krishna Kanchi, Mikael Ello Reven- tar, and Roula Yazigi provided guidance on communication strategy.

The World Bank’s Publishing and Knowledge Division coordinated the copyediting, typesetting, designing, printing, and dissemination of the Report.

Nancy Morrison and Dana Lane copyedited the Report.

Diane Stamm and Laura Wallace edited the background papers and framing notes, respectively.
Special thanks to Denise Bergeron, Jose de Buerba, Mary Fisk, Yulia Ivanova, Patricia Katayama, Stephen McGroarty, Andres Meneses, Chiamaka Osuagwu, Stephen Pazdan, and Paschal Ssemaganda, as well as the Translation and Interpretation Unit’s Bouchra Belfqih and her team, and the Map Design Unit.

The team would like to thank Vivian Hon, Jimmy Olazo, and Claudia Sepúlveda for their coordinating roles.

Elena Chi- Lin Lee, Surekha Mohan, and Joseph Welch coordinated resource mobilization.
Jean-Pierre Djomalieu, Gytis Kanchas, Nacer Megherbi, Manas Ranjan Parida, and Pratheep Ponraj provided IT support.
The team would like to acknowledge several people for insightful discussions, including Jenny Aker, George Akerlof, Robert Atkinson, David Autor, Arup Banerji, Eric Bartelsman, Vint Cerf, Carol Corrado, Claudia Maria Costin, Augusto de la Torre, Asli Demirgüç-Kunt, Shantayanan Devarajan, Laurent Elder, Marianne Fay, Francisco Ferreira, Torbjorn Fredriksson, Carl Frey, Haishan Fu, Mark Graham, Caren Grown, Ravi Kanbur, Jesse Kaplan, Loukas Karabarbounis, Phil Keefer, Michael Kende, Homi Kharas, Taavi Kotka, Aart Kraay, Arianna Legovini, Norman Loayza, Epp Maaten, Michael Mandel, James Manyika, Magdy Martinez-Soliman, Njugu na Ndung’u, Nandan Nilekani, Ory Okolloh, Tapan Parikh, Rich Pearson, Lant Pritchett, Martin Rama, Vijayendra Rao, Ana Revenga, John Rose, Sudhir Shetty, Joseph Stiglitz, Randeep Sudan, Larry Summers, Jan Svejnar, Chad Syverson, Prasanna Tambe, Michael Thatcher, Hans Timmer, Kentaro Toyama, Nigel Twose, Bart van Ark, Tara Vishwanath, Stephanie von Friedeburg, Melanie Walker, and Darrell West.
The contributors to the spotlight and sector focus pieces are Robert Ackland, Wajeeha Ahmad, Hallie Applebaum, Joseph Atick, Amparo Ballivian, Adis Balota, Biagio Bossone, Karan Capoor, Mariana Dahan, Alan Gelb, Aparajita Goyal, Dominic S. Haazen, Naomi Hale- wood, Mia Harbitz, Todd Johnson, Anna Lerner, Dennis Linders, Arturo Muente-Kunigami, Urvashi Narain, Thomas Roca, Zlatan Sabic, Marcela Sabino, Chris Sall, Randeep Sudan, Kyosuke Tanaka, Tatiana Tropina, Michael Trucano, and Darshan Yadunath.
The Report draws on background papers and notes prepared by Karina Acevedo, Laura Alfaro, Maja Andjelkovic, Izak Atiyas, Ozan Bakis, Shweta Banerjee, Sheheryar Banuri, Johannes Bauer, Jessica Bayern, Zubair Bhatti, Miro Frances Capili, Xavier Cirera, Nicholas Crafts, Cem Dener, Joao Maria de Oliveira, Bill Dutton, Mark Dutz, Maya Eden, Ana Fer- nandes, Lucas Ferreira-Mation, Rachel Firestone, Jonathan Fox, Paul Gaggl, Jose Marino Garcia, Elena Gasol Ramos, Tina George, Daphne Getz, Itzhak Goldberg, Martin Hilbert, Sahar Sajiad Hussain, Leonardo Iacovone, Saori Imaizumi, Ali Inam, Melissa Johns, Todd Johnson, Patrick Kabanda, Chris Kemei, Doruk Yarin Kiroglu, Barbara Kits, Anna Kocha- nova, Gunjan Krishna, Arvo Kuddo, Filipe Lage de Sousa, Michael Lamla, Victoria Lemieux, Emmanuel Letouzé, Zahra Mansoor, Francisco Marmolejo, Aaditya Mattoo, Samia Melhem, Michael Minges, Martin Moreno, Huy Nygen, Stephen O’Connell, Brian O’Donnell, Alberto Osnago, Tiago Peixoto, Mariana Pereira-Lopez, Gabriel Pestre, Sonia Plaza, Rita Ramalho, Dilip Ratha, Seyed Reza Youseﬁ , Said Mohamed Saadi, Leo Sabetti, Simone Sala, Deepti Samant Raja, David Sangokoya, Bessie Schwarz, Sophiko Skhirtladze, Elisabeth Tellman, Kristjan Vassil, Patrick Vinck, Joanna Watkins, Robert Willig, Min Wu, Maggie Xu, Emilio Zagheni, and Irene Zhang.
All background papers for the Report are available at http://www .worldbank.org/wdr2016 or through the WDR ofﬁ ce at the World Bank.
The team received expert advice during several rounds of reviews from Christian Aedo, Ahmad Ahsan, Mohamed Ihsan Ajwad, Omar Arias, Cesar Baldeon, Morgan Bazilian, Kath- leen Beegle, Luis Beneviste, Christian Bodewig, Stefanie Brodmann, Shubham Chaudhuri, ACKNOWLEDGMENTS xvii Karl Chua, Massimo Cirasino, Amit Dar, Ximena del Carpio, Deon Filmer, Adrian Fozzard, Samuel Freije, Roberta Gatti, Caren Grown, Mary Hallward–Driemeier, Robert Hawkins, Joel Hellman, Mohamed Ibrahim, Leora Klapper, Luis Felipe Lopez Calva, Charlotte V. McClain-Nhlapo, Atul Mehta, Samia Melham, Claudio Montenegro, Reema Nayar, David Newhouse, Anna Oleﬁ r, Pierella Paci, Cecilia Paradi-Guilford, Joseﬁ na Posadas, Siddhartha Raja, Dena Ringold, David Robalino, Jan Rutkowski, Carolina Sanchez-Paramo, Joana Silva, Jin Song, Renos Vakis, Alexandria Valerio, Joao Pedro Wagner de Azevedo, Aleem Walji, Michael Weber, and William Wiseman, as well as from the World Bank Group regions, global practices, cross-cutting solutions areas, Legal Department, Independent Evaluation Group, and other units.
Many people inside and outside the World Bank Group provided helpful comments, made other contributions, and participated in consultative meetings.
The team would like to thank the following: Jamal Al-Kibbi, Mavis Ampah, Dayu Nirma Amurwanti, James Anderson, Elena Arias, Andrew Bartley, Cyrille Bellier, Rachid Benmessaoud, Natasha Beschorner, Zubair Bhatti, Phillippa Biggs, Brian Blankespoor, Joshua Blumenstock, David Caughlin, Jean-Pierre Chauffour, Michael Chodos, Diego Comin, Pedro Conceicao, Paulo Correa, Eric Crabtree, Prasanna Lal Das, Ron Davies, Valerie D’Costa, James Deane, Donato de Rosa, Niamh Devitt, Ndiame Diop, Dini Sari Djalal, Khalid El Massnaoui, Oliver Falck, Erik Feiring, Xin Feng, Nicolas Friederici, Doyle Galegos, Rikin Gandhi, John Garrity, Diari- etou Gaye, Daphne Getz, Ejaz Syed Ghani, Soren Gigler, Chorching Goh, Itzhak Goldberg, Simon Gray, Boutheina Guermazi, Suresh Gummalam, Stefanie Haller, Nagy Hanna, Jeremy Andrew Hillman, Stefan Hochhuth, Anke Hoefﬂ er, Bert Hofman, Mai Thi Hong Bo, Tim Hwang, William Jack, Sheila Jagannathan, Satu Kahkonen, Kai Kaiser, Jesse Kaplan, Rajat Kathuria, Anupam Khanna, Stuti Khemani, Zaki Khoury, Oliver Knight, Srivatsa Krishna, Kathie Krumm, Victoria Kwakwa, Somik Lall, Jason Lamb, Jessica Lang, Andrea Liverani, Steven Livingston, Augusto Lopez-Claros, Muboka Lubisia, Sean Lyons, Sandeep Mahajan, Shiva Makki, Will Martin, Selina McCoy, Stefano Mocci, Mahmoud Mohieldin, Partha Mukhopadhyay, Pauline Mwangi, Gb Surya Ningnagara, Tenzin Norbhu, Tobias Ochieng, Varad Pande, Douglas Pearce, Oleg Petrov, Jan Pierskalla, Maria Pinto, Martin Raiser, Achraf Rissaﬁ , Nagla Rizk, Michel Rogy, Gabriel Roque, Karen Rose, Carlo Maria Rossotto, Frances Ruane, Onno Ruhl, Umar Saif, Daniel Salcedo, Apurva Sanghi, Arleen Seed, Shekhar Shah, Fred Shaia, Shehzad Sharjeel, Gurucharan Singh, Rajendra Singh, Alexander Slater, Karlis Smits, Vicenzo Spezia, Christoph Stork, Younas Suddique, Abdoulaye Sy, Maria Consuelo Sy, Noriko Toyoda, Rogier van den Brink, Adam Wagstaff, Ken Warman, Cynthia Wong, Bill Woodcock, Pat Wu, Elif Yonca Yukseker, and Breanna Zwart.
The team also met with representatives from civil society and the private sector, includ- ing Airbnb; Alibaba (China); Babajob (India); Baidu (China); Diplo (Switzerland); Economic and Social Research Institute (ESRI; Ireland); Elance-oDesk (now Upwork); eLimu (Kenya); Enterprise Ireland; the Estonian e-Governance Academy; Facebook; Google; Groupe Speciale Mobile Association (GSMA); Human Rights Watch; Nairobi’s iHub; Internet Corporation for Assigned Names and Numbers (ICANN); Internet Society; Khan Academy; Let’s Do It!
(Estonia); Lyft; MajiVoice (Kenya); McKinsey Global Institute; Microsoft; National Asso- ciation of Software and Services Companies (India); Nortal (Estonia); Olacabs (India); Postmates; Rovio Entertainment (Finland); Souktel (West Bank and Gaza); the Start-Up Jamaica Accelerator; TransferWise (Estonia/United Kingdom); Twitter; and Uber.

The team apologizes to any individuals or organizations inadvertently omitted from this list.
Abbreviations 2G 3D 3G 4G 5G ADB AfDB AI APEC ATM AV B2B BIA BISP BPO C2C CAL CDRs CERT CRM CSIRT CSO DAI DFID DRM DSL EBRD EC ERP EU FCC FDI G-8 G2B G2C G2G second-generation three-dimensional third-generation fourth-generation ﬁ fth-generation Asian Development Bank African Development Bank artiﬁ cial intelligence Asia-Paciﬁ c Economic Cooperation automated teller machine autonomous vehicles business-to-business Bridge International Academies Benazir Income Support Programme (Pakistan) business process outsourcing consumer-to-consumer computer-assisted learning call data records computer emergency response team customer relationship management Computer Security Incident Response Team civil society organization Digital Adoption Index Department for International Development (United Kingdom) disaster risk management digital subscriber line European Bank for Reconstruction and Development European Commission economic resource planning; Electronic Road Pricing European Union Federal Communications Commission (United States) foreign direct investment Group of Eight (Canada, France, Germany, Italy, Japan, the Russian Federation, the United Kingdom, and the United States) government-to-business government-to-citizen government-to-government xix xx ABBREVIATIONS GDP GIS GNI GPS GSMA GTAP HEWs HMIS HS I2D2 IANA IATA ICANN ICT ID IDRC IETF IFAD IFC IoT IP IPRs ISP IT ITRs ITU IXP KILM LDCs LLU LPI LTE M&E MDGs MFN MLM MOOC MSM NGO NTM OECD OLPC OSI OTT PC PFR PIAAC PISA PM2.5 gross domestic product geographic information system gross national income global positioning system Groupe Speciale Mobile Association (aka Global System for Mobile communications Association) Global Trade Analysis Project Health Extension Workers Health Management Information System harmonized classiﬁ cation system International Income Distribution Database (World Bank) Internet Assigned Numbers Authority International Air Transport Association Internet Corporation for Assigned Names and Numbers information and communication technology identiﬁ
 cation International Development Research Centre (Canada) Internet Engineering Task Force International Fund for Agricultural Development International Finance Corporation (of the World Bank Group) internet of things intellectual property; internet protocol intellectual property rights internet service provider information technology International Telecommunication Regulations International Telecommunication Union internet exchange point Key Indicators of the Labour Market least developed countries local loop unbundling Logistics Performance Index Long Term Evolution monitoring and evaluation Millennium Development Goals (United Nations) most favored nation multilateral model massive open online course multistakeholder model nongovernmental organization nontariff measure Organisation for Economic Co-operation and Development One Laptop per Child online service index over-the-top personal computer Program for Results (World Bank) Programme for the International Assessment of Adult Competencies Programme for International Student Assessment particulates with a diameter of less than 2.5 micrometers ABBREVIATIONS xxi PMR POP PPP PTT R&D RFID RSS SCM SDGs SIM SMEs SMS STEM STEP SYNOP TFP TRCs UN UNCTAD USAID USF VAT W3C WDI WDR 2016 team WEF WIPO WITS WTO Product Market Regulation point of presence public-private partnership; purchasing power parity public telephone and telegraph research and development radio frequency identiﬁ cation Rich Site Summary supply chain management Sustainable Development Goals (United Nations) subscriber identiﬁ cation module small and medium enterprises short message service science, technology, engineering, and mathematics Skills Towards Employability and Productivity (World Bank) surface synoptic observations total factor productivity Truth and Reconciliation Commissions United Nations United Nations Conference on Trade and Development U.S. Agency for International Development Universal Service Fund value added tax World Wide Web
 Consortium World Development Indicators (World Bank database) team for the 2016 World Development Report World Economic Forum World Intellectual Property Organization World Integrated Trade Solution (World Bank database) World Trade Organization Currencies $A € K Sh Australian dollar euro Kenyan shilling Units of measurement GB Gbit/s GHz kbps gigabyte gigabits per second gigahertz kilobits per second ₹ US$ Y Indian rupee U.S. dollar Chinese yuan kilowatt-hour kWh Mbit/s megabits per second megahertz MHz terabits per second Tbit/s Country and economy codes AFG AGO ALB ARE ARG ARM Afghanistan Angola Albania United Arab Emirates Argentina Armenia AUS AUT AZE BDI BEL BEN Australia Austria Azerbaijan Burundi Belgium Benin xxii ABBREVIATIONS BFA BGD BGR BHR BIH BLR BLZ BOL BRA BRB BRN BTN BWA CAN CHE CHL CHN CIV CMR COD COL CPV CRI CYP CZE DEU DJI DNK DOM DZA ECU EGY ESP EST ETH FIN FJI FRA GAB GBR GEO GHA GIN GMB GRC GRD GTM GUY Burkina Faso Bangladesh Bulgaria Bahrain Bosnia and Herzegovina Belarus Belize Bolivia Brazil Barbados Brunei Darussalam Bhutan Botswana Canada Switzerland Chile China Côte d’Ivoire Cameroon Congo, Dem.
Rep. Colombia Cabo Verde Costa Rica Cyprus Czech Republic Germany Djibouti Denmark Dominican Republic Algeria Ecuador Egypt, Arab Rep. Spain Estonia Ethiopia Finland Fiji France Gabon United Kingdom Georgia Ghana Guinea Gambia, The Greece Grenada Guatemala Guyana Honduras Croatia Haiti Hungary Indonesia India Ireland Iran, Islamic Rep. Iraq Iceland Israel Italy Jamaica Jordan Japan Kazakhstan Kenya Kyrgyz Republic Cambodia Korea, Rep. Kuwait Lao PDR Lebanon Liberia Libya Sri Lanka Lesotho Lithuania Luxembourg Latvia HND HRV HTI HUN IDN IND IRL IRN IRQ ISL ISR ITA JAM JOR JPN KAZ KEN KGZ KHM KOR KWT LAO LBN LBR LBY LKA LSO LTU LUX LVA MAR Morocco MDA Moldova MDG Madagascar MDV Maldives MEX Mexico MKD Macedonia, FYR Mali MLI MLT Malta MMR Myanmar MNE Montenegro MNG Mongolia MOZ Mozambique MRT Mauritania MUS Mauritius MWI Malawi MYS Malaysia Namibia NAM Niger NER ABBREVIATIONS xxiii NGA NIC NLD NOR NPL NZL OMN PAK PAN PER PHL PNG POL PRT PRY PSE QAT ROU RUS RWA SAU SEN SGP SLB SLE SLV SOM SRB Nigeria Nicaragua Netherlands Norway Nepal New Zealand Oman Pakistan Panama Peru Philippines Papua New Guinea Poland Portugal Paraguay West Bank and Gaza Qatar Romania Russian Federation Rwanda Saudi Arabia Senegal Singapore Solomon Islands Sierra Leone El Salvador Somalia Serbia STP SVK SVN SWE SWZ SYC TCD TGO THA TJK TKM TLS TON TTO TUN TUR TZA UGA UKR URY USA UZB VEN VNM YEM ZAF ZMB ZWE São Tomé and Príncipe Slovak Republic Slovenia Sweden Swaziland Seychelles Chad Togo Thailand Tajikistan Turkmenistan Timor-Leste Tonga Trinidad and Tobago Tunisia Turkey Tanzania Uganda Ukraine Uruguay United States Uzbekistan Venezuela, RB Vietnam Yemen, Rep. South Africa Zambia Zimbabwe Inclusion Efficiency Innovation OVERVIEW Strengthening the analog foundation of the digital revolution Digital technologies have spread rapidly in much of the world.
Digital dividends—the broader development beneﬁ ts from using these technologies—have lagged behind.

In many instances digital technologies have boosted growth, expanded oppor- tunities, and improved service delivery.

Yet their aggregate impact has fallen short and is unevenly distributed.

For digital technologies to beneﬁ t everyone everywhere requires closing the remaining digital divide, especially in internet access.

But greater digital adoption will not be enough.


To get the most out of the digital revolution, countries also need to work on the “analog complements”—by strengthening regulations that ensure competition among businesses, by adapting workers’ skills to the demands of the new economy, and by ensuring that institutions are accountable.

Digital technologies—the internet, mobile phones, and all the other tools to collect, store, analyze, and share information digitally—have spread quickly.
More households in developing countries own a mobile phone than have access to electricity or clean water, and nearly 70 percent of the bottom ﬁ fth of the population in developing countries own a mobile phone.

The number of internet users has more than tripled in a decade—from 1 billion in 2005 to an estimated 3.2 billion at the end of 2015.1 This means that businesses, people, and governments are more connected than ever before (ﬁ gure O.1).
The digital revolution has brought immediate private bene- ﬁ ts—easier communication and information, greater convenience, free digital products, and new forms of leisure.

It has also created a profound sense of social connectedness and global community.

But have mas- sive investments in information and communication technologies (ICTs) generated faster growth, more jobs, and better services?

Indeed, are countries reap- ing sizable digital dividends?

Technology can be transformational.


A digital identiﬁ cation system such as India’s Aadhaar, by overcoming complex information problems, helps willing governments to promote the inclusion of dis- advantaged groups.

Alibaba’s business-to-business e-commerce site, by signiﬁ cantly reducing coordi- nation costs, boosts effi ciency in China’s economy and arguably the world’s.
The M-Pesa digital pay- ment platform, by exploiting scale economies from automation, generates signiﬁ cant ﬁ nancial sector innovation, with great beneﬁ ts to Kenyans and others.

Inclusion, efﬁ ciency, innovation—these are the main mechanisms for digital technologies to promote development.
Although there are many individual success sto- ries, the effect of technology on global productivity, expansion of opportunity for the poor and the middle class, and the spread of accountable governance has so far been less than expected (ﬁ gure O.2).2 Firms are more connected than ever before, but global produc- tivity growth has slowed.
Digital technologies are changing the world of work, but labor markets have become more polarized and inequality is rising—par- ticularly in the wealthier countries, but increasingly in developing countries.

And while the number of democracies is growing, the share of free and fair elections is falling.

These trends persist, not because of digital technologies, but in spite of them.

So, while digital technologies have been spreading, digital dividends have not.

Why?

For two reasons.


First, nearly 60 percent of the world’s people are still ofﬂ ine OVERVIEW 3 c. Digital adoption by governments Global average Figure O.1 Digital technologies have spread rapidly in much of the world a.

Digital adoption by businesses Global average 1.0 0.8 0.6 0.4 0.2 0 1.0 0.8 0.6 0.4 0.2 0 b.
Digital adoption by people Global average 1.0 0.8 0.6 0.4 0.2 0 100 1,000 10,000 100,000 100 1,000 10,000 100,000 100 1,000 10,000 100,000 GDP per capita (constant 2005 US$) GDP per capita (constant 2005 US$) GDP per capita (constant 2005 US$) Source: WDR 2016 team.

Data at http://bit.do/WDR2016-FigO_1.

Note: The ﬁ gures show the diff usion of digital technologies across countries as measured by the Digital Adoption Index compiled for this Report and described in detail in chapter 5 of the full Report.
GDP = gross domestic product.

and can’t participate in the digital economy in any meaningful way.

Second, some of the perceived bene- ﬁ ts of digital technologies are offset by emerging risks (ﬁ gure O.3).

Many advanced economies face increas- ingly polarized labor markets and rising inequality—in part because technology augments higher skills while replacing routine jobs, forcing many workers to com- pete for low-paying jobs.
Public sector investments in digital technologies, in the absence of accountable institutions, amplify the voice of elites, which can result in policy capture and greater state control.

And because the economics of the internet favor natural monopolies, the absence of a competitive business environment can result in more concentrated markets, beneﬁ ting incumbent ﬁ rms.
Not surprisingly, the bet- ter educated, well connected, and more capable have received most of the beneﬁ ts—circumscribing the gains from the digital revolution.

Figure O.2 The pessimism concerning the global outlook is not because of digital technologies, but in spite of them a.

Global productivity b.
Global inequality c. Global governance Five-year moving average of median growth of labor productivity per hour worked, in percent, in 87 countries Percentage change in real income between 1998 and 2008 at different levels of world income distribution in 2003 prices Share of elections that are free and fair (%) 6 4 2 0 90 70 50 30 10 –10 15 25 35 45 55 65 75 85 95 Percentile of world income distribution 100 75 50 25 Sources: Panel a: Conference Board (various years); WDR 2016 team.
Panel b: Lakner and Milanovic 2013.

Panel c: Bishop and Hoeffl er 2014.

Data at http://bit.do/WDR2016-FigO_2.

4 WORLD DEVELOPMENT REPORT 2016 Figure O.3 Why digital dividends are not spreading rapidly—and what can be done Divide Accessible Affordable Open and safe Connectivity Making the internet Digital technologies Spreading benefits INCLUSION EFFICIENCY INNOVATION Digital development strategy Dividends Reducing risks Complements CONTROL INEQUALITY CONCENTRATION Source: WDR 2016 team.
To maximize the digital dividends requires better understanding of how technology interacts with other factors that are important for development—what the Report calls “analog complements.” Digital technol- ogies can make routine, transaction-intensive tasks dramatically cheaper, faster, and more convenient.

But most tasks also have an aspect that cannot be auto- mated and that requires human judgment, intuition, and discretion.
When technology is applied to auto- mate tasks without matching improvements in the complements, it can fail to bring broad-based gains.

The digital revolution can give rise to new business models that would beneﬁ t consumers, but not when incumbents control market entry.

Technology can make workers more productive, but not when they lack the know-how to use it.
Digital technologies can help monitor teacher attendance and improve learn- ing outcomes, but not when the education system lacks accountability.3 What should countries do?

Making the internet universally accessible and affordable should be a global priority.

The internet, in a broad sense, has grown quickly, but it is by no means universal.

For every person connected to high-speed broadband, ﬁ ve are not.
Worldwide, some 4 billion people do not have any internet access, nearly 2 billion do not use a mobile phone, and almost half a billion live outside areas with a mobile signal.

The unﬁ nished task of con- necting everyone to the internet—one of the targets in the recently approved Sustainable Development Goals (SDGs)—can be achieved through a judicious mix of market competition, public-private partnerships, and effective regulation of the internet and telecom sector.
Access to the internet is critical, but not sufﬁ cient.

The digital economy also requires a strong analog foundation, consisting of regulations that create a vibrant business climate and let ﬁ rms leverage dig- ital technologies to compete and innovate; skills that allow workers, entrepreneurs, and public servants to seize opportunities in the digital world; and account- able institutions that use the internet to empower citizens.
The long-term development impact is by no means deﬁ nitive, being continuously shaped by the evolution of technology (connectivity) and the country’s choice of economic, social, and governance arrangements (complements).4 Countries that are able to swiftly adjust to this evolving digital economy will reap the greatest digital dividends, while the rest are likely to fall behind (ﬁ gure O.3 and box O.1).
The triple complements—a favorable business cli- mate, strong human capital, and good governance— will sound familiar—and they should because they are the foundation of economic development.

But digital technologies add two important dimensions.

First, they raise the opportunity cost of not undertak- ing the necessary reforms.

They amplify the impact of good (and bad) policies, so any failure to reform means falling farther behind those who do reform.
With digital technologies, the stakes have risen for developing countries, which have more to gain than high-income countries, but also more to lose.

Second, while digital technologies are no shortcut to develop- ment, they can be an enabler and perhaps an accel- erator by raising the quality of the complements.

Online business registries ease market entry for new and innovative ﬁ rms.

Well-designed internet-based training helps workers upgrade their skills.
New media platforms can increase citizen participa- tion.

And digital enablers—digital ﬁ nance, digital identiﬁ cation, social media, and open data—spread OVERVIEW 5 Box O.1 Frequently asked questions: The Report at a glance What is the Report about?

It explores the impact of the internet, mobile phones, and related technologies on economic development.

Part 1 shows that potential gains from digital technologies are high, but often remain unrealized.
Part 2 proposes policies to expand connectivity, accelerate complementary reforms in sectors beyond information and communication technol- ogy (ICT), and address global coordination problems.

What are the digital dividends?

Growth, jobs, and services are the most important returns to digital investments.

The ﬁ rst three chapters show how digital technologies help businesses become more pro- ductive; people ﬁ nd jobs and greater opportunities; and governments deliver better public services to all.
How do digital technologies promote development and generate digital dividends?

By reducing information costs, digital technologies greatly lower the cost of economic and social transactions for ﬁ rms, individuals, and the public sector.

They promote innovation when transaction costs fall to essentially zero.

They boost effi ciency as existing activities and services become cheaper, quicker, or more convenient.
And they increase inclusion as people get access to services that previously were out of reach.

Why does the Report argue that digital dividends are not spreading rapidly enough?

For two reasons.

First, nearly 60 percent of the world’s peo- ple are still offl ine and can’t fully participate in the digital economy.

There also are persistent digital divides across gender, geography, age, and income dimensions within each country.
Second, some of the perceived beneﬁ ts of the internet are being neutralized by new risks.

Vested business interests, regulatory uncertainty, and limited contestation across digital platforms could lead to harmful concentra- tion in many sectors.

Quickly expanding automation, even of mid-level offi ce jobs, could contribute to a hollowing out of labor markets and to rising inequality.
And the poor record of many e-government initiatives points to high fail- ure of ICT projects and the risk that states and corporations could use digital technologies to control citizens, not to empower them.

What should countries do to mitigate these risks?

Connectivity is vital, but not enough to realize the full devel- opment beneﬁ ts.
Digital investments need the support of “analog complements”: regulations, so that ﬁ rms can leverage the internet to compete and innovate; improved skills, so that people can take full advantage of digital opportunities; and accountable institutions, so that gov- ernments respond to citizens’ needs and demands.

Digital technologies can, in turn, augment and strengthen these complements—accelerating the pace of development.

What needs to be done to connect the unconnected?


Market competition, public-private partnerships, and eff ec- tive regulation of internet and mobile operators encourage private investment that can make access universal and aff ordable.

Public investment will sometimes be necessary and justiﬁ ed by large social returns.

A harder task will be to ensure that the internet remains open and safe as users face cybercrime, privacy violations, and online censorship.

What is the main conclusion?


Digital development strategies need to be broader than ICT strategies.

Connectivity for all remains an important goal and a tremendous challenge.

But countries also need to create favorable conditions for technology to be eff ective.

When the analog complements are absent, the develop- ment impact will be disappointing.

But when countries build a strong analog foundation, they will reap ample digital dividends—in faster growth, more jobs, and better services.
beneﬁ ts throughout the economy and society, fur- ther strengthening the interaction between technol- ogy and its complements.

Digital transformations— digital divides The internet and related technologies have reached developing countries much faster than previous technological innovations.

For Indonesia to reap the beneﬁ ts of steamships took 160 years after their inven- tion and for Kenya to have electricity, 60 years; but for Vietnam to introduce computers, only 15 years.
Mobile phones and the internet took only a few years.

More households in developing countries own a mobile phone than have access to electricity or improved san- itation (ﬁ gure O.4, panel a).

Greater internet access has led to an explosion in the production and consumption 6 WORLD DEVELOPMENT REPORT 2016 Figure O.4 Digital transformation in action a.
Digital technologies are spreading rapidly in developing countries 100 n o i t l a u p o p e h t f o % 80 60 40 20 0 1990 1995 2000 2005 2010 2015 Improved water Electricity Secondary school Improved sanitation Mobile phone Internet Mobile broadband b.
A typical day in the life of the internet 186 million INSTAGRAM photos 152 million SKYPE calls 36 million AMAZON purchases 2.3 billion GB of WEB TRAFFIC 803 million TWEETS 8.8 billion YOUTUBE videos watched 4.2 billion GOOGLE searches 207 billion E-MAILS sent Sources: World Development Indicators (World Bank, various years); WDR 2016 team; http://www .internetlivestats.com/one-second/ (as compiled on April 4, 2015).

Data at http://bit.do/WDR2016-FigO_4.


Note: In panel a, for some years data for electricity are interpolated from available data.

GB = gigabytes.

of information around the world (ﬁ gure O.4, panel b).

But while the internet has reached almost all coun- tries quickly, the intensity of its use has been lower in poorer countries—in large part because it has not spread as widely within those countries.
And despite many great examples of the uses of new technologies in developing countries, advanced economies have been using them even more effectively.5 Connected people On average, 8 in 10 individuals in the developing world own a mobile phone, and the number is steadily ris- ing.

Even among the bottom ﬁ fth of the population, nearly 70 percent own a mobile phone.

The lowest mobile penetration is in Sub-Saharan Africa (73 per- cent), against 98 percent in high-income countries.
But internet adoption lags behind considerably: only 31 percent of the population in developing countries had access in 2014, against 80 percent in high-income countries.

China has the largest number of internet users, followed by the United States, with India, Japan, and Brazil ﬁ lling out the top ﬁ ve.

The world viewed from the perspective of the number of internet users looks more equal than when scaled by income (map O.1)—reﬂ ecting the internet’s rapid globalization.
Connected businesses Internet adoption has increased across businesses in all country income groups.

Nearly 9 of 10 businesses in high-income OECD (Organisation for Economic Co-operation and Development) countries had a broadband internet connection in 2010–14, compared with 7 for middle-income countries and 4 for low-in- come countries.
But adoption rates for more sophisti- cated technologies such as secure servers, enterprise network, inventory management, and e-commerce are much lower in most developing countries.

Connected governments Governments are increasingly going digital, and a greater share of government jobs in developing coun- tries is ICT-intensive than in the private sector.
By 2014, all 193 member states of the United Nations (UN) had national websites: 101 enabled citizens to create per- sonal online accounts, 73 to ﬁ le income taxes, and 60 to register a business.

For the most common core gov- ernment administrative systems, 190 member states had automated ﬁ nancial management, 179 used such systems for customs processing, and 159 for tax man- agement.

And 148 of them had some form of digital identiﬁ cation, and 20 had multipurpose digital iden- tiﬁ cation platforms.
So far, developing countries have invested more in automating back-ofﬁ ce functions than in services directed at citizens and businesses.

The divide in digital access and use persists The lives of the majority of the world’s people remain largely untouched by the digital revolution.

Only around 15 percent can afford access to broadband internet.

Mobile phones, reaching almost four-ﬁ fths of the world’s people, provide the main form of inter- net access in developing countries.
But even then, nearly 2 billion people do not own a mobile phone, and nearly 60 percent of the world’s population has no access to the internet.

The world’s ofﬂ ine population is 7OVERVIEWMap O.1 The internet is more evenly spread than incomeSource: World Bank.

Data at http://bit.do/WDR2016-MapO_1.Note: Countries’ sizes are rescaled in proportion to national income and internet population.
The darker the shade, the higher the national income (panel a; GDP at market exchange rates) and the higher the internet population (panel b).a.

Based on national income, 2014b.

Based on internet population, 2014mainly in India and China, but more than 120 million people are still ofﬂ ine in North America (ﬁ gure O.5).

The digital divide within countries can be as high as that between countries.
Worldwide, nearly 21 per-cent of households in the bottom 40 percent of their countries’ income distribution don’t have access to a mobile phone, and 71 percent don’t have access to the internet.

Adoption gaps between the bottom 40 percent and the top 60 percent and between rural and urban populations are falling for mobile phones but increasing for the internet.

In Africa, the digital divide across demographic groups remains consider-able (ﬁ gure O.6, panel a).
Women are less likely than men to use or own digital technologies.

Gaps are even larger between youth (20 percent) and those more than 45 years old (8 percent).

IBRD 42010 8 WORLD DEVELOPMENT REPORT 2016 Figure O.5 The internet remains unavailable, inaccessible, and unaff ordable to a majority of the world’s population a. ICT access by population b.
A closer look at the world’s offline population Total global population ~7.4 billion Within mobile coverage 7 billion Mobile phones 5.2 billion Total internet users 3.2 billion High-speed internet 1.1 billion Ethiopia 95 million Brazil 98 million Nigeria 111 million Bangladesh 148 million Pakistan 165 million Indonesia 213 million China 755 million Congo, Dem.
Rep. Mexico 70 million 68 million Philippines 63 million Russian Federation 55 million Iran, Islamic Rep. 54 million Myanmar 53 million Vietnam 52 million United States 51 million Tanzania 49 million Thailand 48 million Egypt, Arab Rep. 42 million Turkey 41 million India 1.063 billion Total internet users 3.2 billion Countries outside of the top 20 High-speed internet 1.1 billion Sources: World Bank 2015; Meeker 2015; ITU 2015; GSMA, https://gsmaintelligence.com/; UN Population Division 2014.
Data at http://bit.do/WDR2016-FigO_5.

Note: High-speed internet (broadband) includes the total number of ﬁ xed-line broadband subscriptions (such as DSL, cable modems, ﬁ ber optics), and the total number of 4G/LTE mobile subscriptions, minus a correcting factor to allow for those who have both types of access.

4G = fourth generation; DSL = digital subscriber line; ICT = information and communication technology; LTE = Long Term Evolution.
The increased connectivity has had limited effect in reducing information inequality.

For example, there are more contributions to Wikipedia from Hong Kong SAR, China, than from all of Africa com- bined, despite the fact that Africa has 50 times more internet users.6 The amount of information published on the web, and its origin, often corresponds to what one sees in the ofﬂ ine world as well.
For instance, 85 percent of the user-generated content indexed by Google comes from the United States, Canada, and Europe, similar to the share of global scientiﬁ c journals originating in these countries.

In fact, the information produced and consumed in the digital economy has little bearing on the number of users of digital technologies.
Given that nearly one-ﬁ fth of the world’s population is illiterate, the spread of digital technologies alone is unlikely to spell the end of the global knowledge divide.

Countries that have bridged the digital-access divide often face a new divide in digital capabilities.

In the European Union (EU), businesses are more likely than citizens to use the internet to interact with the government.

Citizens use e-government mostly for getting information and not for transacting with government.
And their use of e-government is highly uneven—citizens in the top 20 percent of income in the most connected EU country are 45 times more likely to use e-services than those in the bottom 20 percent of income in the least connected EU coun- try (ﬁ gure O.6, panel b).

Within countries, greater e-government use by individuals is associated with education, employment, urban residence, being male, and broadband access.
How the internet promotes development Digital technologies have dramatically expanded the information base, lowered information costs, and created information goods.

This has facilitated searching, matching, and sharing of information and contributed to greater organization and collaboration among economic agents—inﬂ uencing how ﬁ rms operate, people seek opportunities, and citizens inter- act with their governments.
The changes are not lim- ited to economic transactions—they also inﬂ uence the participation of women in the labor force, the OVERVIEW 9 Figure O.6 The digital divide in access is high in Africa, and the divide in capability is high in the European Union Within-country digital divide can be signiﬁ cant Poor households use e-government less than the rich a. Africa b. European Union 25 20 15 10 5 0 ) 4 7 – 6 1 s e g a ( s l a u d i v i d n i f o % 100 80 60 40 20 0 45:1 ) % ( s s e c c a t e n r e n t i h t i w s l a u d i v i d n I Bottom 40% Upper 60% Mature (45+) Young (15–24) Rural Urban Women Men 0 20,000 40,000 60,000 80,000 Income distribution (household) Age Location Gender GDP per capita (US$) Top income quartile Third quartile Second quartile Bottom quartile Sources: WDR 2016 team, based on data from Research ICT Africa (various years), ITU, and Eurostat (EC, various years).
Data at http://bit.do/WDR2016-FigO_6.

Note: For more details see ﬁ gure 2.4 in the full Report.

ease of communication for people with disabilities, and the way people spend their leisure.

By overcom- ing information barriers, augmenting factors, and transforming products, digital technologies can make development more inclusive, efﬁ cient, and innovative (ﬁ gure O.7 and box O.2).

Spotlight 1 in the full Report explores the links between these three mechanisms in the broader economic literature.
The internet promotes inclusion Before the internet arrived, some transactions were so expensive that a market for them did not exist.

Two types of transactions fall into this category.

First is when two parties to a potentially beneﬁ cial transaction simply didn’t know about each other and faced exorbitantly high search and information costs.

Second is when one party had a lot more information than the other.
In the economics literature, such situa- tions are known as information asymmetries between buyers and sellers, and in the absence of trust and transparency, many transactions do not take place.
By reducing the cost of acquiring information and making more information available transpar- ently, digital technologies can make new transac- tions possible.7 Consider a poor farmer who cannot access credit because the lender has no way to assess Figure O.7 The internet promotes development through three main mechanisms DIGITAL TECHNOLOGIES Search and information Automation and coordination Scale economies and platforms INCLUSION EFFICIENCY INNOVATION Source: WDR 2016 team.

creditworthiness.
creditworthiness.

Or a small ﬁ rm that cannot connect with a potential buyer in another country and does not know whether to trust a new business partner.

Or a freelancer willing to perform small tasks for a fee.

Or a homeowner looking to rent her spare room to local visitors.

Or remote or marginalized population groups who fall outside the reach of the services that gov- ernments provide.
In all these cases, a fundamental 10 WORLD DEVELOPMENT REPORT 2016 Box O.2 e-commerce with Chinese characteristics: Inclusion, effi ciency, and innovation in Taobao villages The dynamic growth and rapid spread of e-commerce in China is best illustrated by the Shaji phenomenon.

The economy of Dongfeng village in Shaji town (Jiangsu Province) shifted from pig farming in the 1980s to plastic waste recycling in the 1990s.
In 2006, a migrant from the village returned to open an online shop to sell simple furniture.

His success encouraged other villagers to do likewise, and by the end of 2010, the village had 6 board processing factories, 2 metal parts factories, 15 logistics and shipping companies, and 7 computer stores serving 400 households engaged in online sales throughout China and even in neighboring countries.
Shaji was one of the ﬁ rst “Taobao villages”—named after an online shopping platform run by the Alibaba Group—where at least 10 per- cent of households are engaged in online commerce.a The Taobao villages, and the rise of e-commerce in China more generally, illustrate how the internet promotes inclusion, effi ciency, and innovation.

Inclusion.

While the economies of China’s coastal urban areas have grown rapidly over the last three decades, rural and western parts of the country have lagged behind.
But China’s large investments in rural connectivity are beginning to pay off .

More than 90 percent of villages will have ﬁ xed broadband access by the end of 2015.

Online commerce has allowed producers in towns and villages to participate in the national and even global economy.

At the end of 2014, there were more than 70,000 merchants in 200 Taobao villages, and many more in other rural areas.

Most of the stores are small, with an average of 2.5 employ- ees.
About one-third of owners are female, and one-ﬁ fth were previously unemployed.

About 1 percent are persons with disabilities.

One of Alibaba’s top “netpreneurs,” con- ﬁ ned to a wheelchair after an accident, built a thriving online livestock business.

Effi ciency.

Besides the Taobao e-commerce site for consumers, Alibaba and other Chinese ﬁ rms operate business-to-business platforms.

They facilitate intra- and inter-industry trade in China’s already effi cient production sector, as well as exports.
They also make it easier for for- eign ﬁ rms to sell in China.

Consumers beneﬁ t from greater selection and convenience on online retail sites.

Online trade has not only helped raise rural incomes but also made shopping more effi cient.
Purchasing power in rural areas is only about one-third that in cities, but the aggre- gate consumption of China’s 650 million rural residents is vast, contributing to the national goal of moving from an export- and investment-driven economy to one that is more consumption based.

And the boom in online trade has spawned numerous logistics companies that provide quick delivery—sometimes by bicycle in towns and villages.

Innovation.
Innovation.

Taobao and other e-commerce platforms are examples of innovation generated by the economies of scale that emerge when transaction costs drop drastically.

Since these platforms are highly automated, fees can be kept low, and operations are often ﬁ nanced by advertising alone.

Some problems cannot easily be solved solely by automation, such as creating trust in the market and pre- venting fraud.

Online ratings, escrow services, and conﬂ ict resolution mechanisms address them.
One of the most valuable assets Alibaba and other e-commerce operators accumulate is data.

Each transaction contributes to better knowledge about the economy and consumer behavior.

This information supports new business lines, such as extending credit to small ﬁ rms based on automated eval- uations of creditworthiness.

This can also advance ﬁ nancial inclusion.


In early 2015, for instance, Alibaba’s Ant Financial teamed up with the International Finance Corporation to expand credit to female entrepreneurs in China.

Sources: WDR 2016 team, based on information from the China State Information Center, China Association for Employment Promotion, and Alibaba company reports.

a. http://www.alizila.com/report-taobao-villages-rural-china-grow-tenfold-2014.

information problem makes it difﬁ cult to make a deal or a match.
Mobile phone records, business-to- business e-commerce, the sharing economy, online reputation mechanisms, and digital identiﬁ cation sys- tems all help to overcome these information barriers.
While they make the market more efﬁ cient, the big- gest beneﬁ t seems to be their market creation effects: expanding trade, creating jobs, and increasing access to public services—and thus promoting inclusion.8 The internet promotes effi ciency Perhaps the largest impact has been on transactions that existed before the arrival of the internet but are now quicker, cheaper, or more convenient to carry out.

This mechanism operates in two ways.


First, the dra- matic decline in the price of digital technologies has led businesses and governments to replace existing factors—labor and non-ICT capital—with ICT capital and to automate some of their activities.

Airlines use online booking systems to ﬁ ll planes.

Supermarkets substitute cashiers with automated checkout count- ers.

Manufacturers use real-time inventory and sup- ply chain management systems.
And governments invest in information management systems and offer online services for a wide range of tasks—from issu- ing drivers’ licenses to ﬁ ling taxes.

Second, digital technologies augment the factors not substituted and make them more productive.

They help managers to better supervise their workers, poli- ticians to monitor the service providers, and workers to use technology to become more productive, thus raising the returns to their human capital.
By stream- lining tasks and raising the productivity of existing factors, the internet can greatly increase economic efﬁ ciency across ﬁ rms, workers, and governments.

The internet promotes innovation The extreme case of efﬁ ciency is when transactions are executed automatically, without human input, and transaction costs fall to essentially zero.

This is the realm of the “new economy,” such as search or e-commerce platforms, digital payment systems, e-books, streaming music, and social media.
The ﬁ xed cost of building the platform may be large, but the marginal cost of carrying out another transaction or adding another user is tiny.

This gives rise to increas- ing returns to scale, which stimulate new business models and provide a major advantage to online ﬁ rms competing with their ofﬂ ine counterparts.
The zero marginal cost attracts new sellers and buyers to the ﬁ rm’s platform, creating virtuous network effects, where the beneﬁ t to a buyer increases as more sellers join in, and vice versa.

An auction site attracts more bidders the more the sellers use it, and a search engine learns and becomes more useful the more searches are performed.

Scale and zero marginal costs also explain why many of the social network sites have become the preferred vehicles for social mobilization and political protests.
By enabling almost frictionless communication and collaboration, the internet can support new delivery models, encourage collective action, and accelerate innovation.

The 2016 WDR presents many examples of how the internet promotes inclusion, efﬁ ciency, and innovation.

In the internet economy the three mecha- nisms often operate together.

So the one-to-one map- ping in ﬁ gure O.7 simpliﬁ es a more complex reality.
OVERVIEW 11 Figure O.8 Many digital transactions involve all three mechanisms and a two-sided market INNOVATION Platforms INCLUSION EFFICIENCY Sellers Buyers Drivers, hosts, and freelancers On-demand/ sharing economy Riders, guests, and small businesses Job seekers, travelers, entrepreneurs, and artists Matching platforms Employers, airlines and hotels, investors, and consumers Traders and senders (money) e-commerce and digital payments Customers and recipients (money) Source: WDR 2016 team.
Many internet businesses or services use a platform or “two-sided market” model.

The platforms match buyers with sellers or a service user with a provider.

In a ride sharing service, the platform automatically matches drivers and passengers (innovation), the driver takes advantage of a ﬂ exible income-earning activity not otherwise accessible (inclusion), and the passenger beneﬁ ts from greater convenience and often lower prices (efﬁ ciency).
Online crowdfunding, job matching, room sharing, and music sites operate similarly (ﬁ gure O.8).

The dividends: Growth, jobs, and service delivery The beneﬁ ts of digital technologies ﬁ lter throughout the economy (ﬁ gure O.9).

For businesses, the internet promotes inclusion of ﬁ rms in the world economy by expanding trade, raises the productivity of capital, and intensiﬁ es competition in the marketplace, which in turn induces innovation.
It brings opportunities to households by creating jobs, leverages human capital, and produces consumer surplus.

It enables citizens to access public services, strengthens government capa- bility, and serves as a platform for citizens to tackle collective action problems.

These beneﬁ ts are neither automatic nor assured, but in numerous instances digital technologies can bring signiﬁ cant gains.
12 WORLD DEVELOPMENT REPORT 2016 Figure O.9 How the three mechanisms apply to businesses, people, and governments DIGITAL TECHNOLOGIES INCLUSION EFFICIENCY INNOVATION BUSINESSES Trade Capital utilization Competition PEOPLE Job opportunities Labor productivity Consumer welfare GOVERNMENTS Participation Public sector capability Voice Source: WDR 2016 team.

The internet can lead to more trade, better capital use, and greater competition The ICT sector is a fairly modest part of the overall economy.
Its share in GDP is around 6 percent in OECD member countries and considerably less in developing countries (ﬁ gure O.10, panel a).

In the United States, home to 8 of the world’s 14 largest tech- nology companies by revenue, the contribution of the ICT sector to GDP is around 7 percent.

The corre- sponding number for Ireland is 12 percent—a country that does not boast its own Silicon Valley, but attracts many foreign ﬁ rms through its competitive business environment and favorable tax rates.
In Kenya, which hosts one of the largest ICT sectors in Africa, the value added share of ICT services in GDP was 3.8 percent in 2013.

The contribution of ICT capital to GDP growth has been fairly constant over the past two decades.

In high-income countries, it has fallen from 0.7 per- centage points in 1995–99 to 0.4 percentage points in 2010–14 (ﬁ gure O.10, panel b).
In developing countries, the contribution of ICT capital to GDP growth has been fairly modest—around 15 percent of growth— reﬂ ecting lower digital adoption.

With rapid diffusion of digital technologies into developing countries, this number could rise in the future.

In addition, the indi- rect contributions of ICT capital to economic growth, through improvements in total factor productivity (TFP), could be large as well, although rigorous evi- dence linking the two is still missing.
The rapid adoption of digital technologies in the economy has meant that its beneﬁ ts are widely dispersed and its indirect growth impacts difﬁ cult to estimate.

Like energy or transport, the internet has become an essential part of a country’s infra- structure—and a factor of production in almost any activity in a modern economy.

Isolating the impact of digital technologies is therefore difﬁ cult at an aggre- gate level.
Firm-level analysis provides a more reli- able picture.9 The internet enables many small ﬁ rms to participate in global trade, thus leading to more inclusion; it makes existing capital more productive, raising efﬁ ciency; and by stimulating competition, it encourages innovation.

Expanding trade The internet enables more products to be exported to more markets, often by newer and younger ﬁ rms.
A 10-percent increase in internet use in the exporting country is found to increase the number of prod- ucts traded between two countries by 0.4 percent.

A similar increase in internet use of a country pair increases the average bilateral trade value per prod- uct by 0.6 percent.10 Firms selling on eBay in Chile, Jordan, Peru, and South Africa are younger than ﬁ rms in the ofﬂ ine markets.11 In Morocco, rural artisans, some of them illiterate, sell globally through the Anou crafts platform.
At the other end of the spectrum, businesses trade on global e-commerce sites such as Alibaba’s in an online market that could reach more than US$6 trillion over the next ﬁ ve years.

Online platforms overcome trust and information problems through feedback and rating systems and by offering escrow and dispute resolution mechanisms.
Easier trade of intermediate products encourages further “unbundling” of production processes, not just in the markets for goods but also for services.12 Firms in India, Jamaica, and the Philippines have captured a share of these global markets for services that range from traditional back-ofﬁ ce services to long-distance online tutoring.
Improving capital utilization Perhaps the greatest contribution to growth comes from the internet’s lowering of costs and thus from raising efﬁ ciency and labor productivity in practi- cally all economic sectors.

Better information helps companies make better use of existing capacity, opti- mizes inventory and supply chain management, cuts downtime of capital equipment, and reduces risk.
In the airline industry, sophisticated reservation and pricing algorithms increased load factors by about one-third for U.S. domestic ﬂ ights between 1993 and 2007.

The parcel delivery company UPS famously uses intelligent routing algorithms to avoid left turns, saving time and about 4.5 million liters of petrol per year.

Many retailers now integrate their suppliers in Figure O.10 The size of the ICT sector and its contribution to GDP growth is still relatively modest a.
Share in GDP, OECD countries, 2011 b.
Contribution to GDP growth, 1995–2014 OVERVIEW 13 t n e c r e P 14 12 10 8 6 4 2 0 t n e c r e P 7 6 5 4 3 2 1 0 K orea, Rep. Japan C zech Republic U nited States D en m ark U nited Kingdo m S witzerland Finland Estonia C anada Luxe m bourg S w eden Slovak Republic H ungary Ireland France G reece N etherlands G er m any A ustria Portugal Iceland Belgiu m Slovenia Poland Spain N orw ay Italy 1 9 9 5–9 9 2 0 0 0–0 4 2 0 0 5–0 9 2 0 1 0–1 4 1 9 9 5–9 9 2 0 0 0–0 4 2 0 0 5–0 9 2 0 1 0–1 4 OECD average (6%) Developed countries Developing countries ICT capital All other factors Sources: OECD 2014; Conference Board Total Economy Database, January 2014; WDR 2016 team.
Data at http://bit.do/WDR2016-FigO_10.

Note: GDP = gross domestic product; ICT = information and communication technology; OECD = Organisation for Economic Co-operation and Development.

real-time supply chain management to keep inventory costs low.

Vietnamese ﬁ rms using e-commerce had on average 3.6 percentage point higher TFP growth than ﬁ rms that did not use it (ﬁ gure O.11).
Chinese car com- panies that are more sophisticated users of the inter- net turn over their inventory stocks ﬁ ve times faster than their less savvy competitors.

And Botswana and Uruguay maintain unique ID and trace-back systems for livestock that fulﬁ ll requirements for beef exports to the EU, while making the production process more efﬁ cient.
Advancing competition When fully automated internet-based services drive marginal transaction costs to zero, the consequences for market structure are somewhat ambiguous.

Low marginal costs imply large economies of scale, which favor natural monopolies.

In the ofﬂ ine world, such sectors—for example, electricity production—often require some form of regulation to protect consumer interests.

But the characteristics of internet-based services could also encourage competition.
Price- comparison websites, for example, should reduce prices for consumers, even though the evidence shows that price dispersion on the internet persists, in part because companies are getting better at price discrimination—offering different prices to different Figure O.11 Vietnamese ﬁ rms using e-commerce have higher TFP growth, 2007–12 s t n o p i t e g a n e c r e P 4 3 2 1 0 Labor productivity growth effect TFP growth effect e-commerce Internet use Source: Nguyen and Schiff bauer 2015 for the 2016 WDR.
Data at http://bit .do/WDR2016-FigO_11.

Note: For more details see ﬁ gure 1.9 in the full Report.

TFP = total factor productivity.

consumers based on search history, geographic loca- tion, or other information collected about buyers.

The internet can also facilitate market entry.

Inter- net ﬁ rms can start and scale up quickly with relatively little stafﬁ ng or capital investment.
Cloud comput- ing—the leasing of computing and data storage 14 WORLD DEVELOPMENT REPORT 2016 services—reduces startup costs and allows ﬁ rms to add capacity as the need arises, which also reduces risk to investors.

Although many internet ﬁ rms seem to operate in separate markets, most if not all com- pete with ofﬂ ine ﬁ rms.
Instant messaging apps com- pete with telecoms, search engines and social media sites compete with traditional media for advertising revenue, e-commerce ﬁ rms compete with brick-and- mortar ﬁ rms, and mobile money competes with tra- ditional banks.

Innovations triggered by this online- ofﬂ ine competition generally beneﬁ t consumers, especially when ofﬂ ine markets are distorted.
Trans- port service companies such as Uber, Lyft, Olacabs, and Didi-Kuaidi Dache have disrupted taxi markets that tend to be overregulated with restricted entry and high prices.

Similarly, TransferWise and Xoom have reduced regulatory rents in the ﬁ nancial sector and cut the prices of international currency transfers by up to 90 percent.

In Uganda, eKeebo allows independent or amateur chefs to provide and share home-cooked meals, circumventing restaurant licenses.
The internet supports job creation and makes workers more productive People have an enormous desire to communicate and connect.

The personal welfare gain from having access to digital technology is clearly great.

Does it also increase people’s economic opportunities?

People certainly use mobile phones and the internet more for social purposes than for professional ones.

But an emerging literature also indicates that people realize tangible economic beneﬁ ts.
Quantifying these beneﬁ ts is difﬁ cult, but qualitative evaluation of the evidence shows that beneﬁ ts accrue most to those already better off (table O.1).

Those who have the skills to leverage technology will have an advantage.

But even the poor beneﬁ t to some extent through indirect job creation and better access to work and markets.

As governments and the private sector get better at tailoring digital ser- vices to the poor, those gains will likely increase.
Creating jobs The number of direct jobs created by digital technol- ogies is fairly modest, but the number enabled by it can be large.

In developing countries, the ICT sector accounts for only about 1 percent of the workforce on average: less than 0.5 percent in Bolivia and Ghana, and just under 2 percent in Colombia and Sri Lanka.

In OECD countries, about 3–5 percent of the employ- ment is in this sector.
Instagram, a photo sharing app, had just 13 employees in 2012 when it was bought by Facebook for US$1 billion.

Facebook had 5,000 employ- ees at the time—compared with 145,000 at Kodak at its peak in photographic ﬁ lm in the 1990s.
Yet Facebook’s market value is several times what Kodak’s was back then.13 ICT jobs, however, tend to pay well, and each high-tech job generates 4.9 additional jobs in other sectors in the United States.14 In Kenya, the M-Pesa digital payment system creates additional income for more than 80,000 agents.
And China’s State Infor- mation Center estimates that the recent boom in the country’s e-commerce sector has created 10 million jobs in online stores and related services, about 1.3 percent of the country’s employment.

New opportu- nities for entrepreneurship and self-employment are also growing rapidly in the digital economy.

The internet’s ability to reduce transaction costs increases opportunities for people who face barriers in ﬁ nding jobs or productive inputs.
This promotes inclusion for women, for persons with disabilities, Table O.1 Beneﬁ ts of digital technologies for workers and consumers: A scorecard Channel Poor Nonpoor Poor Nonpoor Impact so far Potential impact In the ICT sector and occupations Negligible In sectors that use ICT L L M Negligible L Creating jobs Increasing worker productivity Increasing returns to human capital Connecting people to work and markets L M M H L H Increasing consumer surplus M H H Beneﬁ ting consumers Source: WDR 2016 team.
L M H H H Note: Poor refers to the bottom 20 percent of the welfare distribution.

The diff erential impact summarizes the discussion in chapter 2 in the full Report and is a qualitative assessment of the evidence.

ICT = information and communication technologies; L = low; M = medium; H = high.

OVERVIEW 15 Box O.3 Bridging the disability divide through digital technologies Over 1 billion people around the world have disabilities, and 80 percent of them live in developing countries.
Persons with disabilities face barriers to communicate, interact, access information, and participate in civic activities.

Digital technologies are helping overcome some of these barriers.

Technology enables multiple means of commu- nication—voice, text, and gestures—to access information and engage with others.

Voice recognition, magniﬁ cation, and text-to-speech functionality beneﬁ t persons with visual, cognitive, learning, and mobility disabilities.
Short message service (SMS), instant messaging, telephone relay, and video captions reduce communication barriers for persons with hearing and speech disabilities.

Hands-free navigation and gesture-controlled interfaces assist persons with severe mobility impairments in using digital devices.

But the mere existence of technology is an insuffi cient condition to bridge the gaps in the socioeconomic inclu- sion of persons with disabilities.
A supportive ecosystem is needed to drive the implementation of accessible digital technologies.

Source: Raja 2015, for the WDR 2016. and for people in remote areas (box O.3).

Impact out- sourcing brings internet-based jobs to the poor and vulnerable.

The government of the Indian state of Kerala set up the Kudumbashree project to outsource information technology services to cooperatives of women from poor families; 90 percent of the women had not previously worked outside the home.
Sama- source and Rural Shores link clients in the United States and the United Kingdom with workers in Ghana, Haiti, India, Kenya, and Uganda.

Of global online workers on the Elance freelancing platform, part of Upwork, 44 percent are women, and many wish to balance work and family life.

Among respon- dents to a survey of online workers for this Report, the ability to work ﬂ exible hours from home is con- sidered the greatest advantage of online work.
Increasing labor productivity For the economy as a whole, the most profound impact of the internet on individuals is that it makes workers more productive.

By handing off routine and repetitive tasks to technology, workers can focus on activities with higher value.

Judicious use of massive open online courses (MOOCs) or online teaching tools like Khan Academy lets teachers spend more time fostering discussion and working with students who fall behind.
Researchers can dedicate more time thinking and innovating rather than searching for information or duplicating other people’s work.

Managers can work more easily with teams across borders.

These beneﬁ ts are largest for the higher skilled.

In fact, there has never been a better time to be a high-skilled worker, as the returns to education remain high—almost 15 percent for an additional year of tertiary education in developing countries.
The biggest gains from digital technologies for the poor are likely to come from lower information and search costs.
Technology can inform workers about prices, inputs, or new technologies more quickly and cheaply, reducing friction and uncertainty.15 That can eliminate costly journeys, allowing more time for work and reducing risks of crime or trafﬁ c accidents (box O.4).16 Using technology for information on prices, soil quality, weather, new technologies, and coordination with traders has been extensively documented in agriculture (see sector focus 1 in the full Report).
In Honduras, farmers who got market price information via short message service (SMS) reported an increase of 12.5 percent in prices received.17 In Pakistan, mobile phones allow farmers to shift to more perishable but higher return cash crops, reducing postharvest losses from the most perishable crops by 21–35 percent.18 The impacts of reduced information asymmetries tend to be larger when learning about information in distant markets or among disadvantaged farmers who face more information constraints.19 Increasing the consumer surplus Where the internet has led to a full automation of services, many jobs have been lost—few travel agents, booksellers, or music store employees are left.
But these same dynamics have been a boon to consum- ers.

There are new digital goods and services—such as e-books, digital music, and search engines.

And the internet has transformed existing ones—such as taxi 16 WORLD DEVELOPMENT REPORT 2016 Box O.4 Digital dividends and the bottom billion The poor beneﬁ t from digital technologies, but only modestly in relation to the true potential.
Nearly 7 of 10 people in the bottom ﬁ fth of the population in developing countries own a mobile phone, improving their access to markets and services.
In rural Niger, agricultural price infor- mation obtained through mobile phones reduces search costs by 50 percent.a In rural Peru, access to mobile phones boosted household real consumption by 11 percent between 2004 and 2009, reducing poverty by 8 percentage points and extreme poverty by 5.4 percentage points.b The poor can beneﬁ t from digital technologies even when they don’t own a mobile phone or a computer.
For exam- ple, a digital ID, by giving millions of poor people an offi cial identity, increases their access to a host of public and private services.

In Narma Dih—a village in Bihar, India, with no electricity or all-weather roads—poor farmers beneﬁ t from digitally enabled agricultural extension services from Digital Green, an NGO (nongovernmental organization) that trains farmers using locally produced how-to videos.c connected to the internet.
In the Central African Republic, one month of internet access costs more than 1.5 times the annual per capita income.

Even mobile phones are expen- sive: the median mobile phone owner in Africa spends over 13 percent of her monthly income on phone calls and text- ing.

And many poor lack the basic literacy and numeracy skills needed to use the internet.

In Mali and Uganda, about three-quarters of third-grade children cannot read.

In Afghanistan and Niger, 7 of 10 adults are illiterate.
In advanced economies the poor face the prospects of stagnant wages and fewer opportunities, as they are increasingly forced to compete with those displaced by automation.

Digital technologies can also exacerbate socioeconomic disparities.
For example, the internet voting on municipal budget proposals in the state of Rio Grande do Sul in Brazil and citizen engagement initiatives such as Uganda’s U-report show that the new users are more likely to be male, young, university educated, and wealthy—those already better off before the internet’s advent.d Yet the poor are capturing only a modest share of the digital dividends.

While a majority of the poor have a mobile phone, they can’t access or aff ord the internet.
In Latin America, fewer than 1 in 10 poor households is Rapid technological progress will increasingly enable the poor to aff ord and use many digital services.

But their ability to reap dividends from these investments will be largely determined by providing the analog complements.

Source: WDR 2016 team.

a. Aker and Mbiti 2010. b. Beuermann, McKelvey, and Vakis 2012. c. Chomitz 2015. d. Spada and others 2015; Berdou and Lopes 2015. and hospitality services, health, education, and retail.
This has increased the variety of goods and services available, including those for leisure.

The internet thus enhances consumer welfare, but in ways that are hard to measure.

People’s perceptions are that digital technologies have certainly made them better off.
In 12 countries surveyed in Africa, 65 percent of people believe that their family is better off because they have mobile phones, whereas only 20 percent disagree (14.5 per- cent not sure).20 And 73 percent say mobile phones help save on travel time and costs, with only 10 per- cent saying otherwise.

Two-thirds believe that having a mobile phone makes them feel more safe and secure.

Some studies have attempted to quantify the economic value of these gains.
A McKinsey survey of consumers in France, Germany, the Russian Fed- eration, Spain, the United Kingdom, and the United States in 2010 found that a household is willing to pay an average of US$50 a month for services it now gets for free on the internet.

Time-use data in the United States suggest that the median individual gains more than US$3,000 annually from the internet.

In Estonia, digital signatures saved 20 minutes per transaction.
And a study of the time costs of searching for infor- mation shows that the average online search tends to be 15 minutes faster, the results are more accurate and relevant, and the experience more enjoyable than ofﬂ ine search in a library.

On average, people might realize a consumer surplus as high as US$500 a year from such services, adding up to vast beneﬁ ts when aggregated over all users.
The internet can make governments more capable and responsive Governments provide services that are typically nontradable, often lack scale, and are not subject to market competition.

Raising efﬁ ciency in the public OVERVIEW 17 sector is thus challenging, and one might expect the internet to bring large beneﬁ ts in public service provision.

There are indeed many examples where the internet has raised the capabilities of the public sector.
Better tools for communicating with citizens and providing information also allow greater partici- pation—through inclusion in government assistance programs, or feedback to and monitoring of public ofﬁ cials.

And the internet helps citizens to connect online and organize for collective action in order to put pressure when government performance falls short of people’s expectations.
Expanding participation Lack of identity is an impediment for poor people to exercise their basic democratic and human rights.

Where civil registration systems are weak or non- existent, many of the poor are simply not counted.

Digital identiﬁ cation can help overcome barriers to participation.
Many countries have introduced general- purpose digital identity (ID) schemes or speciﬁ c systems for elections or to manage postcon- ﬂ ict transfers—with numerous beneﬁ ts, including making the public sector more efﬁ cient.

Nearly 900 million Indians have been issued digital IDs in the past ﬁ ve years, which they are using to open bank accounts, monitor attendance of civil servants, and identify recipients of government subsidies.
Nigeria’s e-ID revealed 62,000 public sector “ghost workers,” saving US$1 billion annually.

But the most important beneﬁ t may be in better integrating marginalized or disadvantaged groups into society.

Digital technologies also enable the poor to vote by providing them with robust identiﬁ cation and by curtailing fraud and intimidation through better monitoring.

Mobile phones enable citizens to report instances of violence and voter intimidation, improv- ing electoral participation.
In Mozambique, SMS messages allowed citizens to report electoral irregu- larities and increased voter turnout by 5 percentage points.21 Ushahidi and Uchaguzi are crowdsourced applications that report and map election violence in Kenya.

By multiplying the sources of information, the internet can reduce the risk of media capture and make censorship difﬁ cult.

Improving public sector capability The internet raises efﬁ ciency and productivity through automation and data-driven management.
Almost all countries have tried to automate tax and customs administration, as well as budget preparation, execution, and accounting.

Results have been mixed.

E-ﬁ ling reduces tax compliance costs, and one-stop computerized service centers and online portals have improved service efﬁ ciency.

E-procurement helped India and Indonesia inject more competition into the process by increasing the probability that the win- ning bidder comes from outside the project’s region.
This also improved the quality of infrastructure.

But a majority of public sector digital technology projects fail to achieve the project objectives, resulting in con- siderable ﬁ scal waste.22 Digital technologies can also improve management by monitoring the performance of workers.
A small but growing impact evaluation literature reports generally positive effects of technology-based monitoring on worker absenteeism when combined with other insti- tutional reforms.23 In Uganda, where teacher absen- teeism is estimated at 27 percent, head teachers use mobile phones to record attendance and transmit data to a central database that generates weekly reports.

Combined with incentive pay for teachers tied to atten- dance, the program reduced absenteeism by 11 percent- age points.
The internet also provides real-time data for better planning and management of service facilities.

In Ghana, Kenya, Tanzania, and Zambia, health work- ers use mobile phones to report counterfeit drugs and stock-outs.

Aggregated in a central database and geo- graphically mapped, this information helps adminis- trators address drug and equipment shortages.

Providing citizens the opportunity to give speciﬁ c feedback quickly has helped improve performance in many instances.
Mobile-phone apps like SeeClickFix and FixMyStreet in the United States and the United Kingdom let users report potholes, grafﬁ ti, and illegal dumping.

Governments can report back on ﬁ xes, clos- ing the feedback loop.

Internet call centers enabling citizens to report problems and track the status of their requests are now standard in Barcelona, Buenos Aires, Muscat, Rio de Janeiro, Seoul, and Ulaanbaatar, to name a few cities.
The Nairobi water company uses MajiVoice, and one of the electricity supply com- panies in the Dominican Republic, EDE Este, uses a similar system to receive complaints, track their reso- lution through an automated workﬂ ow, and regularly update citizens on progress.

When implemented well, citizens eagerly take up the opportunity to give feed- back, and resolution time declines (see ﬁ gure O.12).
Advancing voice Governments, particularly those in digitally advanced countries like Estonia, the Republic of Korea, and Singapore, are beginning to take advantage of data analytics and digital platforms for faster, more informed, and integrated policy making.

The internet also opens new avenues for participatory democracy.
Iceland has experimented with crowdsourcing its constitution, and Brazil and Estonia have explored 18WORLD DEVELOPMENT REPORT 2016The risks: Concentration, inequality, and controlSo, the internet can be an effective force for develop-ment.

But as the Report documents, the beneﬁ ts too often are not realized, and the internet sometimes makes persistent problems worse.

Why?
Why?

The key insight is that for complex occupations, business activities, or public services, the internet usually can make only a portion of tasks cheaper, more efﬁ cient, or more convenient through automation.

Another portion still requires capabilities that humans possess in abundance but computers do not.

Many traditional tasks of an accountant or bank teller are now auto-mated, such as making calculations or processing withdrawals.
Others require complex reasoning or socioemotional skills, such as designing tax strategies or advising clients.

Likewise, many public services involving provision of information or routine permis-sions can be automated.

But others, such as teaching or policing, need a high degree of human discretion, tacit knowledge, and judgment.Many problems and failures of the internet sur-face when digital technology is introduced but the important analog complements remain inadequate.

What are these complements?
The main ones are regulations that ensure a high degree of competition, skills that leverage technology, and institutions that are accountable (ﬁ gure O.13).• When the internet delivers scale economies for ﬁ rms but the business environment inhibits com-petition, the outcome could be excessive concen-tration of market power and rise of monopolies, inhibiting future innovation.• When the internet automates many tasks but workers do not possess the skills that technology augments, the outcome will be greater inequality, rather than greater efﬁ ciency.• When the internet helps overcome information barriers that impede service delivery but govern-ments remain unaccountable, the outcome will be greater control, rather than greater empowerment and inclusion.The interplay between internet investments and reforms in complementary areas is at the core of pol-icy debates about technology impacts.
A 2008 study by Claudia Goldin and Lawrence Katz,27 drawing on earlier work by Jan Tinbergen, framed these dynam-ics in the labor market as a “race between education and technology.” As technology progresses, some skills become obsolete.

Workers must acquire new participatory lawmaking.

By dramatically lowering the cost of communication and coordination, social media can overcome the traditional barriers to citizen collective action.
A growing empirical literature has also shown that cellphones and the use of Twitter and Facebook aided protests during the Arab Spring in the Arab Republic of Egypt,24 antiwar demonstrations in the United States,25 and citizen mobilization across Africa.26 Source: WDR 2016 team.Informationwithout accountabilityAutomationwithout skillsScalewithout competitionDIGITALTECHNOLOGIESINEQUALITYCONCENTRATIONCONTROLFigure O.13 Without strong analog complements, opportunities may turn into risks010,00020,00030,00040,00050,00060,000020406080100120June2013December2013June2014December2014Number of cumulative complaintsDays to resolveResolution timeComplaints submittedComplaints resolvedMajiVoiceintroducedSource: World Bank 2015.
Data at http://bit.do/WDR2016-FigO_12.Note: For more details see ﬁ gure 3.11 in the full Report.Figure O.12 More complaints were resolved more quickly in the Nairobi water utility after the introduction of digital customer feedback skills that help them become more productive with the help of that technology.

Adjustment takes time and will be painful for many, but this is how econo- mies progress.
The sections that follow discuss risks and complements in the private sector, in labor mar- kets, and in the public sector.

Growing concentration: The nexus between regulations and technology One of the main mechanisms for the internet to pro- mote economic growth is competition.

Information ﬂ ows increase and speed up so that customers have more choice and can compare prices more easily.

Firms that use technology more effectively will do well and force others to follow suit.
There is consid- erable evidence that this is happening throughout the economy, but three potential problems could emerge.

First, while the internet has spread quickly in the private sector of some countries, adoption among non-ICT ﬁ rms has been slow in other countries.

Larger, fast-growing, skill-intensive, export-oriented, and urban ﬁ rms tend to use digital technologies more.

The causes of these differences are not well understood.
Differences in adoption rates may simply reﬂ ect differences in income, sector characteristics, and management capabilities, but they could also be due to barriers to adoption (ﬁ gure O.14).

One possibil- ity is high import duties for digital goods and services in some countries.

Another is market distortions and protections that allow ﬁ rms to maintain proﬁ ts without threats from more innovative entrants.
For example, ﬁ rms in Mexico that faced competition from China increased the number of computers per employee and became twice as likely to use the inter- net for purchasing as those that didn’t face signiﬁ cant competition.

Second, when online businesses enter the turf of their ofﬂ ine counterparts, disruption can be great, and regulators are often unsure whether or how to react.

Recently, “on-demand economy” ﬁ rms Uber and Airbnb have challenged established taxi and hotel industries.
Their platform business model is scalable and global and has spawned numerous local imitators.

In cities from Paris to Delhi to Beijing, the reaction has been a scramble by ofﬂ ine incum- bents to keep these new competitors out, usually by appealing to regulators to enforce established sector regulations such as the knowledge of the city (in the case of London cabbies) or insurance requirements.

This can be a valid appeal when regulations protect public safety and ensure minimum service levels.
But these new models often succeed because they enter heavily distorted markets with virtual monopolies OVERVIEW 19 Figure O.14 Factors explaining the lower adoption of digital technologies by businesses Vested interests Regulatory uncertainty Digital economy (4–5% of GDP; 1–2% of jobs) Digital monopoly Analog economy Source: WDR 2016 team.

or oligopolies.
or oligopolies.

The risk of allowing underregulated entrants into a market must therefore be weighed against the beneﬁ ts to consumers from lower prices and greater convenience.

The third potential risk comes from the dominant position of many online platforms and internet inter- mediaries.

Economic history shows that ﬁ rms are tempted to exploit a dominant position.

Large inter- net ﬁ rms may be no exception.


The economics of the internet favor natural monopolies,28 and some plat- forms now dominate their markets.

They enjoy such high proﬁ ts that they can quickly capture new mar- kets by buying out competitors or developing a rival service; local startups, including those in developing countries, are left with tiny niche markets.

Some of the biggest internet ﬁ rms now face scrutiny from regulators.
Google, which captures almost one-third of global digital advertising revenue,29 has been inves- tigated for preferential placement of its own prod- ucts, exploiting third-party content, and exclusionary practices in its placement of advertising.30 Amazon, the largest sales platform for book publishers, has used its market power to enforce its pricing policies.

Safaricom, operating the M-Pesa payment system, resisted the entry of competing service providers.
The vast amount of identiﬁ able personal information that many of these companies collect raises further challenges (box O.5).

It is too early to tell whether these problems will diminish the overall economic beneﬁ ts from the internet or be mitigated by the sector’s low entry costs and rapid technological change.

Consumers have generally beneﬁ ted from the internet-based busi- ness models of existing and new ﬁ rms.
Markets are extremely dynamic, so many advantages from scale or moving ﬁ rst may be temporary.
And greater size 20 WORLD DEVELOPMENT REPORT 2016 Box O.5 What Facebook “Likes” reveal—the convenience-privacy trade-off When economists such as George Stigler and Richard Posner wrote about privacy and economics in the early 1980s, they raised many issues debated today, but at that time the “storage and retrieval of information, and its accu- rate dissemination, [were] often extremely expensive.”a Today, an enormous collection of identiﬁ able information is making service delivery more effi cient and more relevant.
Service providers can better target or price their products based on known characteristics and preferences.

Search engines provide more relevant search results.

Health and auto insurers can better price premiums with veriﬁ able information about exercise or driving behavior.

And gov- ernments can use data systems to reduce the bureaucratic burden for citizens.

In Estonia’s e-government system, citizens never have to provide the same information twice.
The problem is that few people know how these large amounts of data are collected and used—and who controls them.

Users are not always aware of and providers often don’t tell what information is collected.

The secret snoop- ing by governments can be for legitimate law enforcement reasons, but sometimes violates laws and rights, as the Edward Snowden revelations about spying by the security agencies of the United States, the United Kingdom, and others have shown.
A consequence has been a new “data nationalism,” where countries are demanding that data about their residents be stored within their territory or favoring domestic technology that may be inferior or more expensive, but is trusted more.

Data collectors often sell the data to others.

One data broker assembled an average of 1,500 pieces of informa- tion about more than half a billion consumers worldwide from information people provided voluntarily on various websites.
But even easily accessible data such as Facebook including “Likes” can predict sensitive characteristics “sexual orientation, ethnicity, religious and political views, personality traits, intelligence, happiness, use of addictive substances, parental separation, age, and gender.”b And smartphone sensors can infer a user’s “mood, stress levels, personality type, bipolar disorder, demographics (e.g., gen- der, marital status, job status, age), smoking habits, overall wellbeing, progression of Parkinson’s disease, sleep pat- terns, happiness, levels of exercise, and types of physical activity or movement.”c The risks?
Cybercrime such as identity theft when data stored insecurely fall into the wrong hands.

Discrimination when customers are charged a higher premium or inter- est rate, or denied a job based on erroneous information they can’t easily correct.

Persistence of dated information that denies protection from embarrassing but irrelevant information or a second chance, which prompted Europe’s “right to be forgotten” ruling.

And perhaps most impor- tant, reduced trust and thus suboptimal use of the internet.
These concerns vary across societies.

Fifty-eight percent of Nigerians and 57 percent of Indians believe private infor- mation on the internet is very secure, but only 18 percent of French and 16 percent of German respondents do.d Sources: WDR 2016 team, based on Peppet 2014; Castro 2013; Economist 2014; Kosinski, Stillwell, and Graepel 2013. a. Posner 1981. b. Kosinski, Stillwell, and Graepel 2013. c. See Peppet (2014) for individual references.
d. CIGI and Ipsos 2014. allows large ﬁ rms to provide services and products at low cost or free of charge, and their high proﬁ ts fuel investments in research and development (R&D).

At the same time, it is clear that competition and market structure on the internet are in many ways not so dif- ferent from the ofﬂ ine world.

Policies need to ensure that all innovative companies can enter markets and compete on equal terms.
Otherwise, the economic performance between ﬁ rms of different size and in different countries could diverge further and contrib- ute to similarly divergent performance of national economies.

Rising inequality: The race between skills and technology If the internet and related technologies promote growth, how are the gains shared in the labor market?

While digital technologies raise productivity and enhance overall welfare, labor market disruptions can be painful and can result in higher inequality.
Global trends provide some indication.
One is that the share of national income that has gone to labor, especially routine labor, has fallen quite sharply in many developing countries—though Brazil and Ukraine are exceptions (ﬁ gure O.15).31 Inequality has Figure O.15 Labor shares of national income are falling in many countries, including some developing countries Figure O.16 Falling labor shares in national income are associated with rising inequality Change in Gini coeffi cient vs. growth in labor share in national income, 1995–2010 OVERVIEW 21 Trends in labor shares in output since 1975 percentage points every 10 years Poland Mexico Hungary Estonia Bahrain Slovenia Lithuania South Africa Norway Luxembourg Micronesia, Fed.
Sts.

Namibia Latvia New Zealand China Finland Tunisia Argentina Slovak Republic Germany Austria Sweden France Italy Australia Taiwan, China Canada Japan Denmark Switzerland United States Netherlands Belgium Czech Republic Spain Singapore United Kingdom Portugal Bolivia Turkey Armenia Colombia Kenya Thailand Costa Rica Iceland Belarus Moldova Korea, Rep. Ukraine Brazil –15 –10 –5 0 5 10 Change in labor shares in national income Source: Karabarbounis and Neiman 2013.

Data at http://bit.do /WDR2016-FigO_15.


n i t n e i c i f f e o c i i n G e h t n i e g n a h C ) % ( e m o c n i r o n o i t p m u s n o c 30 25 20 15 10 5 0 –5 –10 –15 –20 CHN FIN DNK LVA BGR EST CRI NOR ITA ESP GBR HND GRC PAN ARG TUN BLR PRY IRL –30 –25 –20 –15 –10 –5 0 Change in the share of national output going to labor (%) Source: Eden and Gaggl 2015, for the WDR 2016.

Data at http://bit.do/WDR2016-FigO_16.


increased more where this shift in incomes toward capital and away from labor has been higher (ﬁ gure O.16).

A number of recent studies have linked techno- logical change to this rising inequality (see chapter 2 in the full Report).

A related trend is the polarization—or “hollow- ing out”—of the labor market, not only in advanced economies, but increasingly also in many developing countries.
The share of employment in high-skilled occupations is up, as is the share of low-skilled jobs.

The share of middle-skilled employment, in contrast, is down in most developing countries for which detailed data are available (ﬁ gure O.17).

And these types of jobs are often near the top of the income distribution in low-income countries, as in Africa.
A notable exception to these global trends is China, where growing mechanization in agriculture has led to a (perhaps temporary) increase in routine, mid- level labor.

Exceptions also include some countries rich in natural resources and commodity exporters, which include several countries in Central Asia and Latin America.

What explains all this?


Machines can increasingly perform routine tasks more quickly and cheaply than humans, and much of what is considered nonroutine today—such as translation, insurance underwriting, or even medical diagnostics—computers might do just as well tomorrow.
Unlike previous technolog- ical transformations such as the mechanization of 22 WORLD DEVELOPMENT REPORT 2016 Figure O.17 The labor market is becoming more polarized in many developing countries Annual average change in employment share, circa 1995–circa 2012 s t n o p i t e g a n e c r e P 2.0 1.5 1.0 0.5 0 –0.5 –1.0 –1.5 –2.0 –2.5 South Africa H onduras M alaysia Philippines D o minican Republic Pana m a Tanzania M auritius G uate m ala Turkey M acedonia, FYR U kraine U ganda Serbia El Salvador Bolivia Thailand Egypt, Arab Rep. Ja m aica India Sri Lanka Bhutan M ongolia C osta Rica N a mibia Kazakhstan Pakistan G hana Ethiopia Botsw ana Nicaragua Barbados Peru C hina High-skilled occupations (intensive in nonroutine cognitive and interpersonal skills) Middle-skilled occupations (intensive in routine cognitive and manual skills) Low-skilled occupations (intensive in nonroutine manual skills) Sources: WDR 2016 team, based on ILO KILM (ILO, various years); the International Income Distribution database (I2D2; World Bank, various years); National Bureau of Statistics of China (various years).
Data at http://bit.do/WDR2016-FigO_17.

Note: The ﬁ gure displays changes in employment shares between circa 1995 and circa 2012 for countries with at least seven years of data.

The classiﬁ cation follows Autor 2014.

High-skilled occupations include legislators, senior offi cials and managers, professionals, and technicians and associate professionals.

Middle-skilled occupations comprise clerks, craft and related trades workers, plant and machine operators and assemblers.
Low-skilled occupations refer to service and sales workers and elementary occupations.

For more details see ﬁ gure 2.15 in the full Report.

agriculture or the automation of manufacturing, the internet affects well-paying white-collar jobs even more than blue-collar jobs.

Some mid-level workers will have additional skills that allow them to switch to better-paid nonroutine occupations in which technology tends to augment human capital and make skilled workers more pro- ductive.
These workers will gain from technological disruption.

In developing countries, returns to educa- tion are highest among those with tertiary education, and they are higher and rising faster in ICT-intensive occupations.32 Those who do not have such skills will need to seek work in lower-skilled, nonroutine occu- pations, such as janitorial services, hospitality, or per- sonal care.
Demand for such services could increase, but perhaps not enough to prevent downward wage pressure as the available workforce in these sectors grows.

These dynamics are consistent with the rising returns to education and income inequality we see in many countries.

The implications for developing countries depend on the pace of technological disruption.
The share of occupations that could experience signiﬁ cant auto- mation is actually higher in developing countries than in more advanced ones, where many of these jobs have already disappeared (ﬁ gure O.18).

But it will likely take longer in lower-income countries.

Most of them are still fairly low-tech, with only about one- third of urban jobs in a sample of developing coun- tries using any ICTs at work.
And wage rates are still low, with a larger share of manual nonroutine labor, so investments in technology will be less proﬁ table for ﬁ rms.

This does not mean, however, that lower - income countries need not pay attention to these trends.

Most important, even without signiﬁ cant employment shifts, the nature of jobs is changing toward skills that remain hard for technology to emu- late: that is, advanced cognitive and socioemotional skills.
The policy response, besides rethinking social protection systems, is better and more responsive education and training—areas where reforms take many years to pay off.

It is important to keep in mind the historical per- spective that job displacement and job losses from technological change are an integral part of economic progress.
It is precisely rising productivity—as tech- nology replaces some human labor but augments the skills of remaining and new workers—that generates Figure O.18 From a technological standpoint, two-thirds of all jobs are susceptible to automation in the developing world, but the eff ects are moderated by lower wages and slower technology adoption Estimated share of employment that is susceptible to automation, latest year OVERVIEW 23 100 80 60 40 20 n a c t a h t ) % ( est Bank and G aza G eorgia U zbekistan Kyrgyz Republic Tajikistan Nigeria U kraine C a m bodia Bolivia Nicaragua C osta Rica India Thailand Ro m ania M alaysia El Salvador Ecuador A ngola Albania Ethiopia Bangladesh G uate m ala M auritius N epal South Africa Serbia Pana m a D o minican Republic M ongolia Bulgaria Paraguay M acedonia, FYR C hina Lithuania M alta O E C D Argentina Croatia Latvia C yprus Seychelles Uruguay Adjusted (technological feasibility + adoption time lags) Unadjusted (technological feasibility) Source: WDR 2016 team.
See ﬁ gure 2.24 in the full Report for more details.

Data at http://bit.do/WDR2016-FigO_18.

Note: For more details see ﬁ gure 2.24 in the full Report.

OECD = Organisation for Economic Co-operation and Development.

growth and frees human and ﬁ nancial resources for deployment in sectors with higher returns.

It also reduces the need for humans to do physically hard, repetitive, or dangerous work.
Such trends will be welcome in countries that are rapidly aging or where the population is declining, or in professions where skills are in short supply.

Telemedicine and automated diagnostics, for instance, allow medical experts to serve many more people, even remotely in areas with a shortage of doctors.

And fears of “technological unemployment” go back to the industrial revolution.

Even such think- ers as the economist John Maynard Keynes and the writer Isaac Asimov submitted to this fallacy.
Keynes, in the 1930s, predicted 15-hour workweeks by the end of the 20th century, and Asimov, in a 1964 essay, expected that one of the most pressing problems for humanity by 2014 would be boredom “in a society of enforced leisure.” Yet over the centuries, economies have adapted to massive changes in labor markets— the largest by far, being the shift out of agriculture.

In 1910, there were 12 million farmworkers in the United States.
One hundred years later, there were only 700,000 in a population more than three times larger.

Still, nobody can predict the full impact of techno- logical change in coming decades, which may be faster and broader than previous ones.

What is clear, however, is that policy makers face a race between technology and education, and the winners will be those who encourage skill upgrading so that all can beneﬁ t from digital opportunities.
Engendering control: The gap between institutions and technology The internet was expected to usher in a new era of accountability and political empowerment, with citizens participating in policy making and forming self-organized virtual communities to hold gov- ernment to account.

These hopes have been largely unmet.


While the internet has made many govern- ment functions more efﬁ cient and convenient, it has generally had limited impact on the most protracted problems—how to improve service provider account- ability (principal-agent problems) and how to broaden public involvement and give greater voice to the poor and disadvantaged (collective action problems).
Whether citizens can successfully use the internet to raise the accountability of service providers depends on the context.

Most important is the strength of existing accountability relationships between policy makers and providers, as discussed in the 2004 World Development Report, Making Services Work for Poor People.
An examination of seventeen digital engagement ini- tiatives for this Report ﬁ nds that of nine cases in which citizen engagement involved a partnership between civil society organizations (CSOs) and government, 24 WORLD DEVELOPMENT REPORT 2016 Table O.2 Classifying the digital citizen engagement cases Case Location Por Mi Barrio Uruguay I Change My City India Lungisa Pressure Pan Rappler Change.org U-report Huduma South Africa Brazil Philippines World Uganda Kenya Daraja Maji Matone Tanzania FixMyStreet Georgia Check My School Philippines Barrios Digital e-Chautari I Paid a Bribe Bolivia Nepal India Mejora Tu Escuela Mexico Karnataka BVS India Sauti Za Wananchi Tanzania Additional offline mobilization CSO partners with government Impact Collective feedback Citizen uptake Government response Source: WDR 2016 team, based on Peixoto and Fox 2015, for the WDR 2016.
Note: Examples are arranged by degree of government response.

CSO = civil society organization.

L = low; M = medium; H = high.

three were successful (table O.2).

Of eight cases that did not involve a partnership, most failed.

This sug- gests that, although collaboration with government is not a sufﬁ cient condition for success, it may well be a necessary one.
Another ingredient for success is effective ofﬂ ine mobilization, particularly because citizen uptake of the digital channels was low in most of the cases.

For example, Maji Matone, which facil- itates SMS-based feedback about rural water supply problems in Tanzania, received only 53 SMS messages during its ﬁ rst six months of operation, far less than the initial target of 3,000, and was then abandoned.
Political participation and engagement of the poor has remained rare, while in many countries the inter- net has disproportionately beneﬁ ted political elites and increased the governments’ capacity to inﬂ uence social and political discourse.

Digital technologies have sometimes increased voting overall, but this has not necessarily resulted in more informed or more representative voting.
In the Brazilian state of Rio Grande do Sul, online voting increased voter turnout by 8 percentage points, but online voters were dis- proportionately wealthier and more educated (ﬁ gure O.19).

Even in developed countries, engaging citizens continues to be a challenge.

Only a small, unrepresen- tative subset of the population participates, and it is often difﬁ cult to sustain citizen engagement.
There is no agreement among social scientists on whether the internet disproportionately empowers citizens or political elites, whether it increases polarization, or whether it deepens or weakens social capital, in some cases even facilitating organized violence.

The use of technology in governments tends to be successful when it addresses fairly straightforward information and monitoring problems.
For more demanding challenges, such as better management of providers or giving citizens greater voice, technology helps only when governments are already responsive.

The internet will thus often reinforce rather than replace existing accountability relationships between governments and citizens, including giving govern- ments more capacity for surveillance and control (box O.6).
Closing the gap between changing technology and unchanging institutions will require initiatives that strengthen the transparency and accountability of governments.

Making the internet universal, aff ordable, open, and safe ICT policies First-generation involving market competition, private participation, and light-touch regulation have led to near-universal access and affordability of mobile telephony, but have so far been less successful in spreading internet services.
Much of the explanation lies in continued policy failures such as regulatory capture, troubled privatizations, inefﬁ cient spectrum management, excessive taxation of the sector, and monopoly control of international gateways.

At the same time the absence of global con- sensus in dealing with the next-generation issues— such as privacy, cybersecurity, censorship, and inter- net governance—is resulting in more circumspect and diverse approaches to regulating the internet (box O.7 and ﬁ gure O.20).
Supply-side policies: Availability, accessibility, and aff ordability A useful framework for analyzing supply-side ICT policies is to consider the value chain that stretches from the point where the internet enters a country (the ﬁ rst mile), passes through that country (the mid- dle mile) to reach the end user (the last mile), and cer- tain hidden elements in between (the invisible mile).
• The ﬁ rst mile can be improved by liberalizing the market for satellite dishes and eliminating monop- oly status over the international gateway and cable landing stations.
• Strengthening the middle mile involves liberalizing the market for building and operating backbone networks, encouraging open access to the incum- bent’s network, requiring all major infrastructure programs (such as roads, railways, pipelines, and energy distribution) to include provision for an optical ﬁ ber link, setting up internet exchange points, and creating local caches for frequently used content.
• Government policies can encourage the provision of last mile connectivity by permitting competing facilities, especially for intermodal competition (between cable, wireless, and digital subscriber OVERVIEW 25 Figure O.19 Internet voting can increase voter participation but can be biased toward more privileged groups Proﬁ le of online and offl ine voters in a participatory budgeting vote in Rio Grande do Sul, Brazil, 2011–12 60 50 40 30 20 10 0 t n e c r e P Fe m ale Ele m entary Secondary Higher < 7 5 0 7 5 0–1,5 0 0 1,5 0 0–6,0 0 0 > 6,0 0 0 Gender Education level Income level (BRL/month) Offline voters Online voters Source: WDR team, based on Spada and others 2015.
Data at http://bit.do/WDR2016-FigO_19.

Note: BRL = Brazilian real.

line), and mandating the incumbent to make local access lines available to competitors at wholesale prices (local loop unbundling).

• The most critical portion of the invisible mile involves spectrum management, which requires increasing the amount of spectrum available, ensuring competitive access, encouraging sharing of essential facilities, such as radio masts, and liber- alizing the market for spectrum resale.
In addition to pure ICT policies, almost everything that the private sector, citizens, or governments do on the internet requires some essential building blocks (box O.8).

Demand-side policies: Open and safe internet use The challenges facing internet stakeholders today are as much about how networks are used (demand) as how they are built (supply).

Global interconnected- ness introduces new vulnerabilities in areas where coordination mechanisms are weak, still evolving, or based on nongovernment models.
Threats to cyber- security, and censorship are undermining conﬁ dence and trust in the internet and increasing costs to busi- nesses and governments, resulting in economic losses 26 WORLD DEVELOPMENT REPORT 2016 Box O.6 Nailing Jell-O to the wall—restrictions on the ﬂ ow of information Governments also interfere directly with digital networks to control access to information.
An early internet pioneer, John Gilmore, claimed, “the Net interprets censorship as damage and routes around it.”a And Bill Clinton in 2000 said, “trying to control the internet is like trying to nail Jell-O to a wall.”b Yet private software vendors and state institutions have ﬁ gured out ways to censor access to inter- net content, whether by shutting down the entire national web domain, as the Arab Republic of Egypt did in 2011 for ﬁ ve days; by preventing access to speciﬁ c domestic or foreign websites; or by targeting individuals’ blog posts or other social media postings.
Google received 6,951 requests from governments in 2013 to remove content from search results, with the largest numbers from Turkey, the United States, and Brazil.

Other countries, including China and the Islamic Republic of Iran, block Google and some other internet sites completely, although such restrictions may change in the future.
Governments of all types restrict access to content such as child pornography, hate speech, insults, or criticisms of authority ﬁ gures, challenges to cultural or religious morals, or reporting of uprisings or accidents.

When accountable governments determine what should be censored, the result reﬂ ects broad societal preferences.

In autocratic countries, where use of the internet in government is often as high as in democratic countries (ﬁ gure BO.6.1), leaders face a dilemma.
If they permit open discourse on the inter- net, they risk challenges to their authority.

If they do not, they risk isolating themselves from the global information economy.

This is a balancing act, and countries are becom- ing more sophisticated in calibrating their control—for example, censoring content that might encourage collec- tive action, but not individual criticism.

Internet ﬁ ltering and censorship impose welfare and economic costs.
First, the cost of censoring or ﬁ ltering inter- net content diverts public funds from other uses.

Monitoring domestic internet traffi c and selectively blocking foreign websites requires large ﬁ nancial resources, technical know- how, and dedicated staff —all of which could be deployed for more productive tasks.

Second, ﬁ ltering and methods to circumvent it can slow the speed of internet access, which hurts business users.
Third, ﬁ ltering can restrict access to economically or scientiﬁ cally useful information, such as the Google Scholar search engine for academic papers— indispensable in universities and labs.
Fourth, in the view of the European Union, for instance, blocking foreign Figure BO.6.1 Autocratic governments have promoted e-government while censoring the internet a. e-government provision, by government type b. Internet filtering level, by government type x e d n i e c i v r e s e n i l n O 1.0 0.8 0.6 0.4 0.2 0 –10 Autocracy –5 0 5 10 Democracy Substantial Selective Suspected None Autocracy Democracy Type of content filtered Political Social Conflict and security Sources: WDR team, based on Polity IV 2015; UN 2014; Open Net Initiative 2013.
Data at http://bit.do/WDR2016-FigBO_6_1.

Note: The Polity IV project deﬁ nes government types based on characteristics such as competitiveness and openness of executive recruitment, constraints on the chief executive, and regulation and competitiveness of participation in the political process.

The combined score varies from –10 for a pure autocracy to +10 for a pure democracy.

See the Polity IV user’s manual for details.


(Box continues next page) OVERVIEW 27 Box O.6 Nailing Jell-O to the wall—restrictions on the ﬂ ow of information (continued) websites may be considered a nontariff trade barrier.

Local companies will ﬁ ll the gap.

This could be considered an economic beneﬁ t or transfer rather than a cost.

But it pre- vents domestic users’ access to possibly better products, and domestic champions will not face as much innovation- inducing competition.
Fifth, widespread censorship means that people avoid discussing and exchanging ideas openly, a prerequisite for an innovative and productive society.

Sources: WDR 2016 team, based on Saleh 2012; King, Pan, and Roberts 2013; Bao 2013; HRW 2015. a. Elmer-Dewitt 1993. b. Clinton 2000.

Box O.7 Is the internet a public good?

The internet does not have all of the characteristics of a pure public good.

Access to the internet often requires a fee, so individuals can be eff ectively excluded from its use.
But once on the internet, the consumption of information by one user does not reduce its availability to others, so in that sense it is nonrivalrous (although capacity constraints can slow down access).

One way to describe the internet is as a club good that is excludable but nonrivalrous, similar to cable television; or if bandwidth is scarce, as a private good with strong positive externalities—everyone beneﬁ ts as more people come online.
As more essential services and information migrate to the web, anyone without access almost becomes a second-class citizen.

And all citizens beneﬁ t when everyone else is better informed and when public services are provided electronically at lower cost.

The private sector should take the lead in providing internet infrastructure and services because the business case is usually compelling.
But public investment or inter- vention is sometimes justiﬁ ed where the private sector is unable to provide aff ordable access.

Historical precedents include the United States Communications Act of 1934, which called for universal “wire and radio communication service,” even in remote rural areas.

Some countries have gone further.

Finland, for example, has deﬁ ned access to the internet at broadband speeds as a legal right and pur- sues a universal access policy.

Source: WDR 2016 team.


Box O.8 The four digital enablers The WDR 2016 looks at how the internet increases produc- tivity of businesses, opportunities for people, and the eff ec- tiveness of governments.

Across these domains, four major enablers of digital development are critical.

Four spotlights in the Report discuss their beneﬁ ts and potential risks.

Digital ﬁ nance.
Digital ﬁ nance.

Banks have been early and eager adopters of digital technologies, but many of the major innovations, such as online payments, mobile money, and digital cur- rencies, have come from nonbank institutions, including telecom and internet companies.

Some of these innovations took root ﬁ rst in developing countries, where they over- came shortcomings in traditional ﬁ nancial systems.

Their beneﬁ ts are distributed widely.

Secure online payments fuel e-commerce.


Electronic transfers reduce the cost of sending remittances.

Peer-to-peer lending can vastly improve the ﬁ nancial access of startups.

Governments can make pay- ments and social transfers at lower cost and with less fraud and leakage.

However, if ﬁ nancial regulations don’t keep pace with the rapid technological progress, these innova- tions could risk aff ecting the stability of the overall system.

Social media.
Social media.

Social networks are fundamental to human society, and digital technologies have accelerated their formation.

More than one-ﬁ fth of the world’s population is now believed to be a member of one or more social media platforms.
These platforms have been credited with facilitat- ing economically beneﬁ cial interactions, channeling users’ (Box continues next page) 28 WORLD DEVELOPMENT REPORT 2016 Box O.8 The four digital enablers (continued) behavior in ways that are consistent with development, pro- viding a platform for information and dissemination during natural disasters and emergencies, and encouraging political mobilization and social change.
Some analysts think that social media played a critical role in recent events such as the Arab Spring and Occupy Wall Street, and thereby were instrumental in spreading democratic ideas, although many remain skeptical of their actual impact.

There is still much to learn about the role social media can play in development.

While a source for innovative ideas, social media also remain conduits for gossip, slander, misinformation, harassment, bullying, and crime.
One important lesson is that the impact of social media on development seems to be highly speciﬁ c to context.

Variation in access to technology, education, and broader sociopolitical context matters.

For instance, there is evidence that people in more autocratic countries are less likely to forward information (for example, by re-tweeting it).

Digital identity.

Being able to prove who you are may seem trivial, but it can be transformational for those excluded from jobs and services.
Simple electronic identiﬁ cation sys- tems, often using biometric characteristics, have become an eff ective platform for secure bank transactions, voting, accessing social services, paying utility bills, and much more.

Many countries, from Moldova to Nigeria and Oman, have introduced digital IDs.

India is on track to register its entire population using its Aadhaar digital ID.
In Estonia and other countries, thousands of diff erent types of public and private transactions are veriﬁ ed with a unique electronic ID system, including legally binding contracts and voting in national elections.

Data revolution.

In harnessing data for development, atten- tion focuses on two overlapping innovations: “big data” and open data.

Big data are voluminous or fast, and they come from myriad sources—from satellites to sensors and from clouds to crowds.
Big data analytics is being deployed to improve traffi c planning, estimate macro aggregates (also referred to as “nowcasting”), track the spread of epidemics, and improve credit scoring and job matching.

Open data are those that are freely and easily accessible, machine-read- able, and explicitly unrestricted in use.

Governments are, or could be, the most important source of open data.
Exuberant estimates of the current and potential economic value of big data and open data range from hundreds of bil- lions to trillions of dollars per year.

Yet sustained, impactful, scaled-up examples of big data and open data in developing countries are still relatively rare.

Most big data are in private hands—large telecom and internet companies—which are reluctant to share it for fear of jeopardizing customer pri- vacy or corporate competitiveness.
Public agencies, too, are reluctant to share data, even when they have large public beneﬁ ts.

For example, of countries surveyed by the Open Data Barometer, one-third of the high-income countries and 85 percent of developing countries had made little or no progress in opening map data.

Reasons include lack of technical skills, inadequate resources, and unwillingness to expose data to scrutiny.
Figure O.20 A policy framework for improving connectivity Supply side Universalizing connectivity Demand side Source: WDR 2016 team.
First mile Middle mile Last mile Invisible mile New technologies Competition policies Public-private partnership Effective regulation Censorship and content filtering Cybersecurity Online privacy Internet governance Awareness and investment Global cooperation Multistakeholder approach Open-access ecosystem for innovation, tech hubs, and maker spaces OVERVIEW 29 as well as higher security spending.

For privacy and data protection, different countries are taking quite different approaches.
That makes it harder to develop global services.

Ensuring safe and secure access will require enhanced international collaboration, based on a multistakeholder model.

• Workers, entrepreneurs, and public servants who have the right skills to take advantage of opportu- nities in the digital world • An accountable government that effectively uses the internet to empower its citizens and deliver services.
Analog complements for a digital economy The internet has great potential to promote economic development, but only some of that potential has so far been realized.

It disrupts established markets for products, services, and labor, and it disrupts the public sector—major reasons for the frequent reluc- tance to adopt and deploy the internet more broadly.

But the beneﬁ ts will come to those who embrace the changes the internet brings, not to those who resist them.
And the way to get internet-enabled inclusive growth without long-term disruption is to strengthen the analog complements of digital investments (box O.9).
Three policy objectives emerge from the analysis in the Report: • A business environment where ﬁ rms can leverage the internet to compete and innovate for the beneﬁ t of consumers What these priorities highlight is that core ele- ments of the development agenda—business regula- tions that ease market entry, education and training systems that deliver the skills that ﬁ rms seek, and capable and accountable institutions—are becoming more important with the spread of the internet.
Not making the necessary reforms means falling farther behind those who do, while investing in both tech- nology and its complements is the key to the digital transformation.

Internet use still varies greatly between countries, as does the quality of complements, and both tend to move up with income (ﬁ gure O.21).

Policy priorities change as countries move along the digital transfor- mation (ﬁ gure O.22).
Countries where internet use is still low should lay the foundation—such as removing barriers to internet access and adoption, promoting basic and digital literacy, and using the internet for elementary government functions like provision of information.

As countries transition to higher levels Box O.9 Technology and complements: Lessons from academic research Recent research on growth, labor markets, and governance has taken a fresh look at the interplay between technology and other factors.
These insights inform the discussion of policy priorities in this Report.

Rules.

Technology interacts with rules (such as regulations and standards) to create new ideas, such as new ways of producing goods and services.

Technology is traded across markets and borders, while most rules are established locally.

When it encounters rules that do not match, tech- nology fails to deliver the expected beneﬁ ts.
New busi- nesses can acquire internet technology to reduce prices and increase convenience for consumers, but they will not be able to enter the market and compete if local regulations protect incumbents.

Skills.

Technology interacts with workers’ skills.

It allows routine tasks to be automated.

Workers with the right Sources: Romer 2010; Autor 2014; Pritchett, Woolcock, and Samji, forthcoming.

abilities will leverage technology to become more produc- tive.
Consider a modern offi ce assistant who uses digital technologies to perform routine tasks quickly, and now spends far more time on personal interaction, complex scheduling, and other tasks that computers cannot easily perform.

Institutions.

Technology interacts with discretion.

Many tasks in government can also be automated, but others involve a high degree of judgment.
That means that even as the internet can make many public service functions more effi cient, the beneﬁ ts will be limited when government offi cials and workers do not have the incentives to use the technology for the public good.

Teacher attendance can be fairly easily monitored using digital technologies, but the quality of teaching depends on the teacher’s training, resources, ability, and motivation.
30WORLD DEVELOPMENT REPORT 2016the internet for most functions of government and for more participatory policy making.Regulations that promote competition and entryDigital adoption by ﬁ rms varies among countries, and there are reasons for it to be slow.

Most funda-mentally, adoption requires knowledge about the technology, access to it, and knowledge of how to best apply it.
But the most important driver is com-petitive pressure, as ﬁ rms adopting new technology of internet use, they require effective competition regulation and enforcement—including easy ﬁ rm entry and exit; a greater focus on advanced cognitive and socioemotional skills that are augmented by tech-nology; and effective e-government delivery systems for provider management and citizen engagement.

Countries in advanced stages of the digital transfor-mation need to tackle some of the most challenging tasks.
They need to ﬁ nd ways to facilitate “new econ-omy” competition, to ensure lifelong learning and respond to the changing nature of work, and to use Figure O.21 The quality of complements and technology rises with incomesSource: WDR 2016 team.

For more details see ﬁ gure 5.3 in the full Report.

Data at http://bit.do/WDR2016-FigO_21.Note: Technology is measured by the Digital Adoption Index (DAI).
DAI is based on three sectoral subindexes covering businesses, people, and governments, with each subindex assigned an equal weight: DAI (Economy) = DAI (Businesses) + DAI (People) + DAI (Governments).

Each subindex is the simple average of several normalized indicators measuring the adoption rate for the relevant groups.
Similarly, complements is the average of three subindicators: starting a business; years of education adjusted for skills; and quality of institutions.EMERGINGTRANSITIONINGNTRANSFORMING0.100.20.30.40.50.60.70.80.91.00.100.20.30.40.50.60.70.80.91.0TechnologyComplementsLow-incomeLower-middle-incomeUpper-middle-incomeHigh-incomeLBRLSOLKAALBSENZMBBRBHUNCZEMYSLTUFRAPOLROUCYPIRLCANFINMUSTTOHTIAGOZWEBENGUYSYCBWASVNNORSGPAUSDNKBELNZLKGZSLVSWZBLZRWAPHLMEXTUNVNMBDISLEIDNBOLIRNGTMPERMARZAFJORGRCMKDTHABGRHRVSRBARMURYISRTURDOMARGCHNKWTBRABRNSAUKAZRUSSVKITAESPAREAUTJPNLUXKORCHEDEUESTUSABHRQATCHLECUVENUKRCRIMNGKENNGAPRYINDNICCMRBGDGMBYEMMRTGABMWIMOZETHPAKDZAHNDNAMGHATJKNPLLBYEGYMLIKHMPANGEOLVAPRTMLTGBRISLNLDJGDHLCEMEMMERRGNAGWIMOKHSWGYTENGHNNIBTGCHMNGTRAZEYSRSWETZALAOCOLUZB OVERVIEW 31 Figure O.22 Policy priorities for countries that are emerging, transitioning, or transforming EMERGING TRANSITIONING TRANSFORMING REGULATIONS that promote competition and entry Remove barriers to adoption Competition regulation and enforcement Platform competition SKILLS to leverage digital opportunities Foundational skills and basic ICT literacy Prepare for careers instead of jobs Facilitate lifelong learning INSTITUTIONS that are capable and accountable Mobile phone– based services and monitoring e-government delivery and citizen engagement Participatory policy making and digital collaboration Note: ICT = information and communication technology.
raise productivity and those who don’t fall behind.

This highlights the critical role of a country’s business climate.

It includes laws and regulations that ensure easy entry and exit of ﬁ rms, and an open trade regime that exposes companies to foreign competition and investment.

There is a political economy dimension to this as well—special interests inﬂ uence regulators to keep markets closed to competition.

This lessens the need for ﬁ rms to reach for the technological fron- tier.
Where banks are heavily regulated and protected from new market entrants, they have less incentive to invest in efﬁ ciency-boosting technology that might also help them serve customers better or reach new ones.

But competition policy and enforcement are complex, and many low-income countries lack capac- ity to design and implement them effectively.
Lower the barriers to digital adoption In countries where the digital economy is still emerg- ing, the priority is to facilitate connectivity and develop the foundation for effective competition reg- ulation.
Although 74 mostly middle- and high-income countries have unilaterally removed tariffs on ICT capital goods, computers and smartphones are still treated as luxury goods in some countries, including Turkey, where taxation adds almost half to the price of mobile handsets.33 Djibouti’s tariff on computers is 26 percent.

Many countries treat their telecom ﬁ rms as cash cows.
Where ﬁ rms may have limited knowledge about how the internet can improve their business, benchmarking exercises and information programs can be effective.

And to allow more innovative com- panies to enter markets easily, countries need to improve ﬁ rm registration and create greater market transparency to reduce price collusion, market shar- ing, and rigged public procurement.
E-government systems such as online business registration and e-procurement systems can simplify these processes and produce more openness.

Increase competition through eff ective regulation and enforcement State control in economic sectors, barriers to entre- preneurship, and restrictions on trade and investment reduce the incentives for ﬁ rms in protected sectors to use digital technologies.
Most countries have a com- petition authority, although many were set up fairly recently and enforcement varies, especially when the state or politically connected ﬁ rms beneﬁ t from market restrictions.

Moreover, the internet makes it easy to deliver services online from anywhere in the world, so how trade in services is regulated becomes increasingly important.
Ethiopia, India, and Zimbabwe have the greatest restrictions on ser- vice trade, but many other countries restrict speciﬁ c services such as legal or accounting tasks.

Countries can increase the competitiveness of their economies and encourage greater use of digital technologies by gradually reducing market distortions while building up effective competition enforcement.
This applies as 32 WORLD DEVELOPMENT REPORT 2016 Box O.10 Opening the M-Pesa mobile money platform to competition Safaricom’s mobile money system is a well-known success story.

It was able to grow quickly because Kenya’s banking regulators initially decided to take a hands-off approach.

For seven years, Safaricom maintained a dominant position through exclusivity agreements locking agents into the system.
Initially such arrangements were perhaps justiﬁ ed Source: Plaza, Youseﬁ , and Ratha 2015, for the WDR 2016. because Safaricom incurred high costs developing the sys- tem.

But in 2014, Kenya’s Competition Authority changed the rules and opened the system to alternative mobile operators.

The transaction cost of transfers of up to K Sh 500 (US$4.91) fell from K Sh 66 to K Sh 44 (US$ 0.43).

much to traditional businesses that use the internet as to internet platforms (box O.10).
have the beneﬁ t of being able to learn from the expe- rience in the transforming countries before devising their own solutions.

Tailor “new economy” regulations to ensure competition Internet ﬁ rms create new business models and change market structure, posing new challenges for regulatory authorities.

On-demand economy ﬁ rms like Uber and Airbnb scaled up traditional ride shar- ing and subletting to a global scale.
But regulators struggle to determine whether these companies are taxi or hotel companies or simply software providers.

Ofﬂ ine competitors complain that they do not follow the same regulations.

Where these industries tend to be overregulated and their markets distorted, as is often the case in the taxi business, this new competi- tion can encourage a general overhaul of the industry.
In the United States, cities like New York and states like Massachusetts have begun to develop appropri- ate regulations for these platforms, imposing safety and tax obligations but also reducing their competi- tors’ regulatory burdens.

Similar regulatory puzzles are posed by ﬁ rms such as Amazon, Facebook, and Google.

For example, Google is known as a search engine company but is better described as an advertising ﬁ rm.
These ﬁ rms confound conventional competition law because they do not act as traditional monopolies.

Their services are often free to consumers.

But given their domi- nance in the markets for online ads and books, they have considerable leverage over marketers and book- sellers.

This is similar to credit card companies’ posi- tion with respect to retailers.
Research by economists such as Jean Tirole has shown that regulations in such industries must be carefully tailored to guaran- tee competition and avoid harm to consumers.

These are very challenging problems, and most pressing in the transforming countries.

Developing countries Skills for the digital economy Technological change means that many routine tasks will soon be done by machines.
In contrast to previ- ous episodes, the internet will also make many tasks carried out in white-collar jobs redundant.

This puts a premium on different types of skills that automa- tion complements rather than replaces (ﬁ gure O.23).

Education systems have been slow to respond to this challenge.

Furthermore, the pace of change is fast, and the types of skills in demand change quickly.

So workers will have to upgrade their skills frequently throughout their careers.
These dynamics already play out in many transforming and some transition- ing countries, but even for emerging countries it is not too early to prepare.

Start early with foundational skills Skills development starts at birth and lasts a lifetime.

Good parenting and early stimulation prepare chil- dren for school, where cognitive and socioemotional foundations are laid.

Technology can play a role.


Even though the record on simply providing laptops or tablets to students is mixed, videoconferencing with English speakers from the Philippines has improved learning among ﬁ rst graders in Uruguay.

Khan Academy provides resources for independent learning, and using a gaming approach to math teaching beneﬁ ted grade four children in Mumbai.

But in these and many other cases, one factor was more important: the quality of teaching.
It is no coincidence that Finland, one of the most connected and best-performing countries in educational test- ing, uses very little technology in the classroom.
It takes time to improve the quality of teachers, OVERVIEW 33 Figure O.23 The types of skills needed in a modern economy Cognitive Social and behavioral Technical Literacy, numeracy, and higher-order cognitive skills (for example, reasoning and creative thinking) Raw problem-solving ability versus knowledge to solve problems Socioemotional skills and personality traits Openness to experience, conscientiousness, extraversion, agreeability, and emotional stability Manual dexterity and the use of methods, materials, tools, and instruments Technical skills developed through postsecondary schooling or training or acquired on the job Verbal ability, numeracy, problem solving, memory, and mental speed Self-regulation, grit, mind-set, decision making, and interpersonal skills Skills related to specific occupations (for example, engineer, economist, IT specialist) Source: WDR 2016 team, adapted from Pierre, Sanchez Puerta, and Valerio 2014.
Note: IT = information technology.

however.

But technology can help here as well, as Rio de Janeiro’s Educopedia platform shows (box O.11).

Using technology to closely guide teaching is a second-best option that can improve learning outcomes at modest cost where teacher training is unlikely to improve quickly.

This is the model used by the for-proﬁ t Bridge Academy in Kenya and else- where, where scripted instruction and automated administrative tasks help provide education at low cost.
Although yet to be evaluated rigorously, such approaches hold promise to improve education.

Rethink curricula and teaching methods Today’s education systems need to prepare students for a career and not only a job.

Modern labor markets require creativity, teamwork, problem solving, and crit- ical thinking in ever-changing environments—skills that traditional education systems do not teach and that are hardest to measure.

Many countries are rethinking their approach.


Singapore is moving from a fairly rigid “efﬁ ciency driven” model that tried to get the best results from inputs (teachers and ﬁ nance) to an “ability driven” model that empha- sizes project work and fewer assessments in place of frequent testing.

Colombia’s Escuela Nueva model, now serving 5 million students in 16 countries, also focuses on group learning and problem solving.

These approaches change the relationship between teacher and student.
No longer simply sources of information, teachers now must instruct students in how to ﬁ nd information and apply it in a new and unexpected context.

This requires changes in teacher training.


There are many examples of how digital technologies can assist teachers and students—by allowing group Box O.11 Mobilizing technology in teaching in Rio’s Educopedia Rio de Janeiro’s education department developed the Educopedia online platform of lessons and other resources in 2010 to improve public school teaching.

The system focuses as much on providing materials for the teacher to improve lessons as on giving students access to learning resources.
The system uses multimedia resources including videos, interactive quizzes, and digital libraries.

It now serves almost 700,000 students.

It has yet to be formally evaluated, but together with other reforms it likely con- tributed to a more than 20-percent increase in the Basic Education Development Index in middle schools between 2009 and 2012.

And 80 percent of Rio’s students agreed that Educopedia helps their learning eff orts.

Source: Bruns and Luque 2014.


34 WORLD DEVELOPMENT REPORT 2016 work among classrooms connected online, apps that stimulate creativity and problem solving, and games designed for education (“gamiﬁ cation”).

Develop advanced technological skills and encourage lifelong learning As more and more parts of the economy rely heav- ily on the internet, demand for advanced ICT skills will also grow.
Only a small share of the workforce will be involved in developing software or systems design, but exposing children to coding and basic ICT concepts can inﬂ uence career choices for some and impart a basic understanding to many.
NairoBits, a youth organization in Kenya, exposes underpriv- ileged young people from informal settlements to web design and other ICT skills, while AkiraChix reaches out to “geek girls.” Women tend to be under- represented in ICT ﬁ elds, and encouraging girls to enter such professions and ICT companies to create welcoming environments for women will increase the available workforce in ﬁ elds with rising demand for labor.
With technology likely continuing to get more advanced and affecting ever more occupa- tions, workers need to continuously reevaluate and upgrade their skills.

Much of that will happen outside the formal education system, but governments can provide the incentives for ﬁ rms and workers to create the mechanisms for lifelong learning.
Institutions that are accountable to citizens Although the internet has enabled many governments to provide some basic services more efﬁ ciently, tech- nology so far has not strengthened accountability.

For policies, this implies a dual strategy: tailoring the appli- cation of digital technologies to environments with limited accountability in the short term, and strength- ening institutions in the longer term (table O.3).
Improve informational services and monitoring Although internet access is still low in many emerg- ing economies, mobile phones are widespread and have great potential for improving services.

In the health sector, simple mobile phone–based remind- ers for taking medications have been effective for HIV patients in Malawi and for providing maternal health information in the Democratic Republic of Congo.
Phones can support the monitoring of teach- ers or other government workers where absenteeism is a problem, even if monitoring alone is insufﬁ cient to improve service quality or outcomes (box O.12).

Monitoring also becomes important in provision by nonstate entities in weak institutional contexts, where for-proﬁ t or non-proﬁ t organizations deliver services often funded by the government.

And digital technologies can improve electoral accountability.
In Afghanistan, Kenya, and Mozambique, election mon- itoring using cellphones helped uncover fraud and reduced election violence.

This can complement— or, even in low-capacity settings, replace—more demanding approaches such as biometric identiﬁ ca- tion (see spotlight 4 in the full Report).
Strengthen e-government delivery and citizen engagement Where investments to automate government service delivery have advanced, complementary improvements in regulations, interdepartmental cooperation, and streamlining become more important.

Rather than just replicating cumbersome processes such as business regulations online, automation provides an opportu- nity for simplifying steps, increasing the impact as well as the transparency.
E-procurement systems reduce the risk of corruption, but countries have invested less in them than in more complex budget or treasury systems.
With greater internet use in a country, the scope for Table O.3 Priority policies for better service delivery Emerging countries: Laying the foundation for more effective institutions Transitioning countries: Building capable and accountable institutions • Improve information services to citizens • Strengthen government delivery systems • • Strengthen monitoring of and payment • Strengthen provider management to providers • Establish population registers • Get regular user feedback on service quality • Scale up nonstate provision of services • Increase transparency in priority areas • Increase electoral accountability Transforming countries: Deepening collaborative institutions Improve collaboration across and beyond government • Enhance participatory policy making OVERVIEW 35 Box O.12 Can continuous monitoring and small sanctions improve provider performance?
Traditional monitoring systems are expensive and complex.

New technologies lower these costs, allowing rewards or punishment to be more immediate and frequent.

The idea comes from criminal justice innovations.

Usually lawbreak- ers face a low probability of being caught, but a large pun- ishment.

When people face a high probability, but ﬁ nes are Sources: Romer 2013; Aker and Ksoll 2015. lower, violations become rarer.

The idea could be extended to public service monitoring.
In Niger, a well-designed monitoring system enabled by mobile phones motivated teachers because they felt their far-away superiors cared about their work and looked out for them.

digital engagement with citizens also increases.

As long as access is not universal, there is a risk of leaving those unconnected behind.

But citizen feedback systems have reduced problems such as petty corruption or poor services in the Dominican Republic, Nigeria, and Paki- stan.
As one Kenyan water utility manager said, “By introducing an automated complaint management system we took a noose and put it around our own necks.

We are now accountable!” Deepen collaboration and participatory policy making Even in countries with advanced e-government systems, their use remains surprisingly low.

Many citizens prefer traditional ways of interacting with the government such as phones or mail, so parallel systems remain in place and savings go unrealized.
Providing incentives such as faster tax refunds for e-ﬁ ling or greater convenience through simpliﬁ ed and closely integrated services across agencies increases their use.

Estonia’s X-Road framework inte- grates services from all parts of government as well as private or civil society groups according to protocols that govern data exchange and security standards.34 Practically any transaction—from paying the parking meter to voting in national elections—can be done from a smartphone.
Tangible beneﬁ ts for citizens will lead to universal use of e-government services, making such platforms also suitable for broad-based participatory policy making.

Digital safeguards Strengthening analog complements will ensure a high social and economic return from digital invest- ments.

But a downside risk remains.

Returning to the Report’s framework (ﬁ gure O.24), large-scale collection of identiﬁ able information creates privacy and security concerns.
Automation changes work in ways that challenge existing social protections and reveal the inadequacy of existing labor laws.

And scale economies create antitrust concerns.

Digital safe- guards that mitigate these risks become increasingly important as the digital transformation proceeds.

Developing privacy policies The ﬂ ood of data collected on the internet brings many beneﬁ ts to consumers and citizens but also raises the risk of abuse through cybercrime, discrimination, or manipulation.
As of 2014, some 107 countries had privacy laws, but only 51 of them were developing countries.

The basic principles of privacy law are well established.

They should give users more control (and perhaps co-ownership) over their data and make Figure O.24 Digital safeguards in the WDR’s framework DIGITAL TECHNOLOGIES Information deluge Informalization and job displacement Winner-take-all economy PRIVACY POLICIES SOCIAL PROTECTION ANTITRUST POLICIES Source: WDR 2016 team.
36 WORLD DEVELOPMENT REPORT 2016 opting out at the point of collection easier.

Even when such laws exist, preventing abuse is difﬁ cult, espe- cially where legal and enforcement capacity is weak.

Adapting social protection systems to changing labor markets Better skills will help many workers cope with the effects of internet-enabled automation.

But changes in the labor market also require rethinking social protection and tax systems.
The on-demand economy leads to more informal employment, transferring insurance and occupational obligations to freelance workers.

Strict labor regulations, common in devel- oping countries, and overreliance on labor taxation encourage faster automation by making hiring more expensive.
It would be better to strengthen work- ers’ protection independently from work contracts by delinking social insurance from employment, offering independent social assistance, and helping workers retrain and ﬁ nd new employment quickly.

In many countries this requires major reforms.


And countries just starting to develop social protection systems and deepening labor laws should design them for the 21st-century workplace, rather than copy what industrialized countries created for a very dif- ferent world of work.

Building antitrust enforcement capacity Regulatory reform that improves the business envi- ronment is the ﬁ rst priority.
But even in countries with comprehensive competition policies, including easy market entry and exit, there will be cases in which mergers, collusion, or discriminatory pricing harm consumers by creating overly dominant enter- prises or by keeping innovative competitors out.

Because the internet is still quite new and its impact on markets constantly evolving, developing the capacity to investigate and prosecute complex vio- lations to competition law will take time.
Cases pur- sued in high-income countries can provide guidance.

Global cooperation to solve global problems The internet is truly an international network.

It can be better managed with coordination across nations and serve as a powerful platform to facilitate global cooperation.

Three priority areas are governing the internet, creating a global digital market, and providing global public goods—including those that promote poverty reduction and environmental sustainability.
Governing the internet The internet emerged from U.S. government research in the 1970s, but as it grew into a global network of networks, its governance structure has evolved.

Today, the internet is managed by an international coalition of governments, industry, technical experts, and civil society—in what is referred to as the multi- stakeholder model.
U.S. users are now a small minor- ity of total internet users, given the dramatic growth in the number of users in developing countries, espe- cially in Asia.

Many countries are demanding more meaningful representation in the discussions of how the internet should be governed.
In addition, the lack of trust among nations following the Edward Snow- den episode, the surveillance by state agencies, and the increasing conﬂ icts between national policy and regulations and global norms have raised questions about internet governance.
Several countries have advocated for a mul- tilateral model of governance, which would give national governments greater power in overseeing the internet, much the same way the United Nations, the International Telecommunication Union, or the World Bank are currently governed.
The promoters of “multistakeholderism” argue that state control of the internet would not leave space for the range of players currently involved in internet governance and could pave the path for greater suppression of privacy and restrictions on access to information and on rights of free expression.
The inability of the stakeholders of the internet to reach a consensus on future governance mechanisms can be costly; some have even suggested that the internet is at risk of splitting up into several local or regional internets.

The broad-based, participatory approach involving all stakeholders is seen by many to be best suited to ensure an efﬁ cient and unrestricted global ﬂ ow of information essential for economic development.
internet Creating a global digital market The is encouraging more cross-border exchanges of goods and services, allowing consum- ers and ﬁ rms to bypass national borders.

But cross- border issues—such as barriers to data ﬂ ows and unco- ordinated intellectual property rights regimes—are impairing the growth of internet ﬁ rms and robbing consumers of gains from increased digital trade.
This has also meant that many startups from smaller coun- tries with relatively modest domestic markets, partic- ularly in Europe (box O.13), are moving their business to the United States as soon as they achieve a certain scale.
The small scale imposed by cross-border barriers may also partly explain why e-commerce ﬁ rms are OVERVIEW 37 Box O.13 European Union: A fragmented market for digital trade Despite being a single market with free ﬂ ows of goods, services, and people for many decades, the European Union (EU) still functions like a fragmented market for digital trade.

Consumers in the EU prefer to shop from online stores within their national borders.
While 44 percent of consumers made an online purchase from a domestic business in 2014, only 15 percent did so from a business in another EU country.

Firms also face many diffi culties selling their goods and services online into other EU markets.

For example, Copenhagen, Denmark, and Malmo, Sweden, are separated only by an 8-kilometer bridge, but a package sent from Copenhagen to Malmo costs €27, whereas the same package sent from Malmo to Copenhagen costs €42.
Firms facing large costs to adapt to various national laws believe that the costs out- weigh the beneﬁ ts of selling online.

Source: European Commission (EC 2015).

In May 2015, the European Commission (EC) announced plans to create a Digital Single Market, in three main policy areas.
First, the EC wants to increase the access for con- sumers and ﬁ rms to these digital goods and services by facilitating e-commerce, improving parcel delivery, and dealing with geoblocking, where access to online services or content is restricted to speciﬁ c countries.

Second, it will examine the regulatory environment for telecoms, media, online platforms, and data protection.
Third, it will encour- age more ICT investment and innovation through better standards and interoperability, and more use of “big data” and cloud computing.

If EU reforms to create a common digital market are successful, they could become a model for other world regions.

often losing money in Africa while being proﬁ table in China and India.
Some countries are considering regulations that make it legally binding for data of or about their citizens to reside within their national borders, also referred to as data localization or data nationalism.

While such barriers may stem from legitimate concerns about privacy and security for their citi- zens’ information, they can be costly.
A study of six developing countries and the EU-28 found that such regulations can reduce GDP by up to 1.7 percent, investments up to 4.2 percent, and exports by 1.7 percent.35 Restrictions on data ﬂ ows face the risk of becoming a new tool for protectionism—disguised to impede trade and economic activity or to encourage domestic data-driven sectors.
At the same time, coun- tries should make it easier for ﬁ rms to protect their intellectual property (IP) rights—but within limits that do not give excessive protections to large, well- connected ﬁ rms at the cost of stiﬂ ing innovation and creativity.

The process to apply for IP licenses should be harmonized, streamlined, and globalized—so ﬁ rms need only to register their patent or trademark in any signatory country to protect it across member countries.
Providing global public goods Sustainable development and poverty reduction are a focus of global partnerships.

Many environmental problems—climate change, ozone depletion, air pol- lution, epidemics—are features of globally intercon- nected environmental, economic, and social systems and require global cooperation.

What’s the role of development agencies, nongovernmental organiza- tions (NGOs), and international organizations in a world where their ﬁ nancial heft is small?
The data and technology revolutions arrive in time to bridge the gap between their resources and ambition by amplifying the impacts of action and including more people in the formulation and execution of plans.

But for this to work, development actors must tackle pol- icy constraints, internal and external.

Start with the how of development operations.

With new technologies, development agencies can be more inclusive by tapping on beneﬁ ciary wisdom in designing interventions.
They can raise efﬁ ciency by using rapid feedback to reﬁ ne and improve their actions through trial and error.

But these approaches won’t come easily in organizations that emphasize spending and outputs over results, have burdensome structures for accountability, and see any failures as damning rather than informative.

If traditional agen- cies can’t adapt, some of their business may be taken up by disruptive newcomers.

Next, the what.
Next, the what.

Development agencies can support information services that help individuals and sys- tems managers make better decisions in ways that promote poverty reduction.

These services have ﬁ xed 38 WORLD DEVELOPMENT REPORT 2016 set-up costs in software and data assembly, but can have near zero costs for distributing information.
So the private sector will tend either to shy away from providing these services, or will price them at a level that shuts out poor people who could beneﬁ t. One area where the need for international cooperation and support is particularly acute is the collection and distribution of data on weather, climate, and trans- boundary water ﬂ ows, which are critically important to tackle climate change, improve natural resource management, and support agriculture.
External agents and international organizations can help with targeted funding—for instance, ﬁ lling the gap in African weather stations.

They can support the complementary investments for information plat- forms.

And they can ﬁ nd ways to encourage public and private sectors, in both the developed and developing world, to open and share data for public goods.

Reaping digital dividends for everyone Digital technologies are transforming the worlds of business, work, and service delivery.
These advances are making the leading parts of the economy and society more productive—even as many still wait for the most basic beneﬁ ts of the digital revolution.

This Report argues that to ensure that everyone will reap the dividends of the internet, focusing on access to technology is essential but far from sufﬁ cient.

Why?

Because technology needs to be complemented by improvements in areas that determine whether ﬁ rms, people, and governments can make effective use of new digital tools.
The analog foundation cannot be strengthened overnight.

It requires overcoming some of the most protracted development challenges: how to create an environment for ﬁ rms to thrive, how to build effective education and training systems, and how to make service providers more responsive to citizens.

The stakes are high, because the digital revolution leaves behind countries that do not make the necessary reforms.
For those that do, technology investments will produce ample digital dividends, and these dividends will be widely shared among all stakeholders.

Notes 1.

References to this and other data and citations in the overview may be found in the full Report.

2.

The lag between technology creation, adoption, and learning to use it most effectively explains some of this.
Difﬁ culties in measuring technolo- gy’s role are another partial explanation for the gap between individual cases of substantial beneﬁ ts and modest macro effects.

Technology impact is diffused throughout the economy, the world of work, and many aspects of personal life.

And many beneﬁ ts come in the form of higher quality or convenience—nonmonetary beneﬁ ts not reﬂ ected in GDP numbers.

3.
3.

Even if rapid progress in artiﬁ cial intelligence could solve some of these problems, it could take decades (see spotlight 6 in the full Report).

In the meantime, it would be unwise for policy makers to simply wait and watch.

4.

Acemoglu and Robinson 2014.

5.

See Comin 2014.

6.

See Graham and Foster 2014.

7.

While the internet reduces the cost of information, it does not necessarily reduce the effort it takes humans to process that information.
In fact, infor- mation overload, in combination with behavioral biases, can promote herd behavior, amplify facts, or even be abused for marketing or manipulation.

8.

Overcoming information problems also improves market efﬁ ciency and could even lead to greater innovation.

For expositional simplicity, the Report’s framework is simpliﬁ ed and focuses on the most important development outcome associated with each mechanism that is enabled by the internet.

9.
9.

Moreover, cross-country regressions measuring the impact of digital technologies on growth could suf- fer from several other problems involving measure- ment issues, endogeneity of variables, and small sample size bias.

10.

These results are based on Tan 2015; Osnago and Tan 2015.

11. eBay 2013.

12.

Baldwin 2011.

13.

Brynjolfsson and McAfee 2014.

14.

Moretti and Thulin 2013.

15.

Goyal 2010; Aker and Mbiti 2010.

16.


See Handel 2015; Best and others 2010; Jagun, Heeks, and Whalley 2008; Aker 2011; Martin 2010.

17.

Pineda, Aguero, and Espinoza 2011.

18.

Asad 2014.

19.

Aker and Mbiti 2010; Pineda, Aguero, and Espinoza 2011.

20.

The survey was conducted by Research ICT for Africa.

21.

Aker, Collier, and Vicente 2013.

22.

See box 3.5 in chapter 3 of the full Report.

23.

Duﬂ o, Hanna, and Ryan 2012.

24.

Acemoglu, Hasan, and Tahoun 2014.

25.


Bennet, Breunig, and Givens 2008.

26.

Hollenbach and Pierskalla 2014.

27.

Goldin and Katz 2008.

28.

Varian 2003.

OVERVIEW 39 29.

Data for 2014 of net digital worldwide ad revenue shares from eMarketer, an online market research company.

30.

Wood 2011.

31.

Eden and Gaggl 2014.

32.

WDR 2016 team estimates, based on household sur- veys.

See chapter 2 in the full Report for details.

33.


A landmark agreement that will further boost dig- ital adoption around the world is the Information Technology Agreement, concluded by World Trade Organization (WTO) members on July 24, 2015.

It will eliminate tariffs on more than 200 ICT prod- ucts, valued at $1.3 trillion in global trade.

34.

Vassil 2015.

35.

Bauer and others 2014.

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“EU Competition Law and the Inter- net: Present and Past Cases.” Competition Law Interna- tional (April): 44–49.

World Bank.

Various years.

I2D2 (International Income Distribution database).


World Bank, Washington, DC, http://econ.worldbank.org/WBSITE/EXTERNAL /EXTDEC/EXTRESEARCH/0,,contentMDK:20713100 ~pagePK:64214825~piK:64214943~theSitePK: 469382,00.html.

World Bank.

Various years.

World Development Indicators (database).

World Bank, Washington, DC, http://data.worldbank.org/data-catalog/world -development-indicators.

————.

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————.

2015.

“MajiVoice: A New Accountability Tool to Improve Public Services.” Water and Sanitation Policy Note, World Bank, Washington, DC.

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42 WORLD DEVELOPMENT REPORT 2016 ENABLING DIGITAL DEVELOPMENT How the internet promotes development 1 1 T T H H G G I I L L T T O O P P S S To understand how the internet and related digital technologies affect development, it is important to understand what they actually do.

It turns out that old economics explains the new economy quite well.
In 1937, Ronald Coase—who would receive the Nobel Prize in Economics in 1991—published “The Nature of the Firm,” which asked why ﬁ rms exist.1 Even though economics considers the market the most efﬁ cient way to organize economic activity, large companies tend to operate in a self-contained command-and- control environment.
What Coase realized was that using the price mechanism incurred a number of additional costs, such as the effort of ﬁ nding buyers or suppliers, and negotiating contracts and enforcing them.

As long as the cost of making an exchange of an intermediate good or service in the market is larger than the proﬁ t from that exchange, it is rational for a ﬁ rm to produce it in-house.

Most of these Coasian transaction costs stem from the costs of acquiring and sharing information.
Many years later, the internet and other digital technologies have vastly reduced many of these costs, with major implications for market and nonmarket exchanges among businesses, people, and governments.

This spotlight describes how the decline of these transac- tion costs affects economic development.

But ﬁ rst, a working deﬁ nition of the technologies covered in this Report.
While the World Development Report 2016 is not about speciﬁ c technologies, it generally covers the impacts of digital technologies and services that greatly facilitate the creation, storage, analysis, and sharing of data and information.

The Report uses the terms “digital technologies,” “internet,” and sometimes “information and communication technologies (ICTs)” somewhat interchangeably.

“Internet” emphasizes the central importance of connectivity.
Faster computers and cheaper storage are useful in their own right.

But the reason that all of these technologies have had such a massive impact on almost all aspects of life is that these devices are linked so that information can be distributed and accessed effortlessly from anywhere.
The internet promotes inclusion, effi ciency, and innovation Technology development has vastly reduced the cost and increased the speed of all the digital technologies that drive the internet—in some cases by more than 30 percent per year.

This continues a long-term and accelerating decline in the cost of computing.
William Nordhaus, in 2007, estimated that since the era of manual computing in the mid-19th century, the cost of a computation has dropped by a factor of between 1.7 trillion and 73 trillion.2 The result has been a far lower cost of acquiring and using information, which in turn has lowered transaction costs—and often as a consequence, production costs.

By lowering the cost of these transactions, the internet affects economic development in three major, interrelated ways.
One is that the internet can help overcome information problems.

In some instances, a mutually beneﬁ cial transaction might not take place because the two parties simply had no way to ﬁ nd each other or acquire enough information to conﬁ dently proceed with the transaction; in such cases, the transaction costs are essentially inﬁ nitely high.
The emergence of e-commerce platforms has made it much easier for small producers to ﬁ nd customers, and even for individuals who cannot use HOW THE INTERNET PROMOTES DEVELOPMENT 43 43 traditional marketing tools like advertising or trade shows.

Rural artisans in Morocco, some of whom are illiterate, have set up Anou, a web shop for their products that has attracted customers from all over the world.3 The internet, by vastly lowering search and information costs, creates these markets.
This has many beneﬁ ts, but the most important, arguably, is that it fosters inclusion—in new and existing mar- kets, in social interaction, or in government service delivery systems.

Inclusion for the individual usually means expansion of a market by those on the other side of the transaction, such as a ﬁ rm or a govern- ment that now serves more citizens.

Even when search costs are low, transactions often do not take place when one party to a transaction has much more information than the other.
Take the example of extending credit to poor farmers.

The high cost of gathering information about poor borrowers is a major deterrent to lending by banks.4 The poor therefore need to rely on informal moneylenders who charge exorbitant interest rates.

But many of the poor possess mobile phones.

Companies such as Cigniﬁ have developed methods to judge the creditworthi- ness of a potential borrower based on their mobile phone records.
In Ghana, Cigniﬁ worked with the World Savings and Retail Banking Institute to cor- relate savings behavior with mobile phone records.5 The goal is to promote ﬁ nancial inclusion among the unbanked, by assessing the savings potential and creditworthiness of low-income households that own mobile phones but have no access to ﬁ nancial products.
There is a large literature on information problems and asymmetries by economists such as George Aker- lof, Michael Spence, and Joseph Stiglitz, who jointly received the Nobel Prize in 2001.
Akerlof was moti- vated to write his most famous paper, “The Market for Lemons,” published in 1970, by the fact that when buying a used car, the seller usually has much more information about the car’s quality than the buyer.6 Today, internet sites such as Carfax in the United States let buyers research the history of a car online, including whether it has been in an accident, how many owners it has had, and whether it has complete service records.
The second mechanism is closest to the original Coasian concepts of transaction and coordination costs.

Most transactions were already taking place before the digital revolution, but the internet has made them faster, cheaper, or more convenient.

In other words, lower transaction costs raise the productivity of existing factors of production.

The internet has brought numerous effi ciency improvements to busi- nesses that, while individually often not spectacular, add up to enormous aggregate beneﬁ ts.
Better com- munication and information processing improves supply chain management and enterprise resource planning.

Retailers now share point-of-sale data with vendors globally in real time, essentially shifting inventory management to their suppliers.

Tracking, navigation, and scheduling software improve capac- ity utilization for logistics and transport companies.
The delivery company UPS famously saves about 1 million gallons of gas each year by using routing technology that minimizes left turns, where vehi- cles are often held up by oncoming trafﬁ c. Estonia’s X-Road is an e-government system that offers nearly 3,000 services from 900 government and private sector agencies to the citizens online.

The number of queries made through X-Road increased from half a million in 2003 to 340 million by 2014.
As a result, each citizen saves about ﬁ ve working days per year, adding up to 7 million workdays overall.

For many internet-based businesses or services, ﬁ xed up-front costs can be high, but once the online platform is in place, each additional customer, user, or transaction incurs very little extra cost.

The marginal transaction cost essentially drops to zero because what previously involved routine human labor can now be fully automated.
This has led to enormous innovation—the third mechanism—that is typically associated with the “new economy.” These dynamics have important implications related to the nature of the scale economies that make this innovation possible, the new business models (and competition problems) this has spawned, and the unprecedented scope for customization of services.
The cost structure of many internet businesses gives rise to various types of scale economies.7 Supply-side scale economies, where costs drop with an increasing number of transactions, favor the emergence of natural monopolies.

Water or electric utilities operate in similar environments.

Because entry costs are also high, such sectors tend to be regulated.

Many internet-based markets—such as web searches, mobile payments, or online book- stores—are also dominated by a few ﬁ rms.
At least initially, entry costs are low and such websites can scale up extremely quickly, even with relatively few resources.
Facebook reached half a billion users with just 500 engineers.8 Walmart had to build 276 stores before reaching US$1 billion in sales; Amazon needed just six warehouses to reach US$3 billion in 2003.9 For many of these ﬁ rms, the product they sell is also purely digital, such as digital music (Spotify in Sweden), e-books (Amazon in the United States), or online news and data.10 Others sell highly automated brokerage or matchmaking services for travel, jobs, 1 1 T T H H G G I I L L T T O O P P S S 44 WORLD DEVELOPMENT REPORT 2016 1 1 T T H H G G I I L L T T O O P P S S merchandise, or ride sharing.
Many of these business models have been replicated by ﬁ rms in developing countries.

But even there, in many of these markets, a high degree of concentration has occurred in the last 10 years.

While in the early 2000s internet trafﬁ c was distributed across thousands of companies, today just 30 companies account for over half of peak internet trafﬁ c in the United States—much of this is due to the explosion of video content.11 Scale economies also exist on the demand side.
For many services, the more people use it, the more valu- able it becomes to its users and the more new users it attracts.

Social media sites or digital payment systems like M-Pesa in Kenya are examples.

With supply-side scale economies, average cost drops with scale.

With demand-side scale economies, average revenue or utility rises with scale.
These network externalities beneﬁ t users, but can also create lock-in effects; to switch to a different social media platform imposes very little actual cost on the user, but would require collective action by a large number of interconnected users to maintain the same level of utility.12 Ultralow marginal transaction costs have powered new business models.

Many of these are web services operating platform markets or two-sided markets.
The platform owner has two different customers, typically the user of the service and an advertiser who wants to reach the user.

Rather than charging both, it makes sense to provide the service for free and increase the user base (at very little cost), which makes the other side of the market more lucrative.

A classic 2003 paper by Jean-Charles Rochet and Jean Tirole shows that two-sided markets exist in many industries.
13 But the economics of the internet have led to a particularly effective grand bargain between platform owners, users, and advertisers (ﬁ gure S1.1).

This model raises difﬁ cult questions about competi- tion policy.

Because platforms often do not charge for a service, they do not actually exert monopoly power over users.

But they could do so over vendors buying advertising space.

Just four companies—Google, Facebook, Baidu, and Alibaba—now account for half of all digital advertising revenue.
And, dominant plat- forms could exert monopsony power (because there is a single or are just a few buyers).

For instance, book publishers depend on Amazon for a crucial share of their total sales.

Because most processes can be automated, there is tremendous scope for customization of services.

Most online behavior is automatically monitored— sometimes anonymously, sometimes not.
The mas- sive data volumes collected by internet platforms have created a whole new branch of economics— nano-economics—which studies individual, computer- Figure S1.1 Internet users trade personal data for useful services Platforms Google, Facebook, and so on ail, cloud) ata (personal preferences) Free services (search, e- Users Vendors Goods and services Money Source: Based on Kurbalija 2015. mediated transactions.14 The main beneﬁ t to the user is that services can be tailored to individual needs and preferences—although at the cost of giving up privacy.
For the seller, it allows more targeted advertising and even price discrimination, when automated systems can analyze user behavior to determine willingness to pay and offer different prices to different users.
There is ample evidence that e-commerce sites vary prices based on users’ estimated location, brows- ing history, and even the type of device they use for access.15 Information can ﬂ ow both ways, since many commercial websites provide feedback mechanisms that help the provider improve the product, but also allow the customer to assess the quality of a product or service.

Businesses use such tools extensively, but the public sector has been slow to adapt them for better service delivery.
Finally, in many, if not most, transactions, more than one of the three mechanisms may be at work.

For example, transactions on internet platforms typ- ically involve all three.

While the platform running a fully automated service is the main innovation, one side of the transaction often involves a provider of a service, such as an informal driver working through a ride sharing platform or a freelance worker in a remote location.
For them, it will often be a case of inclusion in an otherwise inaccessible market trans- action.

The customer at the other end of the transac- tion experiences increased efﬁ ciency.

A service that was typically available through another channel is now more convenient, faster, or cheaper.

Figure S1.1.1 in box S1.1 presents a graphic representation of the three mechanisms.
HOW THE INTERNET PROMOTES DEVELOPMENT 45 Box S1.1 Three ways in which the internet promotes development Figure S1.1.1 provides a simple graphic representation of the eff ect of falling transaction costs.

Imagine all transac- tions in an economy arranged by the transaction costs they impose, from most costly on the left to least costly on the right.

The upper curve shows these costs before the intro- duction of the internet.

With the internet, many such costs drop, and three things can happen.
On the left, there were some transactions for which the cost was so high in the pre-internet era, that there was essentially no market—the transactions did not take place.

Making these transactions possible promotes inclusion as well as market expansion.
For example, women with small children or persons with disabilities have sometimes been unable to engage in work outside the home, but can now engage in tele- work.a Many poor or disadvantaged populations will now receive public services because governments can use digital IDs to verify their eligibility.b And skilled workers and small ﬁ rms in poor countries can trade their services in global markets, where they can earn higher returns.
These are all examples where the internet, by overcoming information problems, contributes to greater inclusion.

In the middle of the ﬁ gure, the internet lowers the cost of existing transactions—that is, those occurring even before the advent of the internet.

This raises the effi ciency of a vast range of activities.
Purchasing goods, executing bank transactions, searching for a home or a job, paying taxes, or renewing a driver’s license gen- erally used to require a trip to a shop or offi ce, but can now be done with a click or a tap.

Similarly, the internet has reduced costs for businesses when connecting and negotiating with buyers or suppliers, ﬁ nding workers through job-matching services, and monitoring contract fulﬁ llment or employee performance.

Many of the same beneﬁ ts extend to governments, as well.
These individu- ally unspectacular effi ciency gains may, in the aggregate, represent the lion’s share of beneﬁ ts from the internet.

Figure SB1.1.1 A graphic representation of how the internet promotes development Pre-internet Post- internet s t s o c n o i t c a s n a r T Inclusion Efficiency Innovation Transactions, arranged from high to low cost Source: WDR 2016 team.

The most dramatic impact of the internet is on the right-hand side of the ﬁ gure.
For many internet-based businesses or services, ﬁ xed up-front costs can be high, but once the online platform is in place, each additional customer, user, or transaction incurs very little extra cost.

In many cases, the marginal transaction cost is essentially zero because what previously involved routine human labor can now be fully automated.

For purely digital products, such as e-books, the marginal production cost is also close to zero.
This cost structure gives rise to various types of scale economies, often reinforced by network eff ects, where the more users a system has, the more useful it becomes.c Most of the so-called “new economy” ﬁ rms are in this space.

1 1 T T H H G G I I L L T T O O P P S S Source: WDR 2016 team.

a. Melhem, Morrell, and Tandon 2009. b. Gelb and Clark 2013. c. Varian and Farrell 2004.

Notes 1.

Coase 1937.

2.

Nordhaus 2007.

3. http://www.theanou.com.

4.

Banerjee and Duﬂ o 2011.

5.

Cigniﬁ and WSBI 2014.


6.

Akerlof 1970.

7.

Shapiro and Varian 1999; Varian and Farrell 2004.

8.

Levin 2011.

9.

Ellison and Ellison 2005.

10.

Shapiro and Varian 1999.

11.

Congressional testimony of Craig Labowitz, chief scientist of the software company, Arbor, quoted in http://www.wired.com/2014/06/net_neutrality _missing/.

46 WORLD DEVELOPMENT REPORT 2016 12.


Switching costs are far higher when replacing a widely used software package, since it will require a lot of retraining and associated investments, such as enterprise resource planning or operating systems.

13.

Rochet and Tirole 2003.

14.

Varian 2014; Varian and Farrell 2004.

15.

Pasquale 2015.

References Akerlof, George A.

1970.

“The Market for ‘Lemons’: Qual- ity Uncertainty and the Market Mechanism.” Quar- terly Journal of Economics 84 (3): 488–500.
Banerjee, Abhijit, and Esther Duﬂ o.

2011.

Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty.

New York: PublicAffairs.

Cigniﬁ and WSBI (World Savings and Retail Banking Institute).

2014.

Mobile Phone Data as the Key to Promot- ing Financial Inclusion.

Cambridge, MA: Cigniﬁ and WSBI.

Coase, Ronald H. 1937.

“The Nature of the Firm.” Econom- ica 4 (16): 386–405.

Ellison, Glenn, and Sara Fisher Ellison.

2005.


“Lessons about Markets from the Internet.” Journal of Economic Perspectives 19 (2): 139–58.

Gelb, Alan, and Julia Clark.

2013.

“Identiﬁ cation for Devel- opment: The Biometrics Revolution.” Working Paper 315, Center for Global Development, Washington, DC.

Kurbalija, Jovan.

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An Introduction to Internet Gover- nance.

6th ed.

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Levin, Jonathan D. 2011.


“The Economics of Internet Mar- kets.” NBER Working Paper 16852, National Bureau of Economic Research, Cambridge, MA.

Melhem, Samia, Claudia Morrell, and Nidhi Tandon.

2009.

“Information and Communication Technolo- gies for Women’s Socioeconomic Empowerment.” Working Paper 176, World Bank, Washington, DC.

Nordhaus, William D. 2007.

“Two Centuries of Produc- tivity Growth in Computing.” Journal of Economic His- tory 67 (01): 128–59.

Pasquale, Frank.

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The Black Box Society.

Cambridge, MA: Harvard University Press.

Rochet, Jean-Charles, and Jean Tirole.

2003.

“Platform Competition in Two-Sided Markets.” Journal of the European Economic Association 1 (4): 990–1029.

Shapiro, Carl, and Hal R. Varian.

1999.

Information Rules: A Strategic Guide to the Network Economy.

Cambridge, MA: Harvard Business School Press.

Varian, Hal.

2014.

“Big Data: New Tricks for Economet- rics.” Journal of Economic Perspectives 28 (2): 3–28.
Varian, Hal, and Joseph Farrell.

2004.

The Economics of Information Technology: An Introduction.

Cambridge, MA: Cambridge University Press.

1 T H G I L T O P S HOW THE INTERNET PROMOTES DEVELOPMENT 47 1.

Accelerating growth 2.

Expanding opportunities 3.


Delivering services D CHAPTER 1 Accelerating growth Digital technology creates opportunities to accelerate growth, but these are often missed because ﬁ rms in sectors where technology’s impact is greatest are frequently protected from innovative competitors.

Firms that face more competition use digital technol- ogy more intensively and effectively—it enables them to reduce their costs to outperform their competitors.
But ﬁ rms in developing countries do not necessar- ily have the incentive to adopt new technologies to increase their cost effectiveness because they are often protected from domestic or foreign compe- tition.

And it is precisely in protected sectors such as retail and wholesale trade, ﬁ nance, transport, or public utilities where digital technology can increase productivity the most.
Harnessing those opportuni- ties thus requires policies that lower the barriers to competition and market entry, in addition to invest- ments in infrastructure and skills.

Only then will ﬁ rms use new digital technologies more intensively and effectively—and only then will countries avoid falling behind.

Firms across the world are becoming more con- nected.
For instance, the share of ﬁ rms with at least ﬁ ve employees using broadband internet in lower- middle-income countries rose from 39 percent to 68 percent from 2006–09 to 2010–14.

And the growth rates and valuations of internet ﬁ rms across the world are surging.

Less visibly, but more importantly, digital technologies have transformed traditional pro- duction structures, facilitating new, more cost-effec- tive processes.
Indeed, the vast majority of efﬁ ciency gains emerge outside the information and communi- cation technology (ICT) sector, where ﬁ rms use the internet to sell and market their products online or share real-time information with suppliers to mini- mize their inventory and with customers to optimize their services.

The impact of digital technology on economic growth is mediated through three mechanisms— inclusion, efﬁ ciency, and innovation.
It promotes the inclusion of ﬁ rms in the world economy by enabling more ﬁ rms to trade new products to new destinations.

For instance, ﬁ rms selling their goods online through Alibaba, China’s leading e-commerce company, are smaller and younger and export more products to different destinations than ﬁ rms selling ofﬂ ine.

It raises efﬁ ciency by allowing ﬁ rms to make better use of their capital and labor.
For instance, real- time data help equipment manufacturers in China turn over their inventory stocks ﬁ ve times faster than suppliers not connected to the internet.

It enhances innovation by enabling ﬁ rms to exploit scale effects through online platforms and services that compete with conventional business models in retail, trans- port, lodging, and banking, to name a few.
These three mechanisms thus boost growth by expanding trade, increasing capital and labor utilization, and intensify- ing competition (ﬁ gure 1.1).1 But the beneﬁ ts are neither automatic nor assured.

Despite great opportunities, ﬁ rms’ use of digital technologies differs substantially across countries due to variations in skills and infrastructure and in barriers to competition and market entry.
Competi- tion from China induced ﬁ rms in member-countries of the Organisation for Economic Co-operation and Development (OECD) to adopt new technologies to escape the competition from low-cost producers, accounting for 15 percent of their investment from 2000–07.

Manufacturing ﬁ rms in Mexico responded to higher competition from low-cost Chinese pro- ducers in the domestic and the U.S. (export) market by using digital technologies more intensively and productively.
Manufacturing ﬁ rms in Brazil facing an increase in competition are more likely to invest in e-commerce systems.

Firms in Africa facing an increase in competition are more likely to use the internet to market their products or to manage their inventories.

Firms’ use of digital technology also varies with barriers to competition across sectors in the same country.
Business process outsourcing in the Philippines has few entry barriers, and ﬁ rms use digital technology intensively—the retail sector on the other hand faces substantial restrictions to entry and is dominated by incumbent ﬁ rms, with few of them offering e-commerce.
Harnessing the full growth potential of digital technology is thus predicated not just on investments in skills (chapter 2) and infrastructure (chapter 4) but also on reforming regulatory barriers by overcoming vested interests to encourage all ﬁ rms to compete by investing in these new technologies (chapter 5).
This also involves overhauling regulatory regimes in the digital economy, especially in sectors where online and ofﬂ ine ﬁ rms increasingly compete, such as retail, transportation, printing and publishing, lodging, and ﬁ nance.

The initial entry of internet ﬁ rms into these sectors promotes competition and can disrupt traditional monopolies.

But internet ﬁ rms can be prone to anticompetitive behaviors by exploiting scale and network effects.
So the regulators need to level the regulatory regime to guarantee free market entry and prevent market shares from becoming too concentrated.

The greater digital adoption therefore needs to be accompanied by uniﬁ ed standards, full interoperability, and competition across platforms and contracts.

The goal is to have ﬁ rms’ use of the internet pro- mote competition, which encourages more ﬁ rms to use the internet.
But that will not happen if vested interest groups are strong enough to capture regu- lators and create new barriers to competition and technology adoption.

A level playing ﬁ eld for busi- ness was always important—digital technologies have made it an imperative.

Connected businesses The adoption of broadband internet has increased for ﬁ rms in all country income groups.
Almost all ﬁ rms in high-income OECD countries (with at least ﬁ ve employees) used a broadband internet connection between 2010 and 2014, with usage rising from 79 per- cent in 2006–09 to 92 percent in 2010–14 (ﬁ gure 1.2, panel a).

The increase between the two periods was even stronger for lower-income countries.

The share of ﬁ rms in lower-middle-income countries using broadband internet rose from 39 percent in 2006–09 to 68 percent in 2010–14.
The share in low-income countries in 2010–14 is still fairly low (38 percent), but with some notable exceptions.

ACCELERATING GROWTH 51 Figure 1.1 A framework for the internet and economic growth DIGITAL TECHNOLOGIES Overcome information barriers Augment existing factors Generate economies of scale INCLUSION EFFICIENCY INNOVATION International trade Capital utilization Competition R I S K : D I V E R G E N C E A N D M O N O P O LY P O W E R Source: WDR 2016 team.
More than 90 percent of ﬁ rms in high-income countries, and 46 percent in low-income countries, used electronic mail (e-mail) to communicate with clients between 2010 and 2014 (ﬁ gure 1.2, panel b).

The differences are greater when the internet is used for more demanding business activities.

For instance, 42 percent of ﬁ rms in upper-middle-income countries had a website, and 30 percent purchased goods or ser- vices online.
Only 14 percent of ﬁ rms in low-income countries purchased goods or services online, and only 11 percent delivered them online.

Developing countries such as Vietnam have invested heavily in the rollout of (broadband) internet infrastructure in recent years.

As a result, the share of manufacturing and service ﬁ rms in Vietnam using the internet for business activities rose to 71 percent in 2007 and 86 percent in 2011.
Internet access was up almost uniformly across all provinces (map 1.1).2 But many advanced digital technologies have not yet diffused widely, even in high-income countries.

Almost all European ﬁ rms with at least 10 employees use a personal computer (PC) and broadband internet.

About 80 percent have a website, and 60 percent use supply chain management software that is integrated with the ICT systems of customers or suppliers out- side of the ﬁ rm (ﬁ gure 1.3).
But less than 20 percent 52 WORLD DEVELOPMENT REPORT 2016 Figure 1.2 More ﬁ rms are using broadband internet a.

Share of firms using broadband internet, 2006–14 b.
Type of internet use, 2010–14 t n e c r e P 100 90 80 70 60 50 40 30 20 10 0 Low- income countries Lower- middle- income countries Upper- middle- income countries High- income non-OECD countries High- income OECD countries 2006–09 2010–14 t n e c r e P 100 90 80 70 60 50 40 30 20 10 0 Low- income countries Lower- middle- income countries Upper- middle- income countries High- income non-OECD countries High- income OECD countries Internet deliveries Internet purchases Website e-mail Source: Hussain (2015) based on World Bank Enterprise Surveys, various years.
Data at http://bit.do/WDR2016-Fig1_2.

Note: The data cover ﬁ rms with at least ﬁ ve employees.

Panel a is based on 10,161 ﬁ rms in 100 countries (2006–09) and 33,467 ﬁ rms in 88 countries (2010–14).

The survey question is, “Does this establishment have a high-speed, broadband internet connection on its premises?” Panel b is based on 100 countries in 2010–14 with 45,892 ﬁ rms (e-mail), 45,872 ﬁ rms (website), 20,480 ﬁ rms (internet purchases), and 17,099 ﬁ rms (internet deliveries).
OECD = Organisation for Economic Co-operation and Development.

of European ﬁ rms purchase or sell goods or services online and use any cloud computing services.

Only 8 percent use cloud computing services to acquire man- agement software and computing power.

And only 3 percent use radio frequency identiﬁ cation devices, which are wireless microchips used to connect machines with one another (the “internet of things”).

The use of digital technologies is still basic in most developing countries.
In Vietnam, only 2.2 percent of all ﬁ rms sold their goods or services online in 2011 (up from 0.6 percent in 2007).

In Turkey, 92 percent of all ﬁ rms with at least 10 employees had internet access in 2012, but only 71 percent used it for banking; 55 percent had a website; and 10 percent made orders or reservations online.
In Mexico, 84 percent of ﬁ rms with at least 10 employees used the internet in 2012, but only 26 percent of employees had internet access; and only 13 percent of ﬁ rms used e-commerce for pur- chases, and 9 percent for sales.

In Brazil, 63 percent of all manufacturing ﬁ rms with at least 10 employees bought or sold products online, but only 28 percent provide an online catalogue or feature online orders on their website; and only 6 percent allow online pay- ments.
And less than half the manufacturing ﬁ rms in Brazil have an information technology (IT) depart- ment or use software supporting management, either for resource planning or customer relations.3 More productive ﬁ rms are early adopters of the internet More productive ﬁ rms are more likely to adopt the internet and use it more intensively.
The percentage of ﬁ rms having a website and selling or buying goods or services online tends to increase with ﬁ rm pro- ductivity in all country income groups (ﬁ gure 1.4).4 Firms in the most productive quintile are most likely to have a website or use broadband internet.5 The cor- relation between ﬁ rm productivity and e-commerce is stronger in upper-middle-income countries.

In lower-middle-income countries, less than 13 percent of the most productive ﬁ rms sold or bought goods or services online.
The results suggest that only the more productive ﬁ rms in developing countries over- come (unobservable) barriers to using the internet more effectively.

African ﬁ rms using the internet have on average 3.7 times higher labor productivity than nonusers and 35 percent higher total factor productivity (TFP) (ﬁ gure 1.5).

But the most productive ﬁ rms that do not use the internet have TFPs comparable to high- productivity internet users.
The differences are also found to be larger for labor productivity than for TFP, implying that African ﬁ rms using the internet are not only more productive but also more capital intensive.6 53ACCELERATING GROWTHSource: Eurostat, circa 2014 (EC, various years).

Data at http://bit.do/WDR2016-Fig1_3.Note: For each technology, the chart shows the distribution across 32 high-income countries of the share of ﬁ rms (with at least 10 employees) that use that technology.
Data are for 2014 or the last available year.
CRM = customer relationship management software; ERP = economic resource planning software; PC = personal computer; RFID = radio frequency identiﬁ cation technologies; SCM = supply chain management software.Figure 1.3 Many advanced digital technologies have not yet diff used across ﬁ rms in high-income countries, 2014Digital technologies% of firms usingthese technologies02040608010025th percentileMinimumMedianMean75th percentileMaximumRFIDCloud computingERPe-salesCloud computinge-purchasesCRMERPSCMWebsiteBroadbandInternetPCSource: Nguyen and Schiff bauer 2015.
Data at http://bit.do/WDR2016-Map1_1.Note: The census of Vietnamese ﬁ rms includes more than 300,000 observations each year.a.

Usage in 2007b.

Usage in 2011Map 1.1 Many more ﬁ rms are using the internet in Vietnam30–5960–7980–100Firms using the internet (%)IBRD 42011 54 WORLD DEVELOPMENT REPORT 2016 Figure 1.4 Higher-productivity ﬁ rms are more likely to use the internet, 2010–14 a. Website b. e-commerce s m r i f f o t n e c r e P 55 45 35 25 15 s m r i f f o t n e c r e P 28 24 20 16 12 8 4 1.

Qtl 2.
Qtl 2.

Qtl 3.

Qtl 4.

Qtl 5.

Qtl 1.

Qtl 2.

Qtl 3.

Qtl 4.

Qtl 5.

Qtl Distribution of firm productivity Distribution of firm productivity Low-income countries Lower-middle-income countries Upper-middle-income countries Source: Hussain (2015) based on World Bank Enterprise Surveys, various years.

Data at http://bit.do/WDR2016-Fig1_4.

Note: The ﬁ gures show the share of ﬁ rms that have a website or use e-commerce among the diff erent labor productivity quintiles across country income groups.
“Qtl” refers to log labor productivity quintiles.

The data, pooled for all years between 2006 and 2014, cover ﬁ rms with at least ﬁ ve employees.

Figure 1.5 African ﬁ rms using the internet are more productive, 2014 Distribution of sales per worker t e n r e t n i e h t g n i s u t o n s m r i F 1 .8 .6 .4 .2 0 0 .2 .4 .6 .8 1 Internet users Source: Cirera, Lage, and Sabetti 2015.

Data at http://bit.do/WDR2016-Fig1_5.


Note: The ﬁ gure shows the relative distribution of productivity for ﬁ rms that use the internet and ﬁ rms that do not.

Productivity is measured by sales per worker, estimated at the sector level.

Results are similar using value added instead of sales.

Observations on the 45-degree line indicate that ﬁ rms in both groups have the same productivity.
Firms not using the internet are less productive (above the 45-degree line) throughout the distribution of labor productivity.

For instance, the median productivity ﬁ rm among nonusers has about the same productivity as the 20th percentile ﬁ rm of the productivity distribution among internet users.

The surveys are representative of all ﬁ rms with at least ﬁ ve employees in six African countries: the Democratic Republic of Congo, Ghana, Kenya, Tanzania, Uganda, and Zambia.
Firms that use digital technologies intensively also share other characteristics of high-productivity ﬁ rms.

They tend to be larger, fast-growing, skill- intensive, export-intensive, and located in the cap- ital city.7 Larger ﬁ rms use the internet more inten- sively across all country income groups (ﬁ gure 1.6), and 65 percent of large ﬁ rms but only 21 percent of small ﬁ rms use broadband internet in low- income countries.
The differences are comparable for ﬁ rms that use the internet for more demanding business activities: 17 percent of small ﬁ rms deliver goods or services using the internet in lower- middle-income countries, compared with 43 percent of large ﬁ rms.

Census and detailed survey data from Mexico, Turkey, and Vietnam conﬁ rm the positive correla- tion between internet use and the characteristics of high-productivity ﬁ rms.
Firms in Turkey using the web for online orders or reservations are 11 percent more productive, 25 percent larger, and twice as likely to export.8 Those having a website are twice as productive, twice as large, and more than twice as likely to export as ﬁ rms that do not have a website.
In Mexico and Vietnam, ﬁ rms are more productive if they have more computers per worker, conduct e-commerce, or have a higher share of workers using the internet.9 Figure 1.6 Larger ﬁ rms use the internet more intensively across all income groups, 2006–14 ACCELERATING GROWTH 55 t n e c r e P 100 90 80 70 60 50 40 30 20 10 0 Small Medium Large Small Medium Large Small Medium Large Low-income countries Lower-middle-income countries Upper-middle-income countries Firm size and country income group Sell online Website Broadband Source: Hussain (2015) based on World Bank Enterprise Surveys, various years.
Data at http://bit.do/WDR2016-Fig1_6.

Note: The ﬁ gure shows the percentage of manufacturing and service ﬁ rms that deliver orders over the internet, have a website, and use broadband internet by ﬁ rm size across low-income, lower-middle-income, and upper-middle-income country groups.

The data, pooled for all years between 2006 and 2014, cover only ﬁ rms with at least ﬁ ve employees.

Small ﬁ rms have between 5 and 19, medium ﬁ rms between 20 and 99, and large ﬁ rms more than 100 employees.
The statistics are based on about 100 countries (some countries being surveyed twice) and 27,035 ﬁ rms selling online, 94,083 with a website, and 43,628 using broadband.

More trade, higher productivity, and greater competition Digital technologies raise growth, but quantifying their aggregate impact is diffi cult The accumulation of ICT capital accounted for almost 20 percent of global growth between 1995 and 2014, growth accounting approaches suggest.
However, the results need to be regarded with some caution, as the approach involves some severe measurement prob- lems (box 1.1).

The impact was largest between 2005 and 2009, when it raised aggregate annual growth by 1.3 percentage points a year in developing countries, out of a total of 6.6 percent among these countries, or 19 percent (ﬁ gure 1.7).
And among high-income countries, it contributed 0.4 percentage points out of 1.2 percent, or 38 percent.10 Digital technologies accounted for a higher share of aggregate growth in high-income countries, point- ing to greater digital use.

The accumulation of ICT capital accounted on average for 27 percent of aggre- gate growth (2.1 percent) from 1995 to 2014 in high- income countries and 14 percent of aggregate growth (5.4 percent) in developing countries, consistent with their less intensive use of ICTs.
Firms in developing countries have considerable room to adopt digital solutions that have led to growth in high-income countries, such as using the internet for e-commerce or inventory management.

The true contribution to growth can be larger if ICT complements other production factors, but also smaller if it substitutes for them.

Productivity externalities beyond measured production factors are ascribed to the residual TFP growth.
A necessary (but not sufﬁ cient) condition to accurately measure productivity externalities is analysis at the ﬁ rm level.

Assessing the growth opportunities of the internet warrants more detailed analysis of the mechanisms for it to affect growth.

Against this background, it is instructive to draw insights from the economics of the internet as well as from the past industrial revo- lutions (see box 1.2).
The internet reduces transaction costs, allowing ﬁ rms to enter new markets, enhance their efﬁ ciency, and exploit economies of scale, lead- ing to innovation.

It does this by reducing information frictions, search costs, and the costs to communicate.

The decline can be dramatic if ﬁ rms adapt their busi- ness models to automate data-intensive transactions, generating economies of scale.
56 WORLD DEVELOPMENT REPORT 2016 Box 1.1 Tracing back growth to a single, new technology suff ers from severe measurement problems My view is that pinpointing precisely which (explanatory) variables matter for growth is impossible.

—Robert Barro, 2015 The limited number of observations relative to the seem- ingly open-ended list of other potential growth correlates at the country level makes it almost impossible to reject alternative interpretations of the same macroeconomic correlation.
Faster-growing countries, for instance, have more resources and economic opportunities available to invest in information and communication technology (ICT) infrastructure; thus, the direction of causality may run from growth to ICT rather than the other way around.
Moreover, there are severe endogeneity issues, since diff erences in the provision of ICT infrastructure across countries are likely to be positively correlated with (time-varying) unobserv- able, country-speciﬁ c GDP correlates such as government accountability and other institutional factors, leading to an upward bias in ICT-growth elasticity estimates.

Cross-country growth regressions are not an appropri- ate tool to draw inference on the impact of ICT on growth.
Numerous studies ﬁ nd a positive correlation between GDP growth and (lagged) values of diff erent forms of ICT capital stocks based on cross-country growth regressions.a It is tempting to take the estimated ICT-growth elasticities at face value to quantify the impact of digital technologies on growth.

But this approach has serious shortcomings.


Most important, compared to the seemingly open-ended list of potential growth correlates, the sample sizes in cross-country growth regressions are fairly small due to the ﬁ nite number of countries and the typically limited low- frequency time-series variation in the data.b Growth accounting provides a less ambitious approach; it decomposes aggregate growth into the contribution of each production factor without getting to the issue of causality.
But its precision also hinges on the ability to compute ICT capital stocks, which requires measuring depreciation rates and price indexes for digital technologies that appropriately reﬂ ect quality changes.c The approach also assumes that the contribution of each factor of production to output is proportional to the corresponding share in total input costs.

So, the true contribution to growth can be larger or smaller.
Firm-level studies comprise large sample sizes and allow comparisons of the performance among ﬁ rms oper- ating in similar institutional environments.

ICT investment is a ﬁ rm’s decision—still it is not plausible to assume that it is independent of performance.
A positive productivity correlation in the data might simply capture that more productive ﬁ rms use digital technology more eff ectively, indicating that other potentially unobservable ﬁ rm-speciﬁ c factors explain the positive correlation between digital technologies and ﬁ rm productivity.

In fact, many ﬁ rm-level studies claiming to ﬁ nd productivity externalities still suff er from measurement and reversed causality problems.d,e a.
See Czernich and others (2009), Koutroumpis (2009), or Niebel (2014) for more recent contributions using cross-country regressions to assess the impact of broadband infrastructure on GDP growth.

Qiang, Rossotto, and Kimura (2009); Cardona, Kretschmer, and Strobel (2013); and Minges (2015) provide surveys of the literature using cross-country regressions to assess the correlation between ICT capital and broadband internet on GDP growth, respectively.

b.
b.

Several researchers use methodologies, such as generalized method of moments (GMM) panel estimators, to address the endogeneity issue in cross- country growth regressions, but the results are typically not robust to small variations in the included countries, time periods, or control variables due to the large number of necessary country-level control variables, given the open-endedness of potential factors correlated with growth and ICT capital investments (Hauk and Wiczarg 2009).
c. But the acceleration in computing power (Moore’s observation) involves a severe measurement problem, as conventional price indexes do not capture changes in quality of hardware or software.

Jorgenson (2001) addresses this problem for hardware by constructing a constant quality index of computer prices using hedonic techniques.

The Conference Board (2015) uses the World KLEMS data following this methodology, harmonizing the most recent techniques across countries.
d. See, for example, Gordon (2010, 2014) or Acemoglu and others (2014).

e. For instance, Draca, Sadun, and Van Reenen (2007) argue that causality has not yet been convincingly demonstrated.

The reduction in transaction costs thus increases inclusion (market access), efﬁ ciency, and scale, which translate into economic growth primarily through the three channels of trade, capital utilization, and competition.
Inclusion—facilitating international trade Online marketplaces can reduce differences in the information available to buyers and sellers (for exam- ple, information asymmetries), enabling more ﬁ rms in developing countries to engage in international Figure 1.7 ICT capital accounted for nearly one-ﬁ fth of global growth, 1995–2014 a.

High-income countries b.


Developing countries ACCELERATING GROWTH 57 t n e c r e P 3 2 1 0 t n e c r e P 7 6 5 4 3 2 1 0 1995–99 2000–04 2005–09 2010–14 1995–99 2000–04 2005–09 2010–14 Labor Labor quality Non-ICT capital ICT capital TFP Source: Conference Board 2015.

Data at http://bit.do/WDR2016-Fig1_7.

Note: The ﬁ gure shows the average contribution of factor inputs and TFP to aggregate growth for 39 high-income countries and 91 emerging economies.
ICT = information and communication technology; TFP = total factor productivity.

Box 1.2 Is this time diff erent?

Predicting labor productivity growth at the technological frontier based on lessons from past industrial revolutions History shows that productivity growth driven by general purpose technologies can arrive in multiple waves; it need not simply arrive, give what it has, and fade away forever thereafter.
—Chad Syverson, 2014 It is easy to ﬁ nd echoes of today’s debates about the internet in the history of the industrial revolution.

Each technological breakthrough comes with its own idiosyn- cratic variations, but much can be learned by studying the deliberations and experiences of the past.

Technological revolutions often take a long time to have signiﬁ cant impacts.
The maximum impact of steam power on British productivity growth was not felt until the third quarter of the 19th century, nearly 100 years after James Watt’s patent.a The beneﬁ ts of railroads were fairly small initially, but grew as railroad productivity improved and rail output rose as a share of economic activity.b Similarly, investments in electrical capital equipment did not have important spillovers until the 1920s.c Initially, factory owners simply replaced large steam engines with large electric ones.
It took nearly 40 years after electricity was widely available in the United States for organizational methods to catch up and develop more effi cient decentralized production lines.

How do information and communication technologies (ICTs) stack up with past major general-purpose technol- ogies?

For instance, electricity led to the invention of air conditioning, elevators, and home appliances half a century later.
Arguably, the internet can be regarded as a major follow-up invention from the computer (or microchip), just as the internal combustion engine led to the interstate highway system in the United States 60 years later.

The internet boosts the productivity of computers and mobile phones in the same way that highways boosted the produc- tivity of cars and trucks.
U.S. data show that labor productivity increased on average by 2.4 percent annually after the inventions of the internal combustion engine, electricity, and running water between 1891 and 1972.

Then it slowed, averaging only 1.4 percent annually between 1973 and 1996.

Between 1996 and 2004, it surged again, growing 2.5 percent annually, which scholars ascribe to the fast spread of the internet.d (Box continues next page) 58 WORLD DEVELOPMENT REPORT 2016 Box 1.2 Is this time diff erent?
Predicting labor productivity growth at the technological frontier based on lessons from past industrial revolutions (continued) Since 2004 aggregate productivity growth has returned to its pre-1996 level, averaging 1.3 percent annually.

Does the 2004–13 productivity slowdown in the United States reﬂ ect a petering out of the ICT revolution?
Gordon interprets this as a sign that the IT (or internet) revolution does not have the same lasting impact as previous industrial revolutions triggered by the internal combustion engine or electricity.e But the diffi culty of tracing a country’s growth performance to a single new technology, given severe mea- surement and endogeneity problems, allows alternative interpretations of the same recent historical trend.
Syverson overlays U.S. labor productivity in the electriﬁ - cation era and the ICT era to show that productivity growth in both eras has exhibited remarkably common patterns so far (ﬁ gure B1.2.1).f During the electriﬁ cation era, labor pro- ductivity growth over the ﬁ rst 25 years was relatively slow, just as it was in the ICT era from 1970 to 1995.

Then both eras saw decade-long accelerations in productivity growth, spanning 1915–24 for electriﬁ cation and 1995–2004 for IT.
Analogous to the 2004–12 slowdown, labor productivity growth slowed again in the electriﬁ cation era in 1924–32.

Then labor productivity growth in the electriﬁ cation era sped up again, averaging 2.7 percent annually in 1932–40.

This does not necessarily suggest that labor productivity in the United States will pick up again in coming years.
Figure B1.2.1 U.S. labor productivity during the electriﬁ cation era (1890–1940) shares remarkably common pat terns with the ICT era (1970–2012) 1 9 7 0 1 9 7 5 1 9 8 0 1 9 8 5 ICT era ) x e d n i ( Electrification era Electrification ICT Sources: Syverson 2013; Crafts 2015.
Note: ICT series years are labeled on the upper horizontal axis; the series is indexed to a value of 100 in 1995.

Electriﬁ cation series years are labeled on the lower horizontal axis; the series is indexed to 100 in 1915.

ICT = information and communication technology.

a.

Von Tunzelmann 1978. b. Fogel 1965. c. David 1990. d. Gordon 2014; Syverson 2013. e. Gordon 2010, 2014.

Byrne, Oliner, and Sichel (2013) use a growth decomposition of long-term time-series data and come to a similar conclusion.
f. Syverson 2013. trade (box 1.3).

To purchase any product, the buyer must ﬁ nd a seller, make a payment before receiving the goods, and trust that the seller will deliver the correct amount and quality on time.

As a result of these information asymmetries, only the most pro- ductive ﬁ rms export—typically the larger and older ﬁ rms.11 Online marketplaces help solve all three problems.
They provide an organized marketplace for ﬁ rms to advertise their products and ﬁ nd buyers in overseas markets.12 They thus reduce the costs of trade by enabling ﬁ rms to avoid intermediaries to establish trade connections or participate in costly trade fairs to market their products.

Online market- places that operate internationally, like eBay, Ama- zon, and Alibaba, operate websites in local languages.
Online marketplaces also include rating systems, allowing the buyer and seller to assess each other’s performance.

The ratings and individual comments, visible to anyone, build trust for future transactions and encourage more responsible behavior.

Many online marketplaces also provide payment and delivery services to reduce the cost of e-commerce.
Digital technologies also lower communication costs facilitating the unbundling of tasks, allowing ﬁ rms to offshore production processes and services to developing countries at lower costs.

ACCELERATING GROWTH 59 Box 1.3 Is the internet reshaping economic geography?

Not yet.

delivered over the internet.

But distance might be captur- ing taste preferences that can inﬂ uence online activities.

The eff ects of distance are not uniform across all website visits.
Instead, websites selling digital goods that are dif- ferentiated and dependent on taste (music and games) are aff ected by distance, but more standard digital goods (software and ﬁ nancial information) are not.f The eff ect of distance on online transactions also diff ers across product categories, where goods that appeal to a local market (tick- ets and sports memorabilia) are most aff ected by distance.g The impact of the internet on the location decisions of ﬁ rms and the geography of jobs is less clear.
The internet facilitates the dispersion of ﬁ rms by allowing better com- munication between workers performing complex tasks and greater disintermediation of production processes.

And it enables the dispersion of jobs, as individuals ﬁ nd work regardless of their location through online labor exchanges (chapter 2).
But it also opens locations previ- ously considered economically unfeasible and allows ﬁ rms to cluster in locations to take advantage of comparative advantage, further enabled by better communication tech- nology.h Jobs are clustered in these locations because the ﬁ rms want to access the dense labor market and special- ized inputs suppliers.
The equilibrium eff ect of the internet on the location of ﬁ rms and jobs is diffi cult to determine, but the ﬁ nal global pattern of ﬁ rm location could be many clusters connected by the internet.i Fifteen years ago, a widely read study pronounced the death of distance and concluded that, with better and cheaper communication technology, geography will no longer inﬂ uence individuals and ﬁ rms.

It argued that the internet is making it easier and cheaper to communicate over long distances.
Goods and services, increasingly virtual and weightless, can be delivered over the internet.

That makes location irrelevant to what an individual consumes, to where an individual works, or to where the ﬁ rm establishes its business.a Even though the internet has reduced the economic dis- tance between countries, geography still determines ﬂ ows of goods and services.
Bilateral trade between countries is still negatively related to the distance between them after controlling for the eff ects of the internet.b And online trans- actions are still negatively related to distance: transaction values on online market platforms like eBay in the United States and MercadoLibre in Latin America decline when the distance between buyers and sellers increases.c Internet websites hosted in countries closer to the United States receive more visits by U.S. consumers.d More generally, the number of online transactions globally declines when the bilateral distance between buyers and sellers increases.e Even so, the relationship between trade ﬂ ows and geography is weaker for online transactions than for offl ine transactions.
The impact of distance on digital goods may at ﬁ rst seem counterintuitive, given that they are weightless and a. Cairncross 2001. b. Freund and Weinhold 2004. c. Hortaçsu, Martínez-Jerez, and Douglas 2009; Lendle and others 2012. d. Blum and Goldfarb 2006. e. Cowgill and Dorobantu 2014. f. Blum and Goldfarb 2006. g. Hortaçsu, Martínez-Jerez, and Douglas 2009. h. Leamer and Storper 2001. i. Venables 2001.
More internet use in a country is positively related to the growth of bilateral exports of goods and ser- vices.13, 14 The relationship tends to depend on country income.

Higher internet use in a developing country is related to higher exports to high-income countries, but not necessarily to other developing countries.

Higher internet use in developed countries, in turn, has no effect on their exports.
The similarities in internet use between trading partners can also affect how the inter- net affects trade.
The trade between two countries is 25 percent higher if both countries have high internet use and 31 percent higher if the exporter has high internet use and the importer has low internet use, relative to two countries with low internet use.15 Enabling more ﬁ rms to reach new markets The internet makes it easier to reach new markets and thereby increases the extensive margin of trade— more ﬁ rms start to export and more products get exported.
A 10-percent increase in internet use in an exporting country increases the number of products traded between two countries by 1.5 percent; this increase in the extensive margin can account for as much as 78 percent of the total effect of the internet 60 WORLD DEVELOPMENT REPORT 2016 Figure 1.8 The internet enables more ﬁ rms to reach new markets, 2001–12 ) % ( e s a e r c n i e d a r T 2.0 1.5 1.0 0.5 0 –0.5 Internet use in exporter country Internet use in importer country Intensive margin of trade Extensive margin of trade Source: Osnago and Tan 2015.
Data at http://bit.do/WDR2016-Fig1_8.

Note: Extensive margin of trade: more ﬁ rms start to export and more products get exported; intensive margin of trade: exporters increase the amount of their exports for the same products.

on trade (ﬁ gure 1.8).

The impact of the internet is larg- est if both countries have high internet use.16 Online platforms allow smaller ﬁ rms to become exporters.
The ﬁ rms selling on eBay in Chile, Jordan, Peru, and South Africa are younger and have smaller market shares than ﬁ rms in the ofﬂ ine markets.17 The Alibaba platform has a larger fraction of small ﬁ rms than the ofﬂ ine market.18 Firms exporting through Alibaba also sell more products per ﬁ rm.19 Online platforms enable ﬁ rms to reach new export destinations, changing trade patterns.
Mar- keting goods globally on the internet is cheaper, and customizing the marketing information to suit the local context and language is easier.

So, ﬁ rms trading through online platforms can reach more destinations than their ofﬂ ine peers.
Chinese com- panies selling on Alibaba reach an average of 3 and a maximum of 98 export destinations,20 up from an average of one and a maximum of 50 export des- tinations for the ofﬂ ine ﬁ rms.21 The set of export destinations also differs for ﬁ rms exporting online or ofﬂ ine in China.
And a larger share of the online exports reach emerging markets such as Brazil, Col- ombia, India, Nigeria, the Russian Federation, and Ukraine, compared with exporting ofﬂ ine, which is more intensive in low-income countries or tradi- tional high-income markets such as Germany, Japan, and the United States (map 1.2).

Looking forward, the rise of online marketplaces can accelerate the integration of developing countries into world markets, opening substantial opportuni- ties for trade and future growth.
In China, Alibaba already enables smaller and younger ﬁ rms to sell more products and reach more new consumers or businesses in foreign countries.

Online marketplaces also emerged in other developing regions, but so far only on a (much) smaller scale or for market niches.
The Moroccan online platform Anou enables artisans in rural areas to directly export their products online, cutting out traditional middlemen.22 The Kenyan online platform iProcure prescreens its vendors to provide reliable local procurement services connect- ing agricultural businesses and institutional buyers.23 So, e-commerce platforms should have substantial growth effects if they achieve sufﬁ cient scale in devel- oping regions (see box 1.4).
Increasing the volumes of exported products The intensive margin of trade—deﬁ ned as the average trade per ﬁ rm or product—increases with the internet penetration of countries.

A 10-percent increase in the internet use of a country pair increases the average bilateral trade value per product by 0.6 percent.
More speciﬁ cally, the average export value per ﬁ rm increases by 1 percent if internet use increases by 10 percent in the exporting country; it increases by 0.5 percent if internet use increases by 10 percent in the importing country.24 The rollout of broadband infrastructure boosted exports and labor productivity in China even in the era before Alibaba, from 1999 to 2007.
The number of internet users increased across all provinces between 1997 and 2007, though it was stronger in coastal areas in the earlier years and in several inland provinces in later years.25 The value of real exports seems to have followed a similar pattern.26 The increase in internet domains and users per capita had a positive impact on ﬁ rms’ manufacturing exports in ICT-intensive sectors.27 It raised the number of ﬁ rms that export, the ﬁ rms’ share of export in total sales, and the real value of ﬁ rms’ exports.
The higher share of internet domains and users also increased ﬁ rms’ real output and labor productivity.

Facilitating the unbundling of tasks Better communication technologies have facilitated the unbundling of tasks, the “second unbundling” of international trade.28 Businesses can locate dif- ferent stages of their production in different host 61ACCELERATING GROWTHSource: Chen and Xu 2015.
Data at http://bit.do/WDR2016-Map1_2.Note: Countries are grouped according to their share of total revenue in online trade relative to offl ine trade.

Online trade is measured by Alibaba platform transaction data, and offl ine trade by customs data.

Substantially more offl ine trade is a ratio below 0.5 for the share of a country’s online exports in world online exports divided by the share of its offl ine exports in world offl ine exports.

More offl ine trade is a ratio between 0.5 and 1.


More online trade is a ratio between 1 and 4.75 (75th percentile).

Substantially more online trade is a ratio above 4.75.
Map 1.2 China’s export destinations diff er for ﬁ rms using online platforms, 2006 and 2014IBRD 41767Substantially more offline trade More offline tradeMore online tradeSubstantially more online tradeNot applicable or no dataTrade typeBox 1.4 Successful online platforms account for local context and institutionsSuccessful online platforms cannot necessarily be trans-planted to a foreign country without adapting to the local market and local institutions.

The entry of eBay into China illustrates this.


Both eBay and Taobao, Alibaba’s consumer-to-consumer (C2C) platform, entered the Chinese market in 2003. eBay immediately established its dominant market share of 85 percent by acquiring the Chinese market leader, EachNet.a Taobao, however, quickly assumed a dom-inant position.

By 2014, it accounted for over 80 percent of the Chinese C2C market (eBay exited the Chinese market in 2006).
Alibaba’s success can be explained (at least in part) by its ability to adapt to local market conditions and culture to remove the information asymmetries unique to the Chinese C2C market.
The Taobao website, for instance, indicates whether sellers are online and allows buyers to communi-cate instantly with the sellers through an online messaging system.b Alibaba further guarantees foreign buyers in-time delivery of their money and implemented a system to verify sellers on its website for business-to-business (B2B) trans-actions.

Firms can buy a gold supplier status to have a third-party veriﬁ cation company conduct on-site quality control.a.

Wulf 2010.b.
Wulf 2010.b.

Ou and Davidson (2009) note that Chinese consumers want to be able to communicate with their sellers and solve any problems relating to the transaction immediately.

62 WORLD DEVELOPMENT REPORT 2016 countries to achieve greater efﬁ ciency in each stage.

This unbundling of tasks allows ﬁ rms to outsource production processes and services to developing countries at lower cost, which in turn increases trade in intermediate goods and places more importance on global supply chains.
This trend has, for example, enabled the strong growth in business process out- sourcing in Eastern Europe, India, and the Philippines.

The foreign value added content of exports increased substantially along all major trade routes over the past 20 years, particularly among Asian economies.

Digital technologies reduce the costs of offshor- ing, especially when the host country has signiﬁ cant human capital.
So, production structures become more globalized, and more ﬁ rms choose to offshore different stages of their production.
Higher use of ICTs by ﬁ rms allows headquarters to manage increasingly complex functions, enabling them to conﬁ dently send these functions overseas.29 As com- munication costs decline, exports of headquarter services to foreign afﬁ liates, such as professional and technical services, increase.30 These functions are, however, complex, implying that ﬁ rms select host countries based on their human capital.31 Better use of digital technology in a country encourages multinational ﬁ rms to locate their sub- sidiaries there.
Many foreign subsidiaries are in countries with high business use of the internet, and the entry of a multinational into a foreign market is positively correlated with business use.32 And the pro- vision of digital technology in the host country has a stronger effect on the entry of multinational ﬁ rms when the ﬁ rm is in an industry that uses communi- cation technology more intensively and has fewer routine tasks.
The unbundling of tasks has driven the tripling of service trade over the past 15 years, particularly for business, professional, and technical services such as legal, advertising, consulting, and accounting.

The internet makes it easier for headquarters to transmit information, supervise their factories, and coordinate the supply chain across borders, encouraging ﬁ rms to outsource not only manufacturing but also service tasks.
Trade in education and professional services has also increased.33 Trade in education services prior to the internet was conducted through correspon- dence courses, with textbooks and course materials mailed between instructors and students.

Now web- sites provide massive open online courses, known as MOOCs, with video and other materials over the internet.

They also connect health service providers enabling the spatial unbundling of health services, such as radiology.
Similarly, professional and techni- cal services can be supplied internationally over the internet.

Online platforms like Upwork (formerly Elance-oDesk) create marketplaces for freelancers to provide these services (see chapter 2).
Effi ciency—raising ﬁ rms’ utilization of capital and labor Digital technologies help ﬁ rms save costs by auto- mating data-intensive production processes and reorganizing their business models, increasing their productive use of capital and labor.34 Computers and software allow ﬁ rms to routinize processes, increasing management efﬁ ciency and replacing personnel with, for instance, human resource or supply chain management software.
The internet further increases the opportunities for cost saving by connecting machines, suppliers, and clients, so that ﬁ rms can manage their supply chains and inventory more effectively in real time.

The extent to which dig- ital technologies raise labor productivity depends on ﬁ rms’ activities, but examples abound across coun- tries and economic sectors.
The vast majority of efﬁ ciency gains emerge outside the ICT sector, where ﬁ rms use the internet to sell and market their products online or share real-time information with suppliers to minimize their inventory and with customers to optimize their services.

The digital economy accounts for about 6 percent of GDP in OECD countries (box 1.5).
Less visible but more important for growth, incumbent ﬁ rms in traditional sectors invest in digital technolo- gies to save costs by optimizing their production and management processes.

Retail companies such as Walmart, for instance, have integrated (global) sup- ply chains to minimize their inventory holdings by linking electronic cash registers at retail outlets and business-to-business ordering systems with order dispatch and transportation scheduling at remote factories.
So far, the largest efﬁ ciency gains from ﬁ rms using digital technologies have been found in wholesale and retail trade, business services, insurance, ﬁ nance, and selected manufacturing sectors.

The following section highlights selected illustrations of how digital applications boost ﬁ rms’ efﬁ ciency.

Increasing management effi ciency Crowdsourcing information through mobile phone applications is helping farmers in Tanzania to pre- vent the outbreak of diseases.
In Tanzania’s Lake Zone, 60 groups of farmers from 10 districts belong- ing to the Digital Early Warning Network prevent the outbreak of the cassava disease by crowdsourcing ACCELERATING GROWTH 63 Box 1.5 The growth impact is largest when ﬁ rms in traditional sectors use digital technologies to modernize their business The digital economy accounts for about 6 percent of gross domestic product (GDP) in OECD (Organisation for Economic Co-operation and Development) countries (ﬁ gure B1.5.1).a In the United States, which hosts some of the biggest tech companies, the value added of information and communica- tion technology sectors in GDP is 7 percent, compared with 13 percent in real estate, renting, and leasing; 12 percent in wholesale and retail trade; and 8 percent in ﬁ nance and insur- ance or health and social services.b The value added of infor- mation and communication technology (ICT) sectors in GDP is the highest in Ireland (12 percent), thanks to large inﬂ ows of foreign direct investment.
In Kenya, which hosts one of the largest ICT sectors among African countries, the value added share of ICT services in GDP was 3.4 percent in 2013; that includes telecommunications (and thus mobile money).c Despite the strong growth and high market valuations of internet ﬁ rms off ering conventional services, their mar- ket shares in these traditional sectors to date have been relatively small.

Consider Amazon.
Consider Amazon.

In the United States, its home market, Amazon accounted for only 1.7 percent of the retail market in 2014; e-commerce accounted for about 7 percent of the U.S. retail market in 2015.
By contrast, offl ine sales accounted for more than 99 percent of all sales of food and beverages; 84 percent of clothing and furniture; and 59 percent of books, magazines, and music.d Less visible but more important for growth, incumbent ﬁ rms in traditional sectors invest in digital technologies to save costs by optimizing their production and management processes.
The McKinsey Global Institute estimates that 75 percent of the economic impact of the internet in 12 large developing and developed countries originates in ﬁ rms in traditional sectors—ﬁ rms that would exist without the internet but that use it to increase their cost-eff ectiveness.e The ﬁ ndings are consistent with studies showing that the bulk of U.S. productivity growth over the past 15 years orig- inated in ICT-using, not-producing sectors.f Figure B1.5.1 The ICT sector accounts for 4–7 percent of GDP in most OECD countries, 2011 t n e c r e P 14 12 10 8 6 4 2 0 A ustria Iceland Portugal Poland N orw ay Belgiu m G reece Slovenia Spain C anada Italy N etherlands G er m any France Slovak Republic D en m ark Finland C zech Republic S witzerland H ungary U nited States Luxe m bourg S w eden Estonia U nited Kingdo m K orea, Rep. Ireland Japan Source: OECD 2015.
Data at http://bit.do/WDR2016-FigB1_5_1.

Note: ICT value added is the diff erence between the ICT sector’s gross output and intermediate consumption.

The data are from 2011.

The aggregate of information industries here includes ISIC rev.
4 division 26 (manufacture of computer, electronic and optical products) and section J (information and communication), which in turn comprises divisions 58–60 (publishing and broadcasting industries), 61 (telecommunications), and 62–63 (computer programming, and information service activities).

ICT industries are broadly deﬁ ned, as they include publishing and broadcasting, trade and repair activities, and media and content industries (Division 63.9).

a.
a.

The McKinsey Global Institute (Manyika and others 2011) used a diff erent approach to compute the contribution of the internet to GDP.

It computes the total value of three main activities based on the internet: activities using the internet as support (e-commerce, online content, or advertising); internet service providers; and software and internet service activities such as IT consulting, hardware manufacturers (computers, smartphones, or hardware equipment).
They ﬁ nd that these activities account on average for 3.4 percent of GDP among the G-8 countries, Brazil, China, India, the Republic of Korea, and Sweden in 2009.

The impact is largest among the developed countries.

The shares include publishing and broadcasting activities and media and content industries.

b.

The classiﬁ cation includes internet ﬁ rms such as search engines, but not online retailers.
The market share of online retailers is, however, still relatively small: Amazon accounted for only 1.7 percent of the retail market in the United States in 2014; see http://www.bea.gov/.

c. World Bank 2015. d. Economist 2014, 2015b.

e. McKinsey Global Institute (Manyika and others 2011).
The results are based on a survey of 4,800 small and medium enterprises in the following 12 countries: Canada, China, France, Germany, India, Italy, Japan, the Republic of Korea, the Russian Federation, Sweden, the United Kingdom, and the United States.

f. See, for example, Jorgenson 2001, 2011.

64 WORLD DEVELOPMENT REPORT 2016 information.35 Each farmer has a topped-up phone card and has been trained to recognize early symp- toms of cassava mosaic disease and brown streak disease.
The farmers use the mobile phones to send monthly text messages to researchers about disease incidence.

In return, they receive advice on disease control, and disease experts visit the area when more than 10 percent of the members of a group report the disease.

The network, part of the Great Lakes Cassava Initiative, supports more than 1 million farmers in six countries.

Digital technologies help farmers in Botswana meet quality and traceability requirements for beef exports to the European Union.
The farmers use the Livestock Identiﬁ cation Trace-Back System, based on transponders inserted into each animal, transmitting information automatically to databases in 46 district ofﬁ ces.

The centrally stored data allow exporters to trace beef to the individual cattle and their owners, necessary to meet traceability requirements for imports into the European Union.

The technology also helps improve veterinary services and save costs by optimizing feeding schedules.
Digital interventions in agriculture seem to work best when the information provided to farmers is simple, such as real-time prices or weather forecasts.

Based on simple mobile phone applications or inter- net kiosks, real-time data improve farmers’ access to prices, local weather forecasts, and more detailed advice on agricultural practices and input use (see sector focus 1).
Real-time data help equipment manufacturers in China turn over their inventory stocks ﬁ ve times faster than suppliers not connected to the internet.

Supply chains and logistics operations account for 10–20 percent of Chinese equipment manufacturers’ costs, so companies using real-time data to optimize inventories and transportation routes can achieve substantial efﬁ ciency gains.
Anji Logistics, a wholly owned subsidiary of Shanghai Automotive Industry Corporation, connects its IT systems with dozens of Chinese equipment manufacturers to manage logistics.

General Motors China has cut costs and improved customer satisfaction by building internet connectivity into cars, so that dealers can check faults remotely and send maintenance alerts to owners.
With only 20–25 percent of small manufacturing ﬁ rms in China estimated to have used the internet in 2013, there clearly is more scope to improve manufac- turing efﬁ ciency.36 The Egyptian logistics ﬁ rm RW uses the online platform En2ly to optimize supply chains, shortening the time to deliver goods.

The platform ensures more efﬁ cient real-time communication and coordination with clients and gives RW access to a large pool of independent carrier trucks.
Each truck has a global positioning system (GPS), so RW can track shipments in real time and be notiﬁ ed once the shipment is delivered.

The technology shortens the supply chain gap between shipment and delivery in the domestic market, allowing RW to provide superior transport services at more competitive rates.

Connected water metering systems help munici- palities identify leaks or changes in water use, reduc- ing water losses by up to 10 percent.
At its research center in France, U.S. manufacturer Itron developed water metering systems with wireless devices allowing remote reading over large distances, so that municipalities can reorganize maintenance and respond immediately to water waste or losses in the distribution network.

The data also improve water consumption analysis to optimize client service and tariff structures.
Itron’s production of communica- tion devices has increased ﬁ fteenfold since 2000, and its production of water meters threefold.
Such connected metering systems have great potential to save drinking water—more than 30 percent of the drinking water produced worldwide never reaches the customer (often due to leaks).37 Looking forward, the internet of things should further increase the labor productivity of ﬁ rms, implying substantial opportunities for more efﬁ - cient business models and thus future growth (see spotlight 6).
For instance, the German truck body and trailer manufacturer Schmitz Cargobull uses telemat- ics (the integrated application of telecommunications and data) in its trailers for real-time sharing of data with drivers, freight agents, and customers on main- tenance, loaded weights, cargo temperatures, and truck locations.

The company adjusted its organiza- tional structure and management practices to max- imize efﬁ ciency gains and escape competition from low-wage countries.
As a result, the ﬁ rm’s production pace necessary to meet customer demand fell by 90 percent, internal failures decreased by 92 percent, and yearly accidents declined by 95 percent between 2000 and 2013, as its market share for refrigerated trailers in Europe rose to 50 percent.38 Enabling online marketing and distribution Firms are ﬁ nding new and more efﬁ cient ways to market and distribute their products online.
Carmak- ers represented on the internet in China can attend to about 10 million searches each day on Baidu, reduc- ing their marketing and sales costs relative to non- connected manufacturers.

Volkswagen, for instance, is selling cars online to Chinese customers through its own website and on the e-commerce site Tmall.39 Other manufacturers in China have been working with search engines to gain deeper insights into customer preferences to incorporate them in product development.
the internet Vietnamese ﬁ rms using for e-commerce had 3.6 percentage point higher pro- ductivity growth in subsequent years.

The rollout of broadband internet infrastructure in Vietnam (see map 1.1) is positively correlated with ﬁ rm productiv- ity growth.

Using the internet increased TFP growth by 1.9 percentage point; ﬁ rms also doing e-commerce increased TFP growth by an additional 1.7 percentage point (ﬁ gure 1.9).
The effect of e-commerce is larger in sectors that use ICT more intensively, consistent with a causal impact on productivity growth (see box 1.6).40 ACCELERATING GROWTH 65 Figure 1.9 Vietnamese ﬁ rms using e-commerce have higher TFP growth, 2007–12 s t n o p i t e g a n e c r e P 4 3 2 1 0 Labor productivity growth effect TFP growth effect e-commerce Internet use Innovation—intensifying competition and creating new business models Online services and platforms eliminate search and communication costs, increasing price transparency and lowering the ﬁ xed costs to start a business.
Lower ﬁ xed and marginal costs enable new startups to exploit scale economies from the beginning, sup- porting their rapid growth.

The transaction costs for each new customer is almost zero for some services, Source: Nguyen and Schiff bauer 2015 for the 2016 WDR.

Data at http://bit .do/WDR2016-Fig1_9.


Note: Results are based on a regression of TFP or labor productivity growth on the one-year lag of a dummy if the ﬁ rm used the internet and the one- year lag of a dummy if the ﬁ rm also conducts e-commerce.

The regressions control for year ﬁ xed eff ects, province ﬁ xed eff ects, industry ﬁ xed eff ects, ﬁ rm age, ﬁ rm size, foreign ownership, exports status, state ownership, and the share of workforce with a secondary schooling degree.
The internet or e-commerce eff ects are signiﬁ cantly larger in ICT-intensive industries, measured by World KLEMS two-digit sector-level data for Japan or the United States; two-digit sector-level data on telecommunication expenses in China; or four-digit sector-level data from a Vietnamese ﬁ rm census, 2007–12, with more than 300,000 observations each year.

ICT = information and communication technology; TFP = total factor productivity.

Box 1.6 Do digital technologies embed productivity externalities?
Firms’ total factor productivity (TFP) growth in high- income countries is often positively associated with information and communication technology (ICT) capi- tal accumulation.a The relation has been stronger in the United States relative to the European Union, particularly in ICT-using sectors, such as retail and wholesale trade, ﬁ nance, and other business services.b The few studies for developing countries show that the correlations between ﬁ rms’ ICT capital stock and TFP growth in Brazil and India are comparable to those estimated for high-income coun- tries.c A few recent studies focus on the impact of rolling out broadband infrastructure on ﬁ rm productivity growth, but the results are ambiguous.d infrastructure rollout must be independent from productiv- ity growth in the diff erent locations.
Such a case is arguably provided by the limited funding of a public program rolling out broadband internet access points in Norway in the early 2000s; the expansion of broadband increased ﬁ rms’ pro- ductivity.f Another study shows that establishments owned by U.S. multinational companies in the United Kingdom use their ICT capital stock more productively (after takeovers) relative to domestic ﬁ rms and establishments owned by multi nationals from other countries.
This productivity dif- ferential is highest in exactly the same sectors that were responsible for the U.S. productivity surge from ICT invest- ments in the 2000s, pointing to a causal impact of ICT on ﬁ rm productivity among U.S. ﬁ rms in these sectors.g Knowledge spillovers?

Some recent studies suggest a causal impact of ﬁ rms’ use of digital technologies on their TFP growth.e Identifying a causal impact requires that the spatial sequencing of ICT Foreign direct investment spillovers?
Foreign direct investment (FDI) in Jordan’s ICT sector did not lead to growth spillovers among domestic ﬁ rms (Box continues next page) 66 WORLD DEVELOPMENT REPORT 2016 Box 1.6 Do digital technologies embed productivity externalities?

(continued) interacting with the foreign tech companies.

Neither domestic ﬁ rms supplying goods or services to foreign tech companies (backward linkages) nor domestic ﬁ rms consuming their services (forward linkages) grew as results of such linkages.
The lack of measurable growth spillovers could be due to the relatively small number of foreign multinationals in the ICT sector (8 in ICT-producing sectors, and 160 in ICT-using sectors).

And there are still relatively few domestic ICT companies in Jordan, such as software programmers, which are expected to beneﬁ t most from linkages with foreign tech companies.
Furthermore, foreign ﬁ rms like Microsoft or Oracle might use Jordan primarily as a hub to support regional activities involving few linkages to the domestic economy.

The lack of spillovers to ICT-using sectors in Jordan suggests that Jordanian ﬁ rms import ICT services rather than depend on the presence of foreign tech companies in the country.h internet increases Producing new products and processes?

Broadband innovation.
A study of German ﬁ rms shows that broadband (DSL) infrastructure rollout between 2001 and 2003 increased ﬁ rms’ process and product innovation once broadband internet was avail- able within their districts (measured by the postal code).i A study of six African countries ﬁ nds that more intensive use of computers or the internet enabled more product and process innovation in 2014.j Production technologies diff er in whether they are more or less widely applicable across products or industries.
That is, some knowledge can be more readily adapted for use in related production processes while other knowledge is limited in its application.

So, products or industries embodying more applicable technologies also have more scope for technology externalities.

A recent study uses pat- ent citation data from the U.S. Patent and Trademark Offi ce to trace the bilateral direction and intensity of knowledge ﬂ ows between technologies.
It ﬁ nds that digital technol- ogies typically are more widely applicable in driving the discovery of new technologies.k Increasing international technology diff usion?

The internet reduces geographic distances, which are the main predictor of international technology diff usion.

Technology spillovers provide an indirect channel for digital technologies to boost effi ciency and thus ﬁ rm productivity growth beyond ﬁ rms’ measured ICT capital stocks.
For instance, the internet might facilitate the (international) diff usion of technologies by providing access to relevant information or inducing knowledge spillovers between users.

The literature suggests that geographic distances are barriers to international technology diff usion.l Likewise, several studies ﬁ nd that bilateral trade ﬂ ows embed learn- ing externalities, spurring the diff usion of technologies.
This Report provides evidence that the internet enhances trade and reduces distance, suggesting that the internet facilitates the international diff usion of technologies, even though the growth contribution of this channel is diffi cult to verify empirically.

a. Cardona, Kretschmer, and Strobel 2013. b.


See, for example, Inklaar, Timmer, and van Ark 2008; Schiff bauer, Seraﬁ ni, and Strauch 2011; Bloom, Sadun, and Van Reenen 2012. c. Commander, Harrison, and Menezes-Filho 2011. d. Haller and Lyons (2015); Colombo, Croce, and Grilli (2013); and Bertschek, Cerquerab, and Kleinc (2013) do not ﬁ nd a signiﬁ cant impact of the rollout of broadband infrastructure on ﬁ rm productivity in Ireland, Italy, and Germany, respectively.
By contrast, Grimes, Ren, and Stevens (2012) and Akerman, Gaarder, and Mogstad (2015) ﬁ nd a positive impact in New Zealand and Norway, respectively.

The results might suggest that moving from basic inter- net access to broadband leads to only marginal productivity improvements.

However, it might also be too early to measure the eff ect of high-speed internet in ﬁ rm-level data, since ﬁ rms’ use of the internet is often still relatively basic.
e. Most studies attempt to address the endogeneity problem by using lagged ICT or human capital variables as instruments.

However, unobserved tran- sitory shocks (or unobservable ﬁ rm-speciﬁ c factors) lead to serial correlation in ICT and productivity measures that make these types of instrumental variables invalid.

f. Akerman, Gaarder, and Mogstad 2015. g. Bloom, Sadun, and Van Reenen 2012. h. See Lamla and Schiff bauer 2015. i.

See Bertschek, Cerquerab, and Kleinc (2013).


The authors analyze the impact of DSL infrastructure rollout in Germany in an early phase, when about 60 percent of German ﬁ rms already used broadband internet.

j. Cirera, Lage, and Sabetti 2015. k. Cai and Li 2015. l. See Keller 2002; Keller and Yeaple 2013. enabling scale effects and increasing the proﬁ ts from innovation.
Such scale effects inspire new business models based on the internet in services ranging from retail trade, transport, and logistics to tourism and ﬁ nance.

Innovations include mobile money, dig- ital marketplaces, price comparator websites, online media, and the sharing economy.

The substantial scale effects for some activities have also led to digital goods trading exclusively online, as for e-books, online search, and streaming music and videos— making transport, storage, and distribution obsolete.
Figure 1.10 Firm entry rates rose after countries introduced online registration systems, 2006–12 ACCELERATING GROWTH 67 Intensifying competition Price comparator websites enhance transparency in prices and result in lower and less dispersed prices for consumers.

Consider term-life insurance, where aver- age prices have fallen up to 15 percent in the United States after the introduction of comparator sites.41 These websites emerged in 1996 and eliminated the previously high markups.
The potential customer ﬁ lls out a medical questionnaire online, and the sites report quotes from companies that offer a suitable policy.

In almost all cases, the individual does not buy the product directly online but gets connected instead to the ofﬂ ine seller.

Comparator sites essentially pro- vide an information platform between the consumer and the life insurance company that formerly was available only to brokers.
In contrast, the prices of whole-life insurance, which were not covered by these sites, were not affected—whole-life insurance is a more complex product including built-in saving components, leaving more room for asymmetric information across buyers and sellers; a decline in search costs is thus less relevant.

Online registration systems can lower the cost of entry for new players, increasing competitive pres- sure for incumbents.
The number of newly registered limited liability ﬁ rms has increased, on average, 56 percent after the introduction of online registration systems (from 2.7 per 1,000 working-age population in years before the reform to 4.2 in the years after).42 But this positive average impact masks heterogeneity across countries (ﬁ gure 1.10).

Thirty-three countries introduced online registration systems for ﬁ rms between 2006 and 2012.

The entry density declined somewhat in 8 of the 33 countries.
Two out of three ﬁ rms experience moderate or severe competition from digital innovations.

The share of ﬁ rms reporting competitive pressure from traditional competitors is somewhat higher than the share of ﬁ rms reporting competitive pressure from digital technology startups (ﬁ gure 1.11).
Firms in tradi- tional sectors using digital technologies to modernize their business are thus an important source of com- petition (see also box 1.5).43 Bringing competition to incumbent ﬁ rms The internet has created new types of startups that base their business model entirely on the web but offer traditional services such as retail trade, ﬁ nance, transport, logistics, tourism, media, publishing, and advertising.
These new business models dissolve the y t i s n e d m r i f e g a r e v A 8 6 4 2 0 At 90th percentile, difference = ~2 At 75th percentile, difference = ~1 At median, difference = ~0.1 Before reform After reform Sources: World Bank Doing Business database, 2007–12; World Bank Entre- preneurship Database, 2006–12.

Data at http://bit.do/WDR2016-Fig1_10.

Note: The entry densities are based on regression coeffi cients using the reform years in the Doing Business database.
The reform year is either the year when the online business registration was introduced or when signiﬁ cant digital measures were undertaken to make the online registry more eff ective.

boundaries between the online and ofﬂ ine econo- mies and can help break existing regulatory barriers to entry in sectors that are often protected from competition.

Mobile money spurs competition in ﬁ nance.
Safari- com, the leading telecom ﬁ rm in Kenya, launched the mobile money service M-Pesa in 2007, allowing users to transfer money through a simple text-based menu Figure 1.11 Two out of three ﬁ rms report competitive pressure from digital innovations, 2014 Established companies that are using digital technology to enter the market(s) for the first time Digital offerings from traditional competitors Startups driven by digital technology 0 10 20 30 40 50 60 70 80 90 100 Percent Moderate-to-severe competitive pressure Limited-to-no competitive pressure Not available Source: Economist 2015a.
Data at http://bit.do/WDR2016-Fig1_11.

The data are based on a global survey with 561 respondents.

68 WORLD DEVELOPMENT REPORT 2016 available on the most basic mobile phone.

By the end of 2013, 17 million Kenyans, or more than two-thirds of the adult population, were using the service to pay for taxi rides, electricity bills, or daily supermarket purchases.

M-Pesa also created new opportunities for innovation.

Kopo Kopo partnered with Safaricom to offer mobile money services to businesses.
One of the key factors underpinning M-Pesa’s success in Kenya was the regulator’s decision to permit the scheme to proceed as an experiment without formal approval: similar schemes in other countries have typically been held up by opposition from banks and regulators.
Firm-level data show that M-Pesa reduces the prices of competing services in the ﬁ nancial sector.44 Internet startups offering ﬁ nancing based on “big data” analysis to target unbanked customers increase the competitive pressure for traditional banking ser- vices.

For example, in China, regulations in the ﬁ nan- Figure 1.12 Prices of taxi medallions have started to decline following the entry of on-demand services and reduced demand for traditional taxis a.
Sales price of New York City taxi medallion, 2002–15 Uber started operation in the U.S. s r a l l o d .

S .

U 1,200,000 1,100,000 1,000,000 900,000 800,000 700,000 600,000 500,000 400,000 300,000 200,000 b.

Average monthly number of trips per traditional taxi in San Francisco, January 2012–August 2014 s p i r t f o r e b m u N 1,600 1,400 1,200 1,000 800 600 400 200 0 Jan. 2 0 1 2 M ar.
2 0 1 2 M ay 2 0 1 2 July 2 0 1 2 Sept. 2 0 1 2 N ov.

2 0 1 2 Jan. 2 0 1 3 M ar.

2 0 1 3 M ay 2 0 1 3 July 2 0 1 3 Sept. 2 0 1 3 Jan. 2 0 1 4 N ov.

2 0 1 3 M ar.

2 0 1 4 M ay 2 0 1 4 Sept. 2 0 1 4 July 2 0 1 4 Sources: Wei and Mozur 2014; Metropolitan Transportation Agency (New York), http://www.mta.info/; Golovin 2014.

Data at http://bit.do/WDR2016-Fig1_12a.

cial sector have been restrictive, with deposit interest rates partially liberalized only recently.
In contrast, internet platforms for businesses are often loosely regulated, allowing them to offer ﬁ nancial services that bypass regulations in the ﬁ nancial sector.45 Yu’E Bao, Tencent’s online bank, and WeBank, for instance, offer online banking services in China.

They collect deposits from households and lend money using big data analytics to assess the creditworthiness of poten- tial borrowers.

Yu’E Bao had 150 million subscribers by the end of 2014.
These internet ﬁ rms threaten the proﬁ tability of traditional banks, increasing com- petitive pressure.

Similar startups have emerged in other countries.

ZestFinance, LendUp, and Wonga currently target unbanked subprime customers in Canada, Europe, South Africa, and the United States.

German startup Kreditech and Hong Kong SAR, China, startup Lenddo use information from social media proﬁ les and networks to determine the cred- itworthiness of potential customers.
Lenddo targets the thriving middle class in developing countries, which often lacks access to local ﬁ nancial services.

Ghanaian startup Cigniﬁ uses borrowers’ mobile phone records to judge their creditworthiness.

Online marketplaces exert competitive pressure on brick-and-mortar retailers to innovate.
The most prominent are online retailers and wholesalers such as Amazon and eBay in the United States, Alibaba in China, Flipkart and Snapdeal in India, Ozon in Rus- sia, Jumia and Konga in Nigeria, and Takealot and Kalahari in South Africa.

In the United States, online sales accounted for 25 percent of all retail sales for computers, electronics, and appliances in 2013.
The competition from online retailers has led many large traditional retailers in the United States to combine digital and physical consumer experiences by offer- ing online orders and in-store pickup services to improve their efﬁ ciency.

And some online retailers such as Amazon started to open brick-and-mortar stores to enjoy potential (marketing) advantages of traditional retailers.

Ride sharing services enhance competition and the efﬁ ciency of transport services.
Many cities around the world require drivers to hold a license to operate a taxi; entering the market is often asso- ciated with high ﬁ xed costs since licenses are issued rarely and must be bought from current owners.
The licensing system, together with growing urban populations, has led prices for taxi medallions to sky- rocket in large cities worldwide; in New York City, the cost of a single-taxi medallion increased from about US$400,000 in 2004 to more than US$1,100,000 in the beginning of 2013 (ﬁ gure 1.12, panel a).

But the new ACCELERATING GROWTH 69 competition from ride sharing services reversed the trend.

In San Francisco, the home city of these com- panies, taxi use fell 65 percent (ﬁ gure 1.12, panel b).
After decades of steady increases, single-taxi medal- lion prices in New York City started to slump, falling to about US$800,000 by the end of 2014 (the trend is similar in other cities).46 The new competition also forces taxi companies around the world to reduce their prices or improve their services.

Taxi companies in various cities have begun to develop joint smart- phone applications enabling online payment, rating, and vehicle tracking in real time to compete with the ride sharing services.
The trend is not conﬁ ned to high-income countries.

While Uber operates in more than 57 countries and 300 cities, regional competitors have emerged, such as Lyft and Sidecar in the United States, Hailo and BlaBlaCar in Europe, Kuaidi-Didi Taxi in China, Olacabs in India, and Easy Taxi in Nigeria.

Digital innovations increase welfare in many ways that are not necessarily captured by GDP statistics.
These welfare gains are even more difﬁ cult to quan- tify, but a growing literature is shedding more light to these “unmeasured beneﬁ ts” of the internet (box 1.7).

Internet platforms also reduce the entry costs in other service sectors contesting conventional business models.

Airbnb operated in more than 40 countries in 2014, enabling owners to let their homes for short-term rents.
This puts competitive pressure on the hotel and tourism industry, which has frequently enjoyed high rents due to local market segmentation or exclusive contracts in developing countries.

The Estonian startup TransferWise and the U.S. startup Xoom match requests for international currency transfers online, saving direct and indirect trans- action fees by clearing reciprocal currency transfer requests.
The startups reduce regulatory rents by reducing the prices of international currency transfers by up to 90 percent.

Postmates and Parcel provide local logistics services in U.S. urban centers and are starting to compete with traditional service provid- ers such as Federal Express, but also with existing e-commerce platforms by matching customers demanding any type of locally available goods with a pool of couriers.
And Kenyan startup Sendy pro- vides a platform accessible by simple mobile phones connecting customers with motorcycle couriers to offer delivery services payable with mobile money.47 Upwork (formerly Elance-oDesk) matches ﬁ rms in high-income countries with freelancers offering professional service tasks in developing countries.
The Ugandan internet platform eKeebo connects Box 1.7 Much of the beneﬁ t from the internet is unmeasured The internet off ers many beneﬁ ts to individuals that are not captured in the gross domestic product (GDP) statistics.

Countries compute GDP based on activities measured in monetary terms and exclude activities that do not generate monetary transactions.
But many online activities generate substantial beneﬁ ts for the individual, such as time saved, consumer convenience, expanded choice, better quality leisure time, and access to more knowledge.

These beneﬁ ts can be understood as the consumer surplus: the diff erence between the price individuals are willing to pay and the actual price for the product or service, which is often free on the internet.
Economists are developing new techniques and col- lecting new data to present a more accurate estimate of the consumer surplus from the internet.

One method is to analyze the price and quality outcomes of using the internet in a sector.

A recent study compares the online and offl ine prices of used books, ﬁ nding that online prices are lower than the prices in brick-and-mortar bookstores.
It infers that the buyers and sellers are better matched online.a This stylized fact is an example of the “Long Tail” argument, which notes that online stores provide a larger variety of products and can sell niche products to more consumers.b The same study also estimates that the consumer surplus is higher when con- sumers shift to purchasing used books online.c A study of the music industry ﬁ nds that variety and diversity have improved since 2000, mostly because independent labels and musi- cians can operate online and release their music digitally.d Another way to calculate the consumer surplus from the internet is to directly measure individuals’ willingness to pay for the internet (online products and services are often free and funded through advertisements).
A McKinsey survey of consumers in France, Germany, the Russian Federation, Spain, the United Kingdom, and the United States in 2010 found that an average household would be willing to pay approximately €38 a month for internet services that it (Box continues next page) 70 WORLD DEVELOPMENT REPORT 2016 Box 1.7 Much of the beneﬁ t from the internet is unmeasured (continued) currently receives for free.e Similarly, an examination of time-use data estimates that the median individual gains more than US$3,000 annually from the internet.f A study comparing the outcomes of online searches to offl ine searches in a library ﬁ nds that the average online search tends to be faster by 15 minutes, the results are more accurate and relevant, and the experience is more enjoy- able than the offl ine search.g Also attempting to measure consumer surplus, another study ﬁ nds that users of Google obtain a surplus of US$500 a year, on average, or a total of US$150 billion for a 300-million user base.h The increase in time saved and in quality—and thus the productivity of work from using the internet—can indirectly increase GDP statistics.
Conversely, the internet has also reduced productivity by providing an easy way to procrastinate and distract oneself with social networking sites and cute animal videos.

The aggregate eff ects of the internet use of individuals are diffi cult to determine—an interesting avenue for further research.

But all this is not new.

The initial gains from past techno- logical change were also undercounted in GDP.
For exam- ple, the cost savings from railroads made up about three- fourths of the total gains in GDP in the mid-19th century; by the early 20th century, this had fallen to about one-fourth.

Time saving became by far the more important beneﬁ t as commute times shortened and the leisure time of working- class customers increased.

Similarly, U.S. national accounts did not reﬂ ect the output from automobiles for nearly 15 years after the Ford Model T, the ﬁ rst mass-produced car, was available.
Source: Crafts 2015. a. Ellison and Fisher Ellison 2014. b.

See Anderson 2006. c. Ellison and Fisher Ellison 2014. d. Waldfogel 2013. e. McKinsey Global Institute (Manyika and others 2011).

f. Goolsbee and Klenow 2006. g. Chen, Jeon, and Kim 2014. h. Varian 2011. individuals who want an authentic home-cooked meal with independent or amateur chefs, circumventing restaurant licensing, which can be a source of rent- seeking in developing countries.
Cloud computing can reduce the costs of entry in developing countries, implying substantial oppor- tunities for innovation and competition and thus future growth.48 It provides computing infrastructure (processing, memory, and storage of data), platform applications, and software services for ﬁ rms with access to the internet.

Firms can use these services, for a fee, without investing in the underlying hard- ware or software infrastructure.
Cloud computing has signiﬁ cantly reduced the ﬁ xed costs of starting a business in the last decade.

Startups can use the latest computing infrastructure, video conferencing ser- vices, or online payment systems at much lower cost.

The reduction in entry costs has so far materialized mainly in high-income countries.

Although local pro- viders have emerged in developing regions, such as Angani in Kenya and Data Park in Oman, these have not yet achieved sufﬁ cient scale.
Digital technologies can lead ﬁ rms and countries to diverge Divergence—with beneﬁ ts short of expectations Despite the opportunities, ﬁ rms’ use of digital tech- nologies differs substantially across sectors and coun- tries; the differences prevail when comparing the ICT intensities of the same sectors across countries with a similar GDP per capita.
The share of ﬁ rms that used the internet for banking in 2012, for example, was below 20 percent in several middle-income countries, but more than 80 percent in others (ﬁ gure 1.13).

This divergence in the intensity of internet use for ﬁ rms in the same sector is conﬁ rmed by more detailed survey data from six African countries in 2014.

The share of manufacturing and service ﬁ rms with at least ﬁ ve employees using the internet ranged from 22 percent in Tanzania to 73 percent in Kenya.
Of manufacturing ﬁ rms in Kenya, 41 percent used it to manage their inventories, compared with 27 percent in Zambia and only 6 percent in Uganda (ﬁ gure 1.14).

Of service ﬁ rms in Kenya, 41 percent used the internet to manage their inventories, compared with 15 percent in Zambia, 12 percent in Uganda, and only 8 percent in the Democratic Republic of Congo and Tanzania.
The divergence in the shares of man- ufacturing or service ﬁ rms that sell goods online or use the internet for marketing was comparably large across these six countries.49 The share of retail ﬁ rms that sell their products online varies substantially across Latin American countries with a similar GDP per capita.

In Bolivia, 52 percent of all ﬁ rms with at least ﬁ ve employees in the retail sector sold their products online in 2010 (ﬁ gure 1.15).
Peru had a slightly higher GDP per capita in 2010, but only 14 percent of retail ﬁ rms with at least ﬁ ve employees sold online.

Only 18 percent of retail ﬁ rms in Brazil sold online in 2010, and only 27 percent in Panama.

In Mexico and Uruguay, about half of all retail ﬁ rms sold online; in Argentina 62 percent.

Variations in the share of retail ﬁ rms that do e-commerce are comparably large in the other devel- oping regions.
The share of ﬁ rms that use connected customer relationship management (CRM) platforms to facili- tate sales, customer support, and related interactions with customers or other businesses varies substan- tially across sectors and countries in Europe (ﬁ gure ACCELERATING GROWTH 71 Figure 1.13 Firms’ use of online banking varies substantially across countries at comparable incomes, 2003–06 and 2008–13 i g n k n a b t e n r e t n i i g n o d s m r i f f o % 100 80 60 40 20 0 UKR BRA ARG HRV CZE MLT SVK BRA LTU URY TUR POL LBN HUN KAZ BGR LVA URY AZE MKD PSE ROU RUS OMN EGY AZE 0 BLR EST SVN FIN ESP BEL AUT SWE AUS ISL ISL CHE DNK IRL NOR LUX ITA DEU NLD GBR SGP GRC PRT ARE CYP SGP KOR THA THA 20,000 40,000 60,000 80,000 GDP per capita (constant 2005 US$) Circa 2004 Circa 2012 Source: UNCTAD, http://unctad.org/en/Pages/Statistics.aspx.
Data at http://bit.do/WDR2016-Fig1_13.

Note: The ﬁ gure shows all countries with available data for the latest year with available data from 2003–06 and 2008–13.

1.16).

In Austria, 60 percent of retail and wholesale ﬁ rms use integrated CRM systems, but only 28 percent do in the United Kingdom.

Half of all man- ufacturing ﬁ rms in Germany use these systems, Figure 1.14 Firms’ use of the internet varies among six African countries, 2014 a.

Manufacturing b.
Manufacturing b.

Services t n e c r e P 45 40 35 30 25 20 15 10 5 0 t n e c r e P 50 45 40 35 30 25 20 15 10 5 0 Managing inventory Selling online Marketing Managing inventory Selling online Marketing Tanzania Uganda Congo, Dem.

Rep. Zambia Ghana Kenya Source: Cirera, Lage, and Sabetti 2015.

Data at http://bit.do/WDR2016-Fig1_14.


Note: The ﬁ gures show the shares of ﬁ rms in the manufacturing and services sectors that use the internet to manage their inventory, sell their goods or services, and do marketing.

The results are based on 2,843 ﬁ rms (1,458 manufacturing and 1,385 service ﬁ rms) in these six African countries in 2014.
72 WORLD DEVELOPMENT REPORT 2016 Figure 1.15 The share of ﬁ rms in the retail sector that sell their products online varies substantially among Latin American countries, 2010 CHL ECU SLV GTM BOL COL JAM CRI DOM PER PRY ARG URY MEX PAN VEN BRA e n i l n o g n i l l e s s r e l i a t e r f o % 80 60 40 NIC 20 HND 0 5,000 10,000 15,000 20,000 GDP per capita (PPP) Sell online Fitted values Source: World Bank Enterprise Surveys data 2010.

Data at http://bit.do/WDR2016-Fig1_15.


Note: GDP = gross domestic product; PPP = purchasing power parity.

compared to only 32 percent in Norway, 20 percent in Poland, 18 percent in Estonia, and 12 percent in Croatia.

In Finland, 25 percent of professional service ﬁ rms sourced CRM software from the cloud in 2014, but only 5 percent did in France or Lithuania.
These ﬁ ndings are consistent with previous stud- ies showing that digital technologies diffuse much more slowly within developing countries than pre- vious major technologies (for example, electricity or the steam engine).50 This lack of internet penetration in developing countries contributes to cross-country divergence in incomes.

Why are the differences so large?

In most coun- tries, the physical infrastructure barriers to internet use are fairly small for most ﬁ rms in urban areas.
Differences in the affordability of the internet across countries have been an important factor (see chapter 4).

But equally important are other structural barri- ers that limit ﬁ rms’ ability or incentives to use the internet more intensively.
That three-fourths of all retail ﬁ rms in Panama do not conduct e-commerce, for instance, might be related to a regulatory barrier protecting domestic retailers: foreign-owned ﬁ rms are not allowed to operate in Panama’s retail sector, reducing competitive pressure among domestic ﬁ rms to increase their efﬁ ciency (see ﬁ gure 1.15).

By contrast, there are no restrictions to foreign entry into the retail sectors in Argentina, Mexico, and Uruguay—where retailers use e-commerce more extensively.
Market power—scale and network eff ects can lead to anticompetitive behavior The digital economy can be highly concentrated.

Facebook is the leading social network.

Amazon sold 40 percent of all e-books in 2014.


Google is the dom- inant search engine in most countries: it accounted for about 25 percent of the display-ad market, while Yahoo and Facebook accounted for about 10 percent each.51 And while the sharing economy is increasing the number of market players in various services, Air- bnb and Uber are its major platforms so far.
Figure 1.16 The share of ﬁ rms using integrated customer relationship management platforms varies substantially among sectors and countries in Europe, 2014 t n e c r e P 70 60 50 40 30 20 10 0 H ungary Latvia Slovak Republic C zech Republic Ro m ania Bulgaria Croatia G reece Iceland Poland U nited Kingdo m Slovenia Estonia Portugal France Lithuania M alta Ireland Italy D en m ark C yprus Luxe m bourg N orw ay Spain S w eden N etherlands G erm any Finland A ustria Manufacturing Wholesale and retail trade Professional services Source: Eurostat (EC, various years).
Data at http://bit.do/WDR2016-Fig1_16.

Note: The ﬁ gure shows the shares of European ﬁ rms in manufacturing, wholesale and retail, and professional services that used integrated customer relationship management software in 2014.

Customer relationship management systems allow ﬁ rms to track, record, and store data to facilitate sales, customer support, and related interactions with customers or with other businesses.

Domestic mobile money markets are often con- trolled by one or two operators.
Safaricom, creator of the mobile money service M-Pesa, controls more than two-thirds of the mobile money market in Kenya (ﬁ g- ure 1.17).

The mobile money market in the Philippines is a duopoly, with the largest operator controlling 77 percent of the market.
What matters for antitrust regulators, however, is not the concentration of a sector per se, but the entry costs for new entrants or switching costs for consumers.52 The concentration of various markets in the digital economy—often two-sided markets in which platforms match service providers or sellers with users or buyers53—is not surprising.
When the transaction costs to serve additional customers are close to zero, the most innovative ﬁ rm—say, the one with the best search algorithm or online platform— will be frequented by the most customers.

As long as the ﬁ xed entry costs are low, the industry remains dynamic, in the sense that entrepreneurs program- ming more efﬁ cient search engines or applying superior business models will be able to enter and disrupt the existing incumbent (through creative destruction).
AltaVista, for instance, was once the most popular search engine, but it lost ground in 2001 to new market entrant Google, which provided more efﬁ cient services.

Network effects or anticompetitive behavior can, however, create barriers for startups.

For instance, the more people who use Facebook, the higher the value for users to create content on its website.

Similar net- work effects (or switching costs) might exist for other online services.
Google has been accused of using its dominant position in the market for online display advertising to curb competition and push companies toward its other services.

Several Google competitors, including Microsoft and Yelp, had argued that Google unfairly demoted rivals in its search engine results to direct users toward its services.

Similarly, Amazon has been accused of abusing its market power by delaying the shipping times of products from publishers that did not agree with its pricing mechanism.
The room for anticompetitive behavior varies among digital products and services.

Network effects and switching costs appear to be large for search engines, allowing them to create barriers to scale for new ﬁ rms offering this service.

By contrast, program- ming ride sharing platforms can be imitated fairly easily, and drivers can use more than one platform at the same time in the absence of exclusivity contracts.

Indeed, multiple ride sharing platforms competing with each other have emerged.
And traditional taxi companies have also started to use the technology.

ACCELERATING GROWTH 73 Figure 1.17 Mobile money markets are often controlled by one or two operators, 2014 100 90 80 70 60 50 40 30 20 10 t n e c r e P 0 Sri Lanka Zim bab w e Indonesia Philippines C ôte d’Ivoire Kenya G hana Nigeria Pakistan U ganda C ongo, D e m .

Rep. Market share of second largest provider Market share of largest provider Source: Evans 2015.

Data at http://bit.do/WDR2016-Fig1_17.


New digital solutions can also raise ﬁ xed costs and thus lower competition in sectors such as manufac- turing due to high up-front costs of software, data storage, analytics, and security.

Safeguarding a level playing ﬁ eld for business can thus also involve overhauling the regulatory regimes in the digital economy, including sectors in which technology is dissolving the boundaries between online and ofﬂ ine ﬁ rms.
The initial entry of internet ﬁ rms into these sectors can disrupt monopolies, but regulators need to level the regulatory regime and prevent market shares from becoming excessively concentrated.

The nexus of technology and regulation The potential impact of the internet on ﬁ rm pro- ductivity is highest for activities where the internet can achieve large-scale effects and where contracts are easier to enforce—and thus can be automated.
Economic activities can be classiﬁ ed by the degree of their amenability to the internet, based on: • Contract complexity.
Some goods and services are contract-intensive, because they embody a higher share of intermediate inputs that require relationship-speciﬁ c investments that are more difﬁ cult to enforce by written contracts.54 The less complex that goods or services are, the easier it is to enforce contracts and use internet platforms to 74 WORLD DEVELOPMENT REPORT 2016 Table 1.1 The internet impact is highest for data-intensive activities that involve easy-to-enforce contracts Data-intensive activities More scalable Less complex products (contracts easier to enforce) Retail and wholesale trade, transport, insurance, banking More complex products (contracts more difﬁ cult to enforce) Agriculture, education, health care, hotels and restaurants, manufacturing, real estate, utilities Less scalable Legal services Construction Source: WDR 2016 team.
Note: The approximate grouping of sectors is based on the literature; among others, on Bloom, Sadun, and Van Reenen (2012).

market these products and match buyers and sellers (table 1.1).55 • Scale eff ects.

The impact of the internet is larger if the internet can help achieve scale effects.

For instance, longer value chains require more intensive real- time communication or sharing of large amounts of data between different stages of production or with suppliers and clients.
The internet reduces these transaction costs, enabling scale effects and increasing management efﬁ ciency.56 Firms using digital technologies need to invest in skills and reorganization As for any new technology, integrating digital solu- tions into ﬁ rms’ business models can be risky and lead to costly failures.

Digital technologies have often been called on to help meet supply chain needs, but not all have brought the expected widespread beneﬁ ts.
Five or ten years ago, radio frequency identiﬁ cation tags for tracking individual goods were considered the major source for efﬁ ciency gains.

U.S. retailer Walmart required its biggest suppliers to use the tags, but their use has not taken off in the extended supply chain.

The successful use of digital technologies depends on ﬁ rms’ complementary investments in skills and organizational restructuring.
That more productive ﬁ rms use digital technologies (more intensively) suggests that there are barriers to ﬁ rms using them more effectively.

Two such barriers for ﬁ rms are the skills of the workforce and the ability to reorganize management processes to make better use of the efﬁ ciency gains that digital technologies can provide.
There is even evidence that investing in ICTs without business process reorganization can reduce ﬁ rms’ productivity growth.57 The correlation between ﬁ rm productivity and ICT capital stocks among ﬁ rms in India and Brazil increases signiﬁ cantly after ﬁ rms have reorganized their production structures or hired more skilled labor.
Firms in Vietnam with a more educated work- force or a higher share of managers relative to total staff had a stronger correlation between ﬁ rms’ use of the internet (such as selling products online) and TFP growth in subsequent years.58 The majority of ﬁ rms in Eastern Europe and Cen- tral Asia that use broadband internet have not reor- ganized their businesses, pointing to potential inefﬁ - ciencies in the way it is deployed.
Only one-fourth of ﬁ rms using ICTs have adjusted their organizational structures or management practices (table 1.2).

The differences in these complementary invest- ments help explain the heterogeneity in the use and impact of digital technologies.

For instance, ﬁ rms’ investments in computerized information (digital technologies) are comparable among ﬁ rms in the United States and Brazil (ﬁ gure 1.18).
But U.S. ﬁ rms Table 1.2 Many ﬁ rms use the internet without changing their organizational structures, limiting its impact, 2010–14 percentage of ﬁ rms Did your ﬁ rm introduce new or improved organizational structures or management practices?

Yes No Firms that use broadband Firms that use e-mail Firms that have a website Yes 23 77 No 10 90 Yes 22 78 No 7 93 Yes 26 74 No 12 88 Source: Hussain (2015) based on World Bank Enterprise Surveys, various years.
invest substantially more in training and develop- ment (skills) and in business process improvements (reorganization), explaining why the impact of dig- ital technologies on ﬁ rm productivity is higher for U.S. ﬁ rms.

Similarly, ﬁ rms in Japan and China had the highest investments in digital technologies, but they invested less in skills than France, Germany, the United Kingdom, and the United States.
Complementary skills and reorganizations are more important for more advanced digital technol- ogies, potentially explaining the slow diffusion of some of these technologies across ﬁ rms (see ﬁ gure 1.4).

Implementing customer relationship or supply chain management software and integrating it with ICT systems of customers and suppliers requires a well-trained workforce and the adoption of new orga- nizational processes incorporating real-time informa- tion ﬂ ows.
Countries need to invest in skills and logistics to enable ﬁ rms to use ICT more eff ectively Since a shortage of skills can lower aggregate pro- ductivity growth despite investments in broadband infrastructure, countries need to invest in education to complement investments in new digital technolo- gies (chapter 2).

They also need to invest in infrastruc- ture such as electricity, trade logistics, and payment systems.
Online marketplaces for nondigital goods enable scale effects if trade infrastructure is adequate.

After an online transaction has been completed, the timely delivery of (physical) goods requires ofﬂ ine trade infrastructure.59 Countries thus need ports with enough capacity to connect domestic ﬁ rms to inter- national markets and efﬁ cient domestic logistics infrastructure to complete the “last mile” delivery.
Online retailers in some countries still struggle to deliver their parcels to domestic customers.

In 38 countries in 2012—27 of them in Africa—less than 50 percent of the population had access to home postal delivery (ﬁ gure 1.19).

Faced with such difﬁ culties, many e-commerce companies have come up with their own solutions.

Alibaba has partnered with logistics ﬁ rms in China to create a network for delivering parcels to Chinese cit- ies within a day.
Flipkart has partnered with the Dab- bawalas, the deliverymen famous for their reliable delivery of hot lunches, to deliver parcels in India.

Russian online retailer Ozon created its own logistics service company to increase the speed of deliveries.
Online payment services are available to ﬁ rms in many countries but not in most African and Central ACCELERATING GROWTH 75 Figure 1.18 Firms’ ICT investments as a share of GDP in several countries are comparable to those of U.S. ﬁ rms, but they invest much less in complementary skills and reorganization, 2006 P D G f o % 6 5 4 3 2 1 0 Japan C hina U nited Kingdo m France U nited States Brazil Spain G er m any Italy India Process improvements Training and development Computerized information Sources: Corrado and others 2013; Hulten and Hao 2011; Hao, Hulten, and Jaeger 2013; Dutz and others 2012.
Data at http://bit.do/WDR2016-Fig1_18.

Note: The countries are ordered by their investments in computerized information (digital technology) as a share of GDP.

Asian countries (map 1.3).

Consumers and ﬁ rms need a way to pay for online transactions.

e-commerce relies on the ability of ﬁ rms and consumers to pay for their products online.
Credit cards are accepted on most online platforms, but many individuals do not have credit cards: less than 10 percent of the pop- ulation in developing countries had a credit card in 2012.60 Online payment systems providing business accounts, such as PayPal, MercadoPago, and PayU, are alternatives.

For instance, MercadoPago provides online payment services to small businesses that do not have bank accounts.
The low share of ﬁ rms using e-commerce in some developing countries can also originate from network effects in internet use.

Network effects are present because the value of the internet to a ﬁ rm depends on the number of internet users (creating online content).

Thus low rates of domestic internet use by individuals, ﬁ rms, and government reduce the beneﬁ ts of e-commerce.
But the argument is only relevant for ﬁ rms that target the domestic market in developing countries with few internet users; export- ing ﬁ rms targeting world markets face over 3.5 billion potential online customers.

The rapid increase in the number of internet users worldwide in recent years, 76WORLD DEVELOPMENT REPORT 2016Map 1.3 International online payment systems for businesses are unavailable in many parts of Africa and Central Asia, 2012–14Sources: World Bank staff calculations; UNCTAD 2015.
Data at http://bit.do/WDR2016-Map1_3.IBRD 41768None availablePayPalPayUMercadoPagoTwo or more availableNo data availableMajor online payment systemsSources: Universal Postal Union (http://www.upu.int/en.html); UNCTAD 2015.

Data at http://bit.do/WDR2016-Fig1_19.Note: The ﬁ gure shows the 36 of 130 countries where less than 50 percent of the population receives mail delivery at home.
Qatar and the United Arab Emirates have been excluded because they have a comprehensive public postal delivery system even though they usually do not deliver mail to homes but instead to local post offi ces.Figure 1.19 Many countries still have poor postal delivery systemsPercentage of population receiving home postal delivery in 201205101520253035404550BotswanaBurkina FasoCentral African RepublicCongo, Dem.
Rep.GabonKenyaRwandaSwazilandTogoUgandaTanzaniaMalawiBurundiLesothoComorosGuineaLiberiaNigerOmanSenegalBeninJordanAngolaSudanBoliviaGhanaMongoliaPanamaVietnamMozambiqueNigeriaLao PDRHaitiNicaraguaZimbabweJamaicaPercent ACCELERATING GROWTH 77 together with the lower transaction costs in online marketplaces should, in turn, encourage more ﬁ rms (in developing countries) to use the internet to export to foreign markets in coming years.
Countries need policies to encourage competition Domestic or foreign barriers to entry and competition reduce ﬁ rms’ incentives to invest in digital technol- ogies or complementary skills and reorganization.

Without competitive pressure, private ﬁ rms lack incentives to invest in costly or risky new technol- ogies.

The complementary factors at the ﬁ rm level correspond to competition policies at the country level.
Firms are more likely to invest in skills or orga- nizational restructuring if they are subject to product market competition.61 European manufacturers are investing in machines that communicate with one another (internet of things) to escape the increasing competition from low-cost Asian producers.

For instance, BuS Elektronik invested in information technology to specialize in custom-designed electronics components produced in lot sizes that are too small to spur the entry of Asian electronics ﬁ rms.
The Daimler Group’s Smart auto- mobile plant uses modern information technology to integrate assembly and production lines among a network of seven large suppliers.

The interlinked production system allows Daimler to optimize its value chain and to customize its products, with 10,000 variations of its vehicle cockpits.
Low-cost factories in emerging countries cannot easily copy this strategy, which requires proprietary data.62 The mechanism is illustrated in Schumpeterian growth models predicting that each ﬁ rm will invest in technologies new to the ﬁ rm to reduce its costs and escape competition—albeit only temporarily.

But these incentives are attenuated when leading ﬁ rms in the sector have cost advantages that trailing ﬁ rms cannot overcome.
The market leaders have little incentive to invest in technologies new to the ﬁ rm since they do not face competitive pressures to reduce their costs; the laggard ﬁ rms are too far away from the frontier to bridge the cost gap and instead use vintage production technologies, focusing on local market niches to survive.63 Thus fast-growing sectors with a high share of ﬁ rms using new technologies exhibit speciﬁ c ﬁ rm dynamics, echoing high ﬁ rm churning and neck-and-neck competition market structures, forcing ﬁ rms to enhance their efﬁ ciency by investing in more productive technologies.
The positive links among competition, technology adoption, and pro- ductivity growth are well documented.64 Consistent with the Schumpeterian mechanism, ﬁ rms in more contested industries use digital tech- nologies (more effectively).
The allocation and selec- tion mechanism in more contested markets drives ﬁ rms to invest in new digital technologies.65 Compe- tition from China has induced the adoption of new technologies and ICTs in OECD countries, accounting for 15 percent of their technology investment between 2000 and 2007 and contributing to their productivity growth.66 Arguably, the entry and innovations of Tao- bao, Alibaba’s consumer-to-consumer (C2C) platform, were at least in part encouraged by foreign compe- tition from eBay.
Similarly, ﬁ rms in more contested sectors in Vietnam, which have higher entry and exit rates, are more likely to invest in broadband internet.
And younger ﬁ rms in Mexico use e-commerce more intensively: the share of online sales in total sales is almost twice as high in young ﬁ rms (less than ﬁ ve years old) than in older ﬁ rms.67 In France, automo- bile dealers enhanced their investments in ICT, such as human resource software and other innovations, when facing more intense product market competi- tion after the liberalization of the automobile distri- bution system in the European Union in 2002.68 In high-income countries, the youngest ﬁ rms use the internet more intensively, while in low-income countries, the oldest ﬁ rms do (ﬁ gure 1.20).
In low- income countries, however, startups seem to face barriers to more intensive internet use, which the old- est ﬁ rms (typically also larger) tend to overcome.

In middle-income countries, the results are mixed.

Domestic ﬁ rms in developing countries use the internet more intensively when they face pressure from foreign competition.
The probability that domestic ﬁ rms (with at least ﬁ ve employees) facing foreign competition use broadband internet increases by 41 percent; that they sell their products online, by 29 percent; and that they purchase inputs online, by 36 percent (ﬁ gure 1.21).

The increase in internet use due to foreign competition is independent of ﬁ rms’ initial productivity.
Among six African countries in 2014, for instance, increased competition incentivized ﬁ rms to use the internet more intensively, leading to more product and process innovation.

Firms that had experienced more competitive pressure, leading to a decline in their market shares over the past three years, invested in more intensive uses of the internet.
For example, a 10-percent reduction in the market share increased the probability that these ﬁ rms used the internet to market their products, on average, by 11 percent, and the probability that they used the internet to manage their inventory by 8 percent.69 Domestic ﬁ rms in 78 WORLD DEVELOPMENT REPORT 2016 Figure 1.20 Young ﬁ rms use the internet more intensively in high-income countries—old ﬁ rms, in low-income countries, 2010–14 a.

High-income OECD countries b.


Low-income countries Youngest Oldest t n e c r e P 50 45 40 35 30 25 20 15 10 5 0 Oldest Youngest t n e c r e P 18 16 14 12 10 8 6 4 2 0 Online buying Online selling Online research Online buying Online selling Online research Years in operation <5 5–9 10–19 20+ Source: Hussain (2015) based on World Bank Enterprise Surveys, various years.

Data at http://bit.do/WDR2016-Fig1_20.

Note: OECD = Organisation for Economic Co-operation and Development.
Figure 1.21 Domestic ﬁ rms use the internet more intensively when they face foreign competition, 2010–14 t n e c r e P 45 40 35 30 25 20 15 10 5 0 Broadband Client m unications e- m ail co m Sell online Buy online Source: Hussain (2015) based on World Bank Enterprise Surveys data, 2010–14.

Data at http://bit.do/WDR2016-Fig1_21.


Note: The bar chart shows the coeffi cients of six ﬁ rm-level cross-section regressions of dummy variables for internet use on a dummy if the ﬁ rm reports pressure from foreign competition.

All coeffi cients are signiﬁ cant at the 5 percent level.

Each regression controls for ﬁ rm age, ﬁ rm size, foreign ownership, and sector- and country-speciﬁ c eff ects.

The data include all ﬁ rms with at least ﬁ ve employees in more than 80 developing countries.
The number of ﬁ rms in the diff erent regressions varies from 3,400 to 8,200.

Kenya and Uganda used the internet more intensively in sectors with increasing competition from foreign direct investment (FDI).

The (more intensive) internet use due to higher competition had led to more prod- uct and process innovation among ﬁ rms in these six African countries.
Manufacturing ﬁ rms in Mexico are more likely to invest in digital technologies and use them more productively when they sell products that are directly competing with imports from China.
Firms that faced this external shock of higher foreign competi- tion between 2000 and 2008, either in the domestic or the U.S. (export) market, increased their number of computers per employee, their share of labor using the internet, and their share of online purchases in total purchases in the subsequent four years, 2008–12 (see ﬁ gure 1.22).
As a result, the share of labor using the internet in 2012 was 11 percent higher for ﬁ rms that faced more Chinese competition—and the share of online purchases was 114 percent higher.

The more intensive use of digital technologies due to Chinese competition translated into productivity growth among ﬁ rms in Mexico.
By contrast, ICT use had no impact on labor productivity growth among Mexican ﬁ rms that did not face import competition from China.70 Manufacturing ﬁ rms confronted with an increase in competition in Brazil are more likely to implement Figure 1.22 Firms in Mexico facing higher import competition from China use more ICTs more productively percentage-point change, 2008–12 ACCELERATING GROWTH 79 a. Firms’ use of ICTs b.
Percentage change in productivity associated with 1 standard deviation change in ICT measure with 1 standard deviation change in ICT measure Computers per worker 9.6 27.2 Share of labor using the internet e-commerce purchases/ total purchases 6.0 18.0 –9.9 10.2 t n e c r e P 7 6 5 4 3 2 1 0 –1 –2 –3 Share of labor using the internet Change in number of computers per worker Share of e-commerce purchases to total purchases Low competition High competition Low Chinese competition High Chinese competition Not statistically significant Source: Iacovone, Pereira-Lopez, and Schiff bauer 2015.
Data at http://bit.do/WDR2016-Fig1_22.

Note: Chinese competition is measured as the change in the share of China in Mexico’s imports in the period 2000–08.

The two groups depicted in these ﬁ gures are deﬁ ned as below the median (low competition) and above the median (high competition).

The Mexico ICT survey, ENTIC, represents over 52,000 manufacturing and services ﬁ rms with at least 10 employees.

ICT = information and communication technology.

e-commerce systems.
e-commerce systems.

They are also more likely to move to more complete e-commerce systems—pro- viding an online order and integrating payment system on their website—when they face more com- petitive pressure.71 Consistent with these ﬁ ndings, aggregate sector and country data suggest a negative correlation between regulatory barriers to product market com- petition and ﬁ rms’ investments in digital technolo- gies.
More restrictive product market regulations on ﬁ rm entry in service sectors are associated with lower ICT use (ﬁ gure 1.23, panel a).

The negative relation prevails when comparing restrictions to domestic or foreign entry in individual service sectors with ﬁ rms’ internet use in these sectors across countries.
Pro- fessional service ﬁ rms in Europe—for architecture, design, consulting, legal, and accounting—are less likely to sell their services online in countries that have higher barriers to entry in these sectors.

Trans- port service ﬁ rms are less likely to purchase cloud computing services, such as CRM software, over the internet in European countries that have higher regulatory barriers for foreign ﬁ rms to enter.
Domes- tic retail ﬁ rms are less likely to use the internet for online sales if they operate in countries with higher entry barriers for foreign retailers.

The same is true for manufacturing ﬁ rms: higher nontariff barriers to trade are associated with lower ICT use in manufac- turing (ﬁ gure 1.23, panel b).72 Firms’ internet use varies with barriers to competi- tion across sectors in the same country.
The Philippine retail sector has substantial restrictions to domestic and foreign entry and is dominated by a few incum- bent ﬁ rms, while few ﬁ rms use ICTs.

Foreign retailers that aim to establish a commercial presence need to pass prequaliﬁ cation procedures, meet minimum cap- ital requirements, meet limitations to foreign equity participation, and have the majority of the board of directors be Filipinos.
Only about 20 percent of retail ﬁ rms (with at least ﬁ ve employees) sell online in the Philippines.73 By contrast, the Philippine business pro- cess outsourcing sector is characterized by high entry rates and few regulatory barriers to competition.

It is intensive in ICT-related services such as software development, animation, contact centers, and tran- scription.

These ICT-speciﬁ c services experienced high productivity growth in recent years and provided about 1.2 million jobs in 2015.
Similarly, Nigeria’s retail sector, Indonesia’s banking sector, and India’s and Bulgaria’s ICT sectors are more internet intensive and have fewer regulatory barriers to competition in oth- erwise difﬁ cult business environments.

80 WORLD DEVELOPMENT REPORT 2016 Figure 1.23 Restrictive product market regulations in services and higher nontariff technical barriers to trade in manufacturing are associated with lower ICT use, 2010–14 a.

Product market regulations in services b.
Frequency of nontariff barriers in manufacturing IND HND NIC SLV DOM CRI CHN BRA TUR MEX ZAF CYP PER GRC HRV COL BGR HUN ROU IRL SVN CZE POL ISR MLT LVA CHL ISL ESP KOR AUS LTU RUS CAN GBR PRT SVK NZL FRA SWE BEL DEU EST FIN NOR JPN LUX CHE AUT NLD DNK ITA 3 1 0 2 , y r t n e o t s r e i r r a B 3.5 3.0 2.5 2.0 1.5 1.0 11 10 9 8 y c n e u q e r f M T N f o g o L NAM GIN TGO NER CPV LAO LKA NPL BEN PAK BFA MWI MLI GHA CIV NGA SEN GMB TZA MUS MDG RWA GTM VEN ECU URY MEX 0.4 0.5 0.6 0.7 0.8 0.9 0 20 40 RUS COL TUR ARG CHL BOL CHN 80 PRY PER CRI BRA 60 Digital Adoption Index % of manufacturing firms having a website Sources: Panel a: Product Market Regulation Index (OECD, various years); Digital Access Index (DAI) (Internet Coaching Library, various years).
Panel b: World Integrated Trade Solution (WITS) database (World Bank, various years); World Bank Enterprise Surveys (World Bank, various years).

Data at http://bit.do/WDR2016-Fig1_23.

Note: Panel a: The y-axis shows the barriers to entry subindex of the Product Market Regulation (PMR) Index (OECD, various years) for service sectors.

The x-axis shows the Digital Adoption Index, as computed for this Report.
The PMR index is available for 47 OECD and large developing countries, as well as for eight smaller Latin American countries.

Panel b: The y-axis shows the (log) frequency of nontariff barriers (excluding class A, B, and D restrictions) across developing countries.

The x-axis shows the share of manufacturing ﬁ rms that have a website in the corresponding developing countries.
ICT = information and communication technology; NTM = nontariff measure; OECD = Organisation for Economic Co-operation and Development.

Regulation to foster competition in the digital economy needs to consider network effects and switching costs, which can lead to new entry barri- ers in parts of the digital economy.

To address these changes in market structures, regulations must prevent anticompetitive behavior and ensure that potential entrepreneurs have fair market access.
Reg- ulatory authorities in many countries play a similar role for other network industries, such as electricity or telecommunications.

Regulators in several coun- tries have made phone numbers portable across car- riers—so that users can keep the same phone number while switching to a new provider—minimizing switching costs and ensuring a level playing ﬁ eld for new entrants.
Similar regulatory innovations might be required for social media, digital marketplaces, digital payment systems, and the sharing economy, where users need to be able to change internet plat- forms with ease and at zero cost.

But regulating the digital economy is far from straightforward.

It requires deep understanding of technical characteristics of the corresponding tech- nology.

Most internet ﬁ rms, operating in two-sided markets, can blur price signals in either of the two markets.
For instance, sharing economy platforms typically set the rates they charge customers as well as suppliers (drivers or homeowners).

Once the plat- form has a large set of users, it can charge suppliers higher fees, despite having competitive rates for customers.

So greater digital use needs to be accom- panied by uniﬁ ed standards, full interoperability, and competition across platforms and contracts.
Overall, countries that pursue procompetitive reg- ulations in most sectors grow faster, as ﬁ rms in these countries invest in digital technologies and use them more effectively.

Given the substantial variations in barriers to domestic or foreign competition and entry across countries, the divergence in ﬁ rms’ use of the digital technologies across sectors and countries is not surprising.

The future of markets Uber, the world’s largest taxi company, owns no vehicles.
Facebook, the world’s most popular media owner, creates no content.

Alibaba, the most valuable retailer, has no inventory.

And Airbnb, the world’s largest accommodation provider, owns no real estate.

Something interesting is happening.

—Tom Goodwin, Havas Media The internet promotes competition, which encour- ages more ﬁ rms to use the internet—a potential virtuous cycle.

So, competition is not only a comple- mentary factor but also a mechanism for the internet to increase growth.
Internet ﬁ rms can circumvent regulatory barriers to competition and entry in tra- ditional sectors such as retail, transport, or ﬁ nance.

But this will not happen if vested interests are strong enough to capture regulators and create new barriers to competition and technology adoption.

For instance, some taxi companies try to protect their lucrative businesses by pushing for new reg- ulations that block ride sharing companies.
Prices of the ride sharing companies, estimated before the ride takes place, can easily be compared, introducing greater transparency—something that taxi regulators attempted for years by requiring taxis to publish their price lists.
Cities with tighter market controls like Bar- celona, Berlin, and Paris recently saw widespread pro- tests by the taxi industry, as opposed to Dublin, which deregulated its taxi market and lifted restrictions on the number of taxis practically overnight in 2000 (fares remain regulated).74 In India, taxi associations wrote to the Reserve Bank of India complaining that Uber’s credit card transactions violate the country’s foreign exchange regulations.
Uber collects the fare from a passenger’s credit card, transmits it abroad in a foreign currency, and then sends 80 percent of the transaction value back to the driver.

The taxi associa- tion argues that this violates Indian laws that permit Uber to collect the commission but not the fare in a foreign currency.

In Morocco, the market power of ﬁ rms owned by inﬂ uential politically connected businessmen stiﬂ es competition, ICT adoption, and innovation among manufacturing ﬁ rms.
Firms that are directly or indi- rectly owned by the political rulers are larger, have higher market shares, and have higher proﬁ ts.75 The larger scale seems to help these ﬁ rms adopt digital technologies and innovate (ﬁ gure 1.24).

While polit- ically connected ﬁ rms individually invest more in ICT, their presence seems to discourage other ﬁ rms from doing so.
Politically connected ﬁ rms appear to dominate their markets: only 30 percent of them report more than ﬁ ve competitors, compared with 65 percent of all other ﬁ rms; only 11 percent of politically connected ﬁ rms report price competition in domestic markets, compared with 37 percent of all other ﬁ rms.

There is no difference between politically connected and unconnected ﬁ rms for price competition in for- eign (export) markets.
The dominance of politically connected ﬁ rms and the resulting lack of competition seem to discourage all other ﬁ rms in their industry from adopting digital technologies or innovating, leading to inferior aggregate technology adoption: only 32 percent of all ﬁ rms in industries with at least one politically connected ﬁ rm have a website, compared with 40 percent in industries without ACCELERATING GROWTH 81 Figure 1.24 The dominance of a few politically connected ﬁ rms stiﬂ es competition and innovation in Morocco, 2004 and 2007 ) % ( s m r i f f o e r a h S 70 60 50 40 30 20 Have a website Innovate processes Report more than five competitors Connected firms Unconnected firms in connected industries All firms in connected industries All firms in unconnected industries Source: Saadi 2015.
Data at http://bit.do/WDR2016-Fig1_24.

Note: The analysis is based on 48 politically connected and 620 unconnected manufacturing ﬁ rms with at least ﬁ ve employees in 2004 and 2007.

See Saadi (2015) for more details.

politically connected ﬁ rms.76 Only 28 percent of all ﬁ rms innovate in politically connected industries, compared with 37 percent in industries without polit- ically connected ﬁ rms (ﬁ gure 1.24).
Economic activities with a high potential growth impact from digital technologies are often protected from foreign or domestic competition in developing countries.

The potential impact of the internet on ﬁ rm productivity is often highest for economic activ- ities that typically have higher barriers to competi- tion (table 1.3).

These sectors include utilities that are often natural monopolies, which are more difﬁ cult to regulate.
But they also include banking, insurance, transport, retail trade, and some professional ser- vices, which are often protected by regulations from more foreign or domestic competition in developing countries (see ﬁ gure 1.23).

In sum, developing countries with an institutional environment that safeguards competition and easy market entry will more likely harness the full growth opportunities of digital technologies and catch up faster with high-income countries.
But countries will more likely remain poor if the institutional envi- ronment allows ﬁ rms to obtain proﬁ ts by lobbying for protection rather than investing in new digital technologies.77 82 WORLD DEVELOPMENT REPORT 2016 Table 1.3 Economic activities with high potential for ﬁ rms to use digital technologies more intensively are often protected from foreign or domestic competition in developing countries, reducing productivity growth Sectors or activities with barriers to competition Potential impact Lowest Medium Highest High — Banking, insurance, retail and wholesale trade Transport Medium Manufacturing Agriculture, hotels and restaurants, mining, technical services Education, health care, real estate, utilities Low — Legal services Construction Source: WDR 2016 team.
Note: The approximate grouping of sectors for the potential impact of digital technology is determined by scalability and contract complexity of most products in the sector, as deﬁ ned in table 1.1.
Digital technologies have a high potential in sectors that are more scalable and less complex (upper left cell in table 1.1), a medium impact for sectors that are more scalable but more complex or less scalable but less complex, and a low impact for sectors that are less scalable and more complex (lower right cell in table 1.1).
The approximate grouping of sectors for the degree of competition is based on sectors’ tradability, their average barriers to foreign or domestic entry across countries (for example, the Product Market Regulation Index [OECD, various years] and the Services Trade Restrictions Index), and their ﬁ xed costs (natural monopolies or land intensiveness).

— = not available.

Notes 1.

These channels can affect growth through more than one mechanism.
For instance, the internet increases trade not only by allowing more and smaller ﬁ rms to export (inclusion) but also by allowing existing exporters to trade more intensively, exploiting econ- omies of scale (efﬁ ciency).

2.

Nguyen and Schiffbauer 2015.

3.

The results are based on ICT surveys linked to census data of ﬁ rms in manufacturing and service sectors.
The data cover more than 300,000 ﬁ rms in Vietnam in 2011 (Nguyen and Schiffbauer 2015); 8,000 ﬁ rms with at least 10 employees in Turkey in 2011 (Atiyas and Bakis 2015); more than 52,000 ﬁ rms in Mexico in 2009 (Iacovone, Pereira-Lopez, and Schiffbauer 2015); and more than 3,000 manufacturing ﬁ rms in Brazil (Cirera, Lage, and de Oliveria 2015).

4.

See, for example, Cardona, Kretschmer, and Strobel 2013; Bartelsman, Hagsten, and Polder 2013.

5.
5.

There are two exceptions: ﬁ rms in the second- lowest productivity quintile have the largest share of broadband users in low-income countries, and ﬁ rms in the third-lowest quintile have the largest share of broadband users in upper-middle-income countries.

6.

Cirera, Lage, and Sabetti 2015.

Note that ﬁ rm labor productivity is higher due either to higher TFP or to higher capital intensities.

7.

See, for example, Haller and Siedschlag 2011.

8.

Atiyas and Bakis 2015.

9.


The statistics are based on census data including all manufacturing and service ﬁ rms in Vietnam between 2007 and 2012 (no size restrictions).

In Mex- ico and Turkey, the statistics are based on a repre- sentative sample for all manufacturing and service ﬁ rms with at least 10 employees.

10.
10.

The results here are somewhat higher than the ones in Jorgenson (2011), who ﬁ nds that the accumulation of ICT capital raised aggregate growth by 13 percent a year on average for more than 100 countries from 1995 to 2008.
Moreover, Manyika and others (2011) estimate that the average contribution of the inter- net (alone) to economic growth was 0.3 percentage points among seven high-income countries between 2004 and 2009, and 0.4 percentage points for ﬁ ve large developing countries (Brazil, China, India, the Republic of Korea, and the Russian Federation).

These results should be regarded with caution, how- ever, since the growth contribution of the internet is effectively equated with the contribution of TFP.

11.
11.

Melitz 2003.

12.

The internet reduces information frictions by provid- ing a tool for ﬁ rms to easily ﬁ nd information about new markets and advertise their products to multiple buyers.

In addition, the internet can reinforce busi- ness and social networks and reduce communication costs with potential customers (Rauch 1999; Rauch and Trindade 2002; Fink, Mattoo, and Neagu 2005).

13.
13.

Freund and Weinhold (2004) examine the growth of bilateral merchandise exports of 56 countries and (2002) consider the growth of U.S. imports and exports of services.

Both studies use data from 1995 to 1999.

14.

There are two common measurements of internet usage in these studies.

Freund and Weinhold (2002, 2004) and Clarke and Wallsten (2006) measure inter- net usage by the number of web hosts, while Osnago and Tan (2015) use the percentage of individuals using the internet in a country.

15.
15.

Osnago and Tan (2015) estimate a panel gravity equa- tion using aggregate bilateral trade ﬂ ows from 2001 to 2012 for all countries with country-pair and year ACCELERATING GROWTH 83 ﬁ xed effects.

They determine whether a country has high internet usage when it has an internet usage above the median for all countries, which changes yearly.

16.

The results are based on Osnago and Tan (2015).

17. eBay 2013.

18.
17. eBay 2013.

18.

Chen and Xu (2015) compare transaction-level data from AliExpress (a branch of Alibaba) and Chinese customs data across seven months.

The online trade data are transaction-level data based on AliExpress from January to July 2014, and the ofﬂ ine trade data are Chinese customs data from January to July 2006.

19.

Chen and Xu 2015.

20.


The average number of export destinations is rel- atively low since the study focuses on only nine products that are narrowly deﬁ ned at the 10-digit level (harmonized classiﬁ cation system).

Thus, the average ﬁ rm is only exporting about two different specialized products, for instance, silk and pure cot- ton T-shirts.

21.
21.

As a comparison, large ﬁ rms selling on eBay reach an average of 30 export destinations (eBay 2013); large ﬁ rms are deﬁ ned as having an annual export of more than US$10,000 in 2012.

22.

See http://www.theanou.com/.

23.

Andjelkovic 2015.

24.

Tan 2015; Osnago and Tan 2015.


Tan (2015) uses the World Bank Exporter Dynamics Database (World Bank, various years) and estimates a panel regres- sion to examine the effect of the internet usage of 4.5 million ﬁ rms in 47 developing countries between 2002 and 2012.

A product is deﬁ ned as a harmonized system (HS) six-digit category.

25.
25.

This measure of physical infrastructure predicts ﬁ rms’ internet use; it is strongly positively correlated with the number of internet users by province over time (correlation coefﬁ cient of 0.55).

Therefore, the length of the ﬁ ber-optic cables per population is also a good proxy for the number of “last mile” connec- tions to ﬁ rms or households in a province.

26.

The number of exporting ﬁ rms and ﬁ rms’ export share follow a similar pattern across provinces over time.

27.
27.

Fernandes and others (2015) use changes in the number of internet users per capita, Chinese inter- net domains per capita, and the length of ﬁ ber-optic cables per population to measure the rollout of broadband infrastructure across Chinese provinces between 1999 and 2007.

The analysis is based on cen- sus data for manufacturing ﬁ rms.
The ICT intensity per industry is measured by the ICT capital services share in total capital services based on World KLEMS two-digit sector-level data for the United States, two-digit sector-level data on telecommunication expenses in China, and four-digit sector-level data from a Vietnamese ﬁ rm census.
All empirical speci- ﬁ cations include ﬁ rm ﬁ xed effects and year x province ﬁ xed effects controlling for time-invariant differ- ences across ﬁ rms and changes in any other export determinants across provinces over time.

28.

Baldwin (2011) describes the reduction of transpor- tation costs from the late 1800s as the ﬁ rst unbun- dling, where consumption and production can be geographically separated.

29.
29.

This relationship has been conﬁ rmed in Canada (Baldwin and Gu 2008), Germany (Rasel 2012), Ire- land (Murphy and Siedschlag 2013), Italy (Benfra- tello, Razzolini, and Sembenelli 2009), the United Kingdom (Abramovsky and Grifﬁ th 2006), and glob- ally based on a large dataset of multinational ﬁ rms and their subsidiaries (Alfaro and Chen 2015).

30.
30.

Cristea (2014) also ﬁ nds that the negative relation- ship between the headquarter services exports and communication costs weakens with the education of the foreign workers.

31.

Fort 2014.

32.

Alfaro and Chen (2015) examine the patterns of entry of multinational ﬁ rms into 70 countries from 2005 to 2007.

The data are from the Harvard Business School’s Orbis Database (http://www.library.hbs.edu /go/orbis.html) and cover 1.2 million manufacturing companies.

33.
33.

Computer and information services exports include computer services such as hardware- and software- related services, news agency services, and database services.

34.

Cardona, Kretschmer, and Strobel (2013) provide a survey of the recent microeconomic studies esti- mating the relationship between the use of digital technologies and ﬁ rm productivity growth.

35.

See UNCTAD 2013 and Ogodo 2009.

36.

McKinsey Global Institute 2014; Economist 2014.

37.

Chick, Huchzermeier, and Netessine 2014.

38.


Chick, Huchzermeier, and Netessine 2014.

39.

McKinsey Global Institute 2014.

40.

The analysis is based on an annual panel of ﬁ rm cen- sus data from 2007 to 2012 with more than 300,000 observations each year.

TFP is estimated following the methodology of Olley and Pakes (1996).

Each regression controls for two-digit sector dummies, year dummies, and ﬁ rm characteristics (ﬁ rm size, age, and ownership as well as export status).
See Nguyen and Schiffbauer (2015) for details.

41.

Brown and Goolsbee 2002.

Their availability raised price dispersion initially and then reduced it as inter- net use became more widespread, which is consis- tent with the theory of search costs by Stigler (1961) and Stahl (1989).

42.

The results are based on a regression of the average entry density on a dummy that is one in the years of or after the reform, controlling for year-speciﬁ c effects.

43.
43.

The positive link between the use of new technology and competition is well documented.

For instance, 84 WORLD DEVELOPMENT REPORT 2016 Collard-Wexler and De Loecker (2015) show that two-thirds of the higher productivity in the U.S. steel sector after the introduction of a major new technology, the minimill, originated primarily from an increased competition effect and only one-third from a technology replacement effect.
In particular, the minimill expansion drove a productivity resur- gence at the surviving vertically integrated produc- ers and thus for industry as a whole.

44.

Mbiti and Weil (2011) ﬁ nd this effect based on ﬁ rm- level data comparing competing money transfer services.

45.

Wei and Mozur 2014.

46.

Golovin 2014.

47.

Andjelkovic 2015.

48.

Van Welsum 2015.

49.

Cirera, Lage, and Sabetti 2015.

50.

Comin and Mestieri 2013.

51.

According to data from the market-research ﬁ rm IDC.

52.
52.

Rochet and Tirole 2003.

53.

A two-sided market is one in which (1) two sets of agents interact through an intermediary platform and (2) the decisions of each set of agents affect the outcomes of the other set of agents, typically through an externality (Rysman 2009).

For instance, in an e-commerce platform like Amazon, the two agents are the consumers and the online sellers whereby consumers beneﬁ t from more online sellers using the platform and vice versa.

54.
54.

Nunn (2007) constructed a measure of contract intensity for tradable goods.

Contract-intensive goods include packaging machinery, musical instru- ments, and alcoholic beverages.

Goods with low con- tract intensity include wearing apparel, frozen food, plastics and rubber, base metals, or fertilizers.

55.
55.

The correlation coefﬁ cient between the contract- intensity four-digit sectors in Vietnam from 2007 to 2011 and the share of ﬁ rms that use the internet (have a website) in these sectors is 0.44 (0.28); see Nguyen and Schiffbauer 2015.

56.

Bloom, Sadun, and Van Reenen (2012) argue that digital technologies enhance managers’ information set, improving their ability to monitor staff and allowing them to delegate decisions to subordinate management layers.
They show that the impact of good management practices on ﬁ rm productivity is larger in ICT-intensive sectors.

57.

Bresnahan, Brynjolfsson, and Hitt 2002; Brynjolfs- son and Hitt 2003; Crespi, Criscuolo, and Haskel 2007; Bartel and others 2009; Bloom, Sadun, and Van Reenen 2012.

58.

See Commander, Harrison, and Menezes-Filho (2011) for Brazil and India, and Nguyen and Schiffbauer (2015) for Vietnam.

59.
59.

Riker (2015) shows that internet access increases the probability of product entry into the United States, and the probability is higher for countries with bet- ter logistics.

60.

UNCTAD 2015.

61.

Bloom, Sadun, and Van Reenen 2012; Inklaar, Tim- mer, and van Ark 2008.

62.

Chick, Huchzermeier, and Netessine 2014.

63.

See Aghion and others 2001.

The theoretical frame- work is also closely related to Parente and Prescott (1999).
Aghion and others (2001) also discuss whether perfect competition can reduce the incentives for any innovation by reducing the discounted present value of associated rents, leading to an inverted U-shaped relation between competition and growth.

They provide evidence, however, that the negative part in the competition-growth nexus is less empiri- cally relevant (see also Aghion and others 2006, 2008, 2009).

64.
64.

For instance, Aghion and others (2006, 2008, 2009) ﬁ nd that more product market competition and entry deregulation lead to higher productivity growth.

Buccirossi and others (2013) show that improvements in competition policy, measuring restrictions to domestic and foreign entry and restrictions to antitrust, led to higher TFP growth among 22 industries in 12 OECD countries.

The effect was strongest for antitrust activities.

65.

Bartelsman, Hagsten, and Polder 2013.

66.


Bloom, Draca, and Van Reenen 2011.

67.

The ﬁ ndings are consistent for the other available measures of ICT, such as the share of ﬁ rms that have a website or use e-commerce in Vietnam (Nguyen and Schiffbauer 2015), and the average share of a ﬁ rm’s workforce using the internet or the share of ﬁ rms’ e-commerce purchasing over total purchases in Mexico (Iacovone, Pereira-Lopez, and Schiffbauer 2015).

68.

Kretschmer, Miravete, and Pernías 2002.

69.


Cirera, Lage, and Sabetti 2015.

The results are based on more than 2,300 ﬁ rms in these six African coun- tries in 2014.

70.

The effect is based on a regression of (log) labor productivity from 2008 to 2012 on the ICT variables, the product-level degree of import competition from China from 2000 to 2008 (in the Mexican or U.S. markets), and the interaction term between these two variables.
Each regression controls for ﬁ rm ﬁ xed effects and changes from 2008 to 2012 in other ﬁ rm characteristics (ﬁ rm size, age, location, exports, for- eign or state ownership, and share of skilled labor).

See Iacovone, Pereira-Lopez, and Schiffbauer 2015.

The results are robust when using the interaction term between household internet use at the province level and sectors’ ICT intensity based on U.S. data as an instrumental variable controlling for the endoge- neity of the ICT variables.
ACCELERATING GROWTH 85 71.

Cirera, Lage, and de Oliveria 2015.

An increase in competition is measured by a change in ﬁ rms’ mar- ket share in previous years.

The results are based on a multinomial logit regression from 2009 to 2012 where the dependent variable indicates different stages of the e-commerce system; the most advanced e-commerce system also allows for online payments.
The regressions control for ﬁ rm characteristics such as ﬁ rm size, age, export status, and ownership and sector-speciﬁ c effects.

72.

Countries with available data that are not members of the World Trade Organization (Afghanistan, Kazakhstan, Lebanon, and Liberia) are excluded because they do not face restrictions on using tar- iff rates as an alternative mode to restrict import competition.

73.
73.

See World Bank Enterprise Surveys (http://www .enterprisesurveys.org/); the World Bank’s Services Trade Restrictions Index (Borchert, Gootiiz, and Mattoo 2013).

74.

See Golovin 2014.

To deal with the problem at the time, Ireland set up a “hardship fund” with payments of up to €15,000 to alleviate the ﬁ nancial hardships suffered by license holders due to the devaluation of their assets, although the general consensus was that the government was under no obligation to compensate the taxi industry.
75.

The analysis is based on 48 politically connected and 620 nonconnected manufacturing ﬁ rms with at least ﬁ ve employees in the World Bank Enterprise Surveys data in 2004 and 2007.

The 48 politically connected ﬁ rms operate in almost all of the 22 two-digit man- ufacturing industries.

But within these, they operate in fewer than half of the more than 100 four-digit subsectors in total.

See Saadi (2015) for more details.

76.

Almost all ﬁ rms in connected and nonconnected industries use e-mail.

77.
77.

See, among others, Parente and Prescott (1999) or Acemoglu, Johnson, and Robinson (2005).

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90 WORLD DEVELOPMENT REPORT 2016 SECTOR FOCUS 1 Agriculture Across the developing world, agriculture sustains the majority of rural livelihoods.

Ever since people have grown crops, raised livestock, and caught ﬁ sh, they have sought information from one another.

What is the most effective planting strategy on steep slopes?

Where can we buy improved seeds?

Who is paying the highest price at the market?

Over time, weather patterns and soil conditions change.

Epidemics of pests and diseases come and go.


Updated information allows farmers to cope with and beneﬁ t from these changes.

Providing such knowledge can be challenging.

Agriculture is location-speciﬁ c, and farmers need accurate local weather forecasts, advice on agricul- tural practices and input use, and real-time informa- tion about prices and market logistics.
Harnessing the rapid growth of the internet and associated digital technologies such as mobile phones is critical to help- ing farmers obtain the information they need and to promoting transformative agricultural development.

Interest is especially keen in increasing access to extension services, improving marketing of outputs, and arranging logistics.

The body of rigorous, quan- titative evidence on the ways in which digital inno- vations can help improve the lives of rural people is growing steadily.
Enhancing on-farm productivity Agricultural productivity varies dramatically around the world.

While credit constraints, missing insurance markets, and poor infrastructure account for some of This sector focus was contributed by Aparajita Goyal.

this disparity, suboptimal agricultural practices and poor management are also to blame.

New produc- tion technologies such as improved seed varieties, nutrient management, and pest control methods are not necessarily reaching farmers.
Public extension agents can overcome information barriers related to new agricultural practices and technologies, but such extension programs have been burdened by limited scale, sustainability, and impact.

Digital technologies help overcome these con- straints.

They are reviving agricultural extension and advisory services around the world.
In cooperation with agricultural research and extension services, organizations such as Digital Green, the Grameen Foundation, and TechnoServe deliver timely, rele- vant, and actionable information and advice to farm- ers in South Asia, Latin America, and Sub-Saharan Africa, respectively, at a dramatically lower cost than traditional services can.
Rather than always visiting a farmer, extension agents use a combination of phone calls, text, videos, and internet to reduce transac- tion costs and increase the frequency of interaction with farmers.

Governments, in partnership with mobile operators, use phones to coordinate distri- bution of seeds and subsidized fertilizers in remote areas through e-vouchers, as in Nigeria’s large-scale e-wallet initiative (spotlight 2, “Digital ﬁ nance”).
Technology ﬁ rms such as Climate Corp, based in Silicon Valley, are pioneering the provision of agrometeorological services for early warning of weather and climate risks.

A number of innovations aim for real-time and accurate weather monitoring using remote sensing and technologies enabled with geographic information systems (GIS) for climate- resilient agriculture.

91AGRICULTURE91Facilitating market transparency Agricultural product markets in many developing countries are poorly integrated.
High search costs have tended to lower competition and create an inefﬁ cient allocation of goods across markets.

When the internet took off in the mid-1990s, it was often claimed that it would improve price transparency, cut out middlemen, and make markets more efﬁ -cient.

Indeed, rapid adoption of digital technologies has dramatically reduced the search costs incurred by farmers and traders, and hence overcome an important constraint in the context of limited infra-structure.
As Robert Jensen’s classic 2007 study of sardine ﬁ shermen and wholesalers in Kerala, India, found, the introduction of mobile phone service dra-matically reduced price dispersion and waste in the sardine catch, increasing welfare for producers and consumers (ﬁ gure F1.1).

Similar effects have been shown for communication platforms such as Esoko in Ghana, e-Choupal in India, and telecenters in Peru, as well as studies on grain traders in Niger and farm-ers in the Philippines.1 14Phones addeda.
Region ISurvey week1210864200102030405060708090100110120130140150160170180190200210220230240250Survey week14Phones addedb.

Region II121086420010203040506070809010011012013014015016017018019020021022023024025014c.
Region IIISurvey week1210864200102030405060708090100110120130140150160170180190200210220230240250Phones addedPrice ( /kg)₹Price ( /kg)₹Price ( /kg)₹Figure F1.1 Introducing mobile phone service reduces price dispersion in local marketsSardine prices in three coastal markets in Kerala, IndiaSource: Jensen 2007, © Oxford University Press.

Reproduced with permission from Oxford University Press; further permission required for reuse.
Note: kg = kilogram; = Indian rupee.₹ 92 WORLD DEVELOPMENT REPORT 2016 Enabling effi cient logistics and improving quality control Digital technologies also improve the management of agricultural supply chains.

With globalized food systems, ensuring food safety has become more com- plex.

These trends have catalyzed innovations to trace the food supply from producer to consumer—which is important for developing countries that want to reach new export markets.
Smallholder farms can turn to cooperatives and aggregators, who use digital tools to improve collection, transportation, and qual- ity control.

By opening up new specialized market opportunities, the internet has improved consumer protection and farmers’ livelihoods.

Lessons for adapting digital technologies for agriculture Why do many of these innovations fail to scale up and achieve wider acceptance?
One reason is market fragmentation—even though market consolidation will, over time, enhance growth prospects.

Another reason is the lack of ﬁ nancially sustainable business models that will attract private sector investments in innovative solutions for small-scale agriculture.

There is great potential for the internet and related technologies to improve rural economies, but several lessons need to be kept in mind.

First, agriculture is becoming increasingly knowledge-intensive and high-tech.
Some of the world’s newest industries have started to put money and tech talent into farming—the world’s oldest industry.

Digital soil maps, remote sensing, and global positioning system (GPS) guidance are critical tools for modern farmers.

“Big data” for precision agricul- ture increases yields and efﬁ ciency.

These high-tech tools mostly beneﬁ t big farms that can make large investments in technology.
But there are also many innovative ways in which illiterate and otherwise dis- advantaged people use digital technologies, such as basic mobile phones.

Greater efforts to close the digital divide in rural areas can have great payoffs.

Second, basic price and market information sys- tems can improve efﬁ ciency and welfare.

The evi- dence, although strong, is still limited to certain coun- tries and certain contexts.
A number of recent studies have cast doubt on the overall novelty of information provided to the farmer and the degree of competition in many markets.

One explanation of weak effects is low take-up of fee-based price information services.
But even when farmers are seemingly better informed, they may not necessarily be able to act on that infor- mation because of the inaccessibility of alternative markets and the complex interlinked relationships between buyers and sellers in low-income developing economies.
Rather than assuming that an information and communication technology (ICT) approach will always be cost-effective and yield a better outcome, a more nuanced understanding of the underlying institu- tional environment and constraints is warranted.

Third, technology-enabled interventions are no panacea in themselves, and need to be backed by complementary investments in physical infrastructure, including electricity and literacy.
The versatility and near-constant innovation that characterize digital technologies can sometimes be a distraction that can cause interventions to focus more on the technology than on the demands and priorities of the intended beneﬁ ciaries and the trade-offs imposed by resource- constrained environments.

Finally, information technology (IT) policy and the broader regulatory environment in a country should be discussed jointly.
Whereas the expansion of mobile phone access has been rapid and commercially self- sustaining even among many of the poor, the same is not true of the internet.

In the long run, the internet can have an even greater impact on rural growth; much depends on ﬁ nding sustainable business mod- els to encourage its spread in the poorest parts of the world.

Note 1.

Nakasone, Torero, and Minten 2014.

References Jensen, Robert.

2007.


“The Digital Provide: Information (Technology), Market Performance, and Welfare in the South Indian Fisheries Sector.” Quarterly Journal of Economics 122 (3): 879–924.

Nakasone, E., M. Torero, and B. Minten.

2014.

“The Power of Information: The ICT Revolution in Agricultural Development.” Annual Review of Resource Economics.

doi: 10.1146/annurev-resource-100913-012714.


94 WORLD DEVELOPMENT REPORT 2016 ENABLING DIGITAL DEVELOPMENT Digital finance 2 T H G I L T O P S Until a few years ago, agricultural productivity in Nigeria was declining, even though government spending had increased.1 Since then, agriculture has become a driver of economic growth.

One reason has been an innovative mobile wallet system initiated jointly by the public and private sectors and run by Cellulant, a mobile services company.
Nigeria’s smallholder farmers depend on subsidized fertilizer, but this crucial resource too often did not reach ben- eﬁ ciaries.

The 2012 Growth Enhancement Support Scheme introduced mobile technology to transfer fertilizer subsidies directly to farmers, taking the government out of the business of procuring and dis- tributing fertilizer.

The support scheme now helps up to twice as many farmers, at one-sixth the cost.
The transfer system relies on a database of more than 10.5 million farmers, who, as registered recipients of the subsidies, now have a better chance of gaining access to formal or regulated ﬁ nancial services.

Based on this initial success, the system is expanding, aided by a digital identiﬁ cation system and biometric signa- tures, taking ﬁ nancial services far into Nigeria’s rural hinterland.
This example and many similar experiences cov- ered throughout this Report illustrate the large impact of the internet and related digital technologies on the ﬁ nancial sector.2 Digital ﬁ nance has promoted ﬁ nan- cial inclusion, providing access to ﬁ nancial services to many of the 80 percent of poor adults estimated to be excluded from the regulated ﬁ nancial sector.3 It has boosted efﬁ ciency, as the cost of ﬁ nancial transactions has dropped and speed and convenience have increased.
And it has led to major innovations WDR 2016 team based on Bossone (2015) and Tropina (2015).

in the ﬁ nancial sector, many of which have emerged in developing countries (box S2.1).

The beneﬁ ts per- vade almost all areas discussed in this Report.

Digital ﬁ nance makes businesses more productive, allows individuals to take advantage of opportunities in the digital world, and helps streamline public sector ser- vice delivery.

Like all great opportunities, digital ﬁ nance also comes with risks.
What makes online ﬁ nancial systems easy to use for customers also makes them susceptible to cybercrime.

The entry of nontraditional players poses new challenges for policy, regulation, and supervision.

And the ease of transferring funds across the globe—often anonymously, using means such as cryptocurrencies—might increase illicit ﬁ nan- cial ﬂ ows.

Beneﬁ ts of digital ﬁ nance Digital ﬁ nance promotes ﬁ nancial inclusion More than 2 billion people have no access to any ﬁ nancial services.
Overall, only about 59 percent of men and 50 percent of women in developing coun- tries have an account at a regulated ﬁ nancial insti- tution.

Women, the poor, and small businesses often rely on informal ﬁ nancial services, even when they receive public transfers or remittances.

Digital payment systems help overcome barriers to accessing ﬁ nancial services.

Mobile money schemes, in particular, allow people who own a phone but do not have a bank account to make and receive pay- ments.
In the right environment, these systems can take off and reach massive size rapidly (ﬁ gure S2.1).

Digital payments can reduce costs to recipients.4 For instance, farmers in Niger realized time savings for DIGITAL FINANCE 95 95 Box S2.1 Innovations in digital payments There are four major innovations in digital payments.

spending in a local economy or as a means of exchange in computer games.

Wrappers create a digital interface with traditional payment systems such as credit cards or bank accounts.
Many are off ered by nontraditional providers, including internet intermediaries such as Google Wallet and Apple Pay.

Mobile money systems store money in the national currency as credit on smart cards or a system provider’s books, and enable payments online or through mobile phones.

A well-known example is M-Pesa, run by Safaricom.

These systems can off er lower fees and easier use than traditional payment systems, even for those without a bank account.
Credits and local digital currencies are alternative units of account (not in national currency) designed to promote Sources: Bank of England 2014; https://blockchain.info; company reports.

Digital currencies are both a new decentralized payment scheme and a new currency.

Such schemes record trans- actions in a publicly visible ledger.

Most digital curren- cies, including Bitcoin, are cryptocurrencies because they use cryptographic techniques to ensure secure validation of transactions.
To get a sense of the magnitude of digital payment ﬂ ows, consider this: In 2014, the volume of Bitcoin transactions worldwide was about US$23 billion; for mobile payments on M-Pesa in Kenya, it was about US$24 billion; for the online payment platform PayPal, it was US$228 billion; and for the credit card issuer Visa, it was US$4.7 trillion.

Figure S2.1 Kenya’s M-Pesa payment system reached 80 percent of households within four years g n i t p o d a l s d o h e s u o h .

S .
S .

 , y g o o n h c e t 100 90 80 70 60 50 40 30 20 10 0 3210 4 1098765 Years since initial public availability M-Pesa (Kenyan households, estimated) Cellphone (Kenyan households, estimated) Radio Internet Color television Cellphone Computer Telephone Automobile Source: Suri, Jack, and Stoker 2012.

Adapted with permission from the National Academy of Sciences; further permission required for reuse.
Note: Shares of households in the United States, except for Kenyan M-Pesa and cellphone users.

2 2 T T H H G G I I L L T T O O P P S S 96 WORLD DEVELOPMENT REPORT 2016 2 T H G I L T O P S each payment equivalent to an amount that would feed a family of ﬁ ve for a week.

Digital payments increase control, since senders of remittances can have a greater inﬂ uence on how recipients use the money, including for savings.
Digital ﬁ nance can increase the incentive to save, through automatic deposits, text reminders, or default options.

Texted reminders increased savings in Bolivia, Peru, and the Philippines by up to 16 percent.5 Digital payments improve risk management by making it easier to receive support from social networks that can act as safety nets.
M-Pesa users were better able to absorb income shocks compared to nonusers.6 Digital pay- ments speed up delivery, which is especially impor- tant in case of emergencies such as natural disasters.

And they increase security compared to traveling with large amounts of cash, as is commonly necessary in low- and middle-income countries.

Digital ﬁ nance can increase women’s economic participation.
In part, this is because digital payments can more easily be concealed by the recipient than cash, at least temporarily, which helps shift economic decision making in favor of women.

Access to savings instruments also increases female empowerment and the consumption and productive investment of female entrepreneurs.
There is a signiﬁ cantly positive relationship between female labor force participation and female bank account ownership.7 Information asymmetries—when one party to a transaction knows much more than the other—are pervasive in the ﬁ nancial sector.

In credit markets, especially those for informal enterprises and low- income borrowers, the lender usually has limited information about a potential borrower’s ability to repay a loan, thus impeding lending.
Digital tech- nologies help estimate credit scores from digital footprints.

Aliﬁ nance, a subsidiary of the Chinese e-commerce ﬁ rm Alibaba that is now part of Ant Financial, provides loans to vendors on its e-commerce platform.

Many vendors have small operations and face difﬁ culties obtaining loans in the traditional ﬁ nancial system.

Aliﬁ nance’s credit scor- ing model is based on at least three months of a ven- dor’s online activity and makes loan decisions auto- matically and almost instantly.
Loans are Y 20,000 to Y 30,000 (US$3,500 to US$5,000), on average, with ﬂ exible repayment terms.

Micro lending elsewhere that serves small farmers or small businesses func- tions similarly, often using mobile phone payment records to assess credit risk.

M-Shwari, operated by the Commercial Bank of Africa and Safaricom, is a bank account linked to Kenya’s M-Pesa payment system.
It pays interest on deposits and provides short-term loans with approval often in a matter of seconds based on M-Pesa usage history.

Between November 2012 and early 2015, the system issued 21 million loans to 2.8 million unique borrowers, with an average loan amount of US$15.

Digital ﬁ nance can increase effi ciency The internet reduces the cost of many ﬁ nancial transactions by allowing their unbundling into sep- arate components that can be automated or provided by specialized entities.
A retail payment consists of pre-transaction, authorization, clearing, settlement, and post-transaction, each one again involving several steps.

Specialized providers can execute individual steps, yielding economies of scale that translate into savings.

Such service providers are becoming more widespread in developing and emerging markets.

Governments can also lower the cost of ﬁ nancial transactions.
Electronic payment cards reduced costs of social transfers in Brazil’s conditional cash trans- fer program, Bolsa Familia, from almost 15 percent to under 3 percent of total payments.8 McKinsey esti- mated in 2010 that digital payments could save the government of India US$22 billion per year.9 A large part of these savings comes from lower leakages and reduced fraud.
Electronic payments create a clear digital record and can be traced, so the likelihood of funds not reaching the beneﬁ ciary or of duplicate payments or payments to “ghost” recipients who do not exist will be lower.

Evidence from India also shows that using smart cards rather than cash for social security payments halved the incidence of demands for bribes.
Digital ﬁ nance spurs ﬁ nancial innovation The ﬁ nancial sector is transaction-intensive and has always been at the forefront of adopting new tech- nology.

Automation has led to a signiﬁ cant reduction in ﬁ nancial transaction costs.

This has spawned innovations, such as automated credit scoring using advanced analytics and massive amounts of data.
Automating processes allows new, so-called ﬁ n-tech ﬁ rms to offer services often at lower costs than tra- ditional providers, including money transfer across borders (Xoom, TransferWise) or short-term loans (Wonga, ZestFinance).

Part of the Alibaba Group in China, Yu’E Bao—or “leftover treasure” in Mandarin— is a ﬁ xed-income investment fund into which cus- tomers can easily transfer balances from their Alipay digital payment accounts.
Established in 2013, by the end of 2014, the fund had 185 million users and about US$93 billion in assets.

Peer-to-peer lending platforms operate without traditional ﬁ nancial intermediaries, DIGITAL FINANCE 97 instead matching potential lenders and borrowers directly.

The emergence of digital currencies has been another innovation made possible by the internet.

Bitcoin, the most well-known, was created in 2009.


Its value in terms of national currencies has ﬂ uctu- ated widely, its acceptance as a means of exchange has been limited, and there have been widely publi- cized instances of fraud.
But a recent analysis by the Bank of England suggests that the key innovation of such currencies is the distributed ledger that removes the need for accounting and settlement by intermediaries such as banks.10 This model could also work for other ﬁ nancial assets such as loans, stocks, or bonds, although it is unlikely to spread widely anytime soon.

Managing risks The rapid development of whole new segments of ﬁ nance has raised policy questions.
How should these new areas of ﬁ nance be regulated and supervised, for instance to ensure consumer protection?

Do they pose signiﬁ cant risks to ﬁ nancial stability?

And do they make it easier to commit ﬁ nancial fraud or illicit ﬂ ows of funds?

One characteristic of digital ﬁ nance has been the rise of nontraditional providers of ﬁ nancial services such as money transfers, savings, and lending.

Some of these are new companies such as peer-to-peer lend- ing ﬁ rms like Kickstarter or LendingTree.
Others are nonﬁ nancial institutions setting up a ﬁ nance arm (or “nonbank”), such as e-commerce sites like eBay (owner of PayPal) and Alibaba; internet intermediar- ies like Google; electronics and software developers like Apple; and telecom operators like Safaricom.

This raises several concerns.

One concern is that traditional ﬁ nancial regula- tion does not always cover these companies or they are held to a different standard, such as reduced oversight, even though they can scale up quickly.
These problems are somewhat similar to the “shadow banking problem” that preceded the global ﬁ nancial crisis, and regulators are exploring ways to shift from regulating entities to regulating activities.

Tra- ditional ﬁ nancial institutions, in contrast, use regu- latory arguments to keep out innovative providers of digital ﬁ nancial services that could greatly beneﬁ t consumers and ﬁ rms.

This has obstructed the growth of online payment systems in Central America, for example.
Light regulation fosters innovation.

M-Pesa could not have grown as quickly had Kenya’s central bank erected strict regulatory hurdles.

Second, digital ﬁ nance is bringing large num- bers of people into the ﬁ nancial system for the ﬁ rst time.

This requires strong consumer education and consumer protection, including promoting ﬁ nancial literacy and fraud prevention, dispute resolution mechanisms, and data privacy.
A third concern is that ﬁ nancial innovations could pose a systemic risk to a country’s banking sector, including credit, liquidity, operational, and consumer risk.

Prudential regulation of digital ﬁ nance reduces this risk, but may involve high compliance costs that raise barriers to entry, and thus to competition.
Concerns about risks to the banking system were raised about Bitcoin, but analysis by the Bank of England, for instance, suggests that digital currencies play too small a role to threaten ﬁ nancial stability.

A greater concern may be that ﬁ nancial innovations create distortions in ﬁ nancial markets that could have larger implications.
For example, if automation and “big data” approaches make it much easier to issue consumer credit but not commercial credit, ﬁ nancial institutions might overallocate to the former, poten- tially creating a credit bubble and reducing credit availability for investments that increase productivity.
Finally, there are concerns about increased fraud in the ﬁ nancial system.11 With the rise of electronic banking, cyberattacks on ﬁ nancial institutions and on other sectors processing electronic ﬁ nancial trans- actions have also increased.

Massive theft of credit card information from retailers has highlighted the stakes involved.

Larger ﬁ nancial institutions have the resources and know-how to continuously upgrade online and mobile security through tools such as encryption or strong authentication.
In fact, banks have been at the forefront of developing secure trans- action processes.

But smaller and nonﬁ nancial institu- tions may be more at risk.

Apart from monetary losses, a large risk is also a loss of trust in digital ﬁ nancial sys- tems that may hinder further innovation in the sector.
Besides fraud and theft, digital ﬁ nance could facili- tate ﬁ nancial ﬂ ows for illegal or illicit purposes.12 Such transfers could be money laundering (“cyberlaunder- ing”), when illegally obtained funds are turned into seemingly legal assets through a process of deposit, layering, and integration with legitimate funds.

They could represent payments for illegal goods or services such as drugs.
Or they could be illicit ﬁ nancial ﬂ ows— often from developing countries to capital markets in industrialized countries—that represent the proceeds from tax evasion, corruption, or bypassing of capital controls.
Some ﬂ ows may be to circumvent arbitrary regulations by unaccountable governments, but often they are the result of illegal activity that deprives a 2 T H G I L T O P S 98 WORLD DEVELOPMENT REPORT 2016 2 T H G I L T O P S Box S2.2 Technology can help unveil illicit money ﬂ ows Global communication networks have made it easier to move illicit money around the world and to shelter assets from domestic tax authorities.
But recent high-proﬁ le cases also show how a combination of human interven- tion and technology increases the chances of detection.

In each case, large datasets were leaked by insiders to tax offi cials or watchdog groups such as the International Consortium of Investigative Journalists (ICIJ).

One case in 2014, Off shore Leaks, yielded 260 gigabytes of accounts data in off shore tax havens, including the British Virgin Islands and Cook Islands.
Collaborating with media outlets, experts from Costa Rica, Germany, Malta, and the United Kingdom developed automated software tools for organizing and searching this massive dataset.

The largest number of addresses tied to these off shore accounts were from a number of large emerging econ- omies.
Besides Off shore Leaks, Swiss Leaks yielded data about secret bank accounts in Switzerland, and Lux Leaks documented strategies that international corporations use to avoid taxes in countries where they make proﬁ ts, notably by channeling them through Luxembourg.

While many clients are from developing countries, they get help from western accountants, and much of the money ends up in industrialized countries or their off shore territories.
Increased transparency, thanks to technology’s ability to sift through large leaked datasets, is encouraging reforms that will make it harder to hide assets in foreign jurisdictions.

Sources: http://www.icij.org; press reports.


country of ﬁ nancial resources that, in aggregate, are thought to exceed the value of development aid.13 The anonymity, speed, ease of transaction, and global reach of digital ﬁ nance make illegal and illicit transfers easier, including through the ability to split large transactions into small tranches.

Internet sites such as online casinos and digital currencies that offer a high degree of anonymity aid such activity.
One study found that online casinos offered customers a choice of 235 payment options.14 And Bitcoin has been used to circumvent capital controls.

Because these ﬂ ows as well as cybercrime generally cross borders, it is not always clear which jurisdiction is responsible.

Although the internet might make illegal money transfers easier, it can also help address the problem.

In contrast to cash, electronic transfers leave a trail that can aid law enforcement.
Digital technologies could also help establish registries of beneﬁ cial ownership of ﬁ nancial and commercial holdings and transaction monitoring systems, a current priority of the G-20.

This could reduce tax evasion and cyberlaundering— although the barriers to developing such directories tend to be due more to resistance by tax havens than to technical reasons, and reforms have mostly been prompted by high-proﬁ le disclosures (box S2.2).
More generally, technology as a tool for tackling the problem of illicit ﬁ nancial ﬂ ows can complement, but not substitute for, proper legal frameworks, interna- tional cooperation, and public-private collaboration.

As with international reporting obligations aimed at preventing ﬁ nancing of illegal activities or terrorism, a greater regulatory burden and reporting require- ments can tax the resources of smaller countries, which may require assistance to comply.
Digital ﬁ nance is developing rapidly, and constant changes will challenge the ability of regulators to catch up.

Both too much and too little intervention by policy makers entails risks.

Even in light of new types of ﬁ nancial crime online, however, the opportunities of digital ﬁ nance for inclusion, efﬁ ciency, and inno- vation will likely outweigh the risks.

Notes 1.

Case study from Grossman and Tarazi 2014.

2.

See Bossone 2015.

3.

World Bank 2014.

4.

World Bank 2014.

5.

World Bank 2014.

6.


World Bank 2014.

7.

Data from the World Bank Findex database, which covers 148 countries.

8.

World Bank 2014.

9.

McKinsey, as cited in World Bank 2014.

10.

Bank of England 2014.

11.

Chatain and others 2011.

12.

Council of Europe 2012; Tropina 2015.

13.

Tropina 2015.

14.

Tropina 2015.

DIGITAL FINANCE 99 References Bank of England.

2014.
2014.

“Innovations in Payment Tech- nologies and the Emergence of Digital Currencies.” Quarterly Bulletin 2014 Q3.

Bossone, Biagio.

2015.

“Internet, Finance and Develop- ment.” Background paper for the World Development Report 2016.

World Bank, Washington, DC.

Chatain, P. L., A. Zerzan, W. Noor, N. Dannaoui, and L. De Koker.

2011.

Protecting Mobile Money against Financial Crimes: Global Policy Challenges and Solutions.

Washing- ton, DC: World Bank.

Council of Europe.

2012.


“Criminal Money Flows on the Internet: Methods, Trends and Multi- Stakeholder Counteraction.” http://www.coe.int/t /dghl/monitoring/moneyval/.

Grossman, Jeremiah, and Michael Tarazi.

2014.

Serving Smallholder Farmers: Recent Developments in Digital Finance.

Washington, DC: CGAP (Consultative Group to Assist the Poor).

Suri, Tavneet, William Jack, and Thomas M. Stoker.

2012.
2012.

“Documenting the Birth of a Financial Economy.” Proceedings of the National Academy of Sciences 109 (26): 10257–62.

Tropina, Tatiana.

2015.

“Do Digital Technologies Facil- itate Illicit Financial Flows?” Background paper for the World Development Report 2016.

World Bank, Wash- ington, DC.

World Bank.

Various years.

Findex (database).

World Bank, Washington, DC, http://www.worldbank.org /en/programs/globalﬁ ndex.

————.

2014.

The Opportunities of Digitizing Payments.


Report prepared by the World Bank Development Research Group for the G20 Australian presidency.

Washington, DC: World Bank.

2 T H G I L T O P S CHAPTER 2 Expanding opportunities Digital technologies can improve overall welfare and reduce poverty, but without complementary investments, they can also worsen inequality.
In Africa alone, 11 million youth are expected to enter the labor market every year for the next decade.1 Born in the internet era, they live in a world full of new and exciting opportunities.2 Farmers use mobile phones to get price information and technical advice.

Women facing barriers to work outside their homes can work online and better balance work and family.

And many have found earning opportunities through online work and the on-demand economy.
But these new opportunities come hand in hand with fundamental and rapid changes in the world of work, as digital technologies increase the demand for advanced skills, and many skills quickly become obsolete.

From a technological standpoint, fewer than half of today’s schoolchildren in China, Croatia, or Thailand can expect to ﬁ nd a job in an occupation that exists today.3 But more than jobs disappearing, they will be transformed.
The challenge for policy makers is to ensure that all current and future workers can seize the growing economic opportunities that accompany the spread of digital technologies.

The risk is that rapid technological change will end up increasing inequality and leaving many behind—blunting the digital dividends.

The potential gains from technological progress for workers and consumers in developing countries are indeed large.
Digital technologies can create jobs and increase earnings in the small information and communication technology (ICT) sector—and much more in the sectors that use ICT.

They also increase worker productivity by augmenting human capital and—especially critical for the poor—connecting peo- ple to work and markets.

And they can beneﬁ t con- sumers by lowering prices and expanding the variety of goods and services available, thus producing con- sumer surplus.
Most of these consumer gains come from lower marginal production and distribution costs when ﬁ rms innovate and automate processes, or from fully digital goods and services that allow ﬁ rms to exploit economies of scale (ﬁ gure 2.1 and spotlight 1).

But not everyone stands to beneﬁ t automatically.

Only by improving internet access and basic literacy and updating skill and training systems will the ben- eﬁ ts be realized and broadly shared.
For the world’s poor, the key is to leverage digital technologies to improve the productivity of household enterprises, subsistence family farmers, and the informal sector.

Yet for every person connected to the internet in developing countries, almost three are not; among the poor, more than six are not; and many also lack access to such complementary infrastructure as electricity or roads.

Even if connected, many cannot read or use the information the internet provides.
For workers in more organized labor markets, conditions are changing rapidly.

New jobs require different skills from old jobs, and many new jobs are informal or nonwage, without beneﬁ ts or worker protections.

Greater computer power and internet connectivity make some skills obsolete by substituting for work that is codiﬁ able and routine, and thus can be auto- mated.

The remaining tasks require complex skills that complement technology, such as creativity, criti- cal thinking, and problem solving.
These skills remain hard for technology to emulate, but also for education and training systems to provide, leaving many work- ers unprepared for the modern world of work.

Thus while digital technologies can raise produc- tivity and enhance overall welfare, associated labor market disruptions can be painful and can result in higher inequality.

High-skilled workers are the biggest winners when paired with digital technologies.
Glob- ally, returns to education remain high, at 10 percent per year, and are even higher for those using technology at work.

The poor, with no access to technology and lacking skills, see few of the direct downsides from technological adoption but also only partial beneﬁ ts.

But it is the middle class that can be hollowed out as jobs held by this segment—often medium skilled—are transformed, partly driven by technological change.
Machine operators and clerical support workers, for example, perform many “routine” tasks that are easily automated.
Since 1995, the share of routine employ- ment in total employment has fallen by 8 and 12 per- centage points in developing and developed countries, respectively.4 Such medium-skilled jobs, critical to the growth of the middle class and held disproportion- ately by the bottom 40 percent of the welfare distri- bution, give way either to high-skilled jobs that only a small share of workers qualify for, or to low-skilled jobs that face increasing competition and most likely declining wages.
So the race is on between skills and technology, and the outcome will determine whether the divi- dends from digital technologies are realized and the beneﬁ ts widely shared.

It is important to bridge the digital divides both in access and in capabilities.

This second divide separates the digitally savvy, who can make productive use of digital technologies and have skills that complement them—and the digitally poor, who remain unconnected and unskilled.
Providing current and future workers with the cognitive, tech- nical, and socioemotional skills that are augmented by technology—and not replaced by it—is a priority.

Given the fast pace of technological change—with more intense job creation, destruction, and realloca- tion to be expected—labor regulations, taxation, and social protection systems will have to support labor mobility and adapt to the changing nature of work.

This is the analog foundation for workers to succeed in a digital world.
Connected people The world is more connected than ever.

On aver- age, 8 in 10 people in the developing world own a mobile phone (map 2.1).

Digital technologies, often low-end phones, connect the more than 60 percent of the world’s people who did not have a landline phone as late as 2000.

More people have access to a mobile phone than to secondary schooling, clean water, or sanitation.5 Internet adoption lags behind mobile phone access, but has tripled since 2005.
In developing countries today, 28 percent of the popu- lation reports access to the internet at home, and in advanced economies, 80 percent.6, 7 Mobile phones are driving this interconnect- edness, especially among the poor.
All regions are converging in mobile phone use, but South Asia and Sub-Saharan Africa lag far behind in internet access EXPANDING OPPORTUNITIES 101 Figure 2.1 A framework for the internet and economic opportunities DIGITAL TECHNOLOGIES Overcome information barriers Augment existing factors Generate economies of scale INCLUSION EFFICIENC Y INNOVATION Job creation Labor productivity Consumer surplus R I S K : I N EQ U A L I T Y Source: WDR 2016 team.

(ﬁ gure 2.2).
(ﬁ gure 2.2).

A technology diffuses rapidly when it is low in cost, easy to use, has high potential beneﬁ ts, and ﬁ ts well with the local context.
Low-cost mobile phones—which can be shared, prepaid, billed in prices per second, and do not require much literacy or numeracy for basic use—ﬁ t this description, and are the technology of choice among the poor.8 In Cameroon, Ethiopia, Rwanda, Tanzania, and Uganda, more than four in ﬁ ve mobile phone owners have simple phones, not capable of browsing the internet.9 Personal computers and the internet, by contrast, require literacy and often foreign language (especially English) skills.
Computers with internet capabilities in the Warana subdistrict in Maharashtra, India, for instance, went largely unused except for transmitting market information to farmers—a function later sub- stituted by mobile phones, which were cheaper and easier to use.10 Communications, entertainment, and searching for information are the most common uses for mobile phones and the internet.
In African countries, social networking, sending and receiving e-mails, instant messaging, and checking facts and deﬁ nitions are the most common uses of the internet (ﬁ gure 2.3).
This is similar in Argentina, Brazil, Colombia, Mexico, Uru- guay, and the European Union countries, especially with social networking (between 50 and 80 percent of all internet users).11 The use of digital technologies 102WORLD DEVELOPMENT REPORT 2016Map 2.1 Mobile phones are the main source of connectivity in the developing world, but large gaps in internet access remainSource: WDR 2016 team, based on Gallup World Poll, various years.
Data at http://bit.do/WDR2016-Map2_1.Note: Adoption rates refer to the percentage of individuals who report owning a mobile phone (panel a) and having internet access at home (panel b).a.

Mobile phone adoption rates, circa 2014b.
Internet adoption rates, circa 2014High-incomeBottom 40%91%95%98%NationalUpper 60%Bottom 40%NationalUpper 60%Bottom 40%NationalUpper 60%Bottom 40%NationalUpper 60%Bottom 40%NationalUpper 60%Bottom 40%NationalUpper 60%Middle East andNorth Africa87%89%93%Latin Americaand the Caribbean79%86%91%Sub-Saharan Africa56%63%73%South Asia80%87%94%East Asia and Paciﬁc79%85%91%0–1920–3940–5960–7980–100No dataMobile phoneadoption rates (%)High-incomeMiddle East andNorth AfricaLatin Americaand the CaribbeanSub-Saharan AfricaSouth AsiaEast Asia and Paciﬁc66%81%90%21%32%43%17%32%41%5%10%15%4%11%17%14%28%37%0–1920–3940–5960–7980–100No dataInternet adoption rates (%)Bottom 40%NationalUpper 60%Bottom 40%NationalUpper 60%Bottom 40%NationalUpper 60%Bottom 40%NationalUpper 60%Bottom 40%NationalUpper 60%Bottom 40%NationalUpper 60%IBRD 41770 EXPANDING OPPORTUNITIES 103 Figure 2.2 All regions are converging in mobile phone access, but South Asia and Sub-Saharan Africa are falling behind in internet access a.
Individuals with mobile phone access b.

Individuals with internet access 100 t n e c r e P 80 60 40 20 0 100 t n e c r e P 80 60 40 20 0 2007 2008 2009 2010 2011 2012 2013 2014 2006 2007 2008 2009 2010 2011 2012 2013 2014 High-income Europe and Central Asia Middle East and North Africa East Asia and Pacific Latin America and the Caribbean South Asia Sub-Saharan Africa Source: WDR 2016 team, based on Gallup World Poll, various years.

Data at http://bit.do/WDR2016-Fig2_2.


Figure 2.3 How people use mobile phones and the internet in Africa Percentage of individuals who use mobile phones or internet reporting each type of use, 2011–12 a.
Mobile phones b. Internet e-mail Social networks Web browsing Sending and receiving money International calls Photos and videos Transfer airtime Music Games Missed calls Text messages Phone calls Social networking Sending or receiving e-mail Posting information or instant messaging Checking facts or word definitions Reading online newspapers and books Playing games Downloading and watching videos or radio Formal education Getting information about schools Getting information about health services Getting information about goods and services Looking for free educational content Getting information from government Calling over the internet Distance learning or job training Purchasing goods and services Internet banking Interacting with government 0 10 20 30 40 50 60 70 80 90 100 0 20 40 60 80 100 Percent Percent Daily Weekly Occasionally Source: WDR 2016 team, based on Research ICT Africa surveys (various years).
Data at http://bit.do/WDR2016-Fig2_3.

Note: Data are simple averages across 12 African countries.

104 WORLD DEVELOPMENT REPORT 2016 for work, education, and health is more limited but increasing.
Across the European Union, around 60 per- cent of internet users search for health information, and 13 percent make appointments with health practi- tioners online.12 In Brazil, 60 percent of internet users use it for educational purposes, and in Mexico, 35 percent.13 One in four individuals who use the internet in African countries reports doing so to get health and education information.14 Uses vary across population groups.
In Brazil and Mexico, women, rural, and poorer populations are less likely to use the internet for ﬁ nan- cial transactions or dealing with public authorities, but in both countries these same groups are equally or more likely to use it for educational purposes than men, urban, and richer populations.15 Across countries, children and youth are most likely to use the internet for education.
The digital divide persists Despite the rapid spread of digital technologies, more than 800 million people lack mobile access worldwide (63 percent of them in the bottom 40 percent of the income distribution), and 4.3 billion lack internet access (49 percent in the bottom 40).16 For every person connected to the internet in developing coun- tries, almost three are not, and in some countries, 20 are not.
Big gaps remain by income, age, location, and Figure 2.4 The digital divide within countries remains wide, especially in internet use Internet use in Africa, by demographic and socioeconomic characteristics, 2011–12 ) % ( t e n r e n t i e h t e s u o h w s l a u d i v i d n I 25 20 15 10 5 0 Bottom 40% Upper 60% Mature (45+) Young (15–24) Rural Urban Women Men Income distribution (household) Age Location Gender Source: WDR 2016 team, based on Research ICT Africa surveys (various years).
Data at http://bit.do /WDR2016-Fig2_4.

Note: The chart shows a simple average for 12 countries.

gender (ﬁ gure 2.4).

In African countries, the bottom 40 percent is only one-third as likely to have access to the internet as the upper 60 percent;17 18 percent of men report using the internet versus 12 percent of women, and 20 percent of youth versus 8 percent of those more than 45 years old.
Such demographic gaps persist also in Latin America, and even in high- and middle-income European countries.18 The digital divide reﬂ ects inequalities in access and barriers to productive use.

Many areas simply remain unconnected (chapter 4).

Even when a region is connected to the internet, access is not easy.
In Cameroon, Ghana, Kenya, and Uganda, more than three in four users still access the internet in com- mercial internet cafes, where high costs and slow connections limit use.19 A survey of 25 developing countries found that although commercial cafes were more expensive than telecenters, they had more skilled staff and more reliable infrastructure and service.20 But this is not the whole story.

Illiteracy and lack of skills are important barriers.
In a subsidized internet and mobile telephony program in rural Peru, mobile phone ownership increased, on average, by 12 percentage points, but internet use increased by only 2 percentage points.21 Explaining this gap is the lower internet use among adults than among youth, and the lack of use among the uneducated.
Even among the literate, internet use may be limited by a lack of content in local languages.22 Creating jobs, boosting labor productivity, and beneﬁ ting consumers The overall impacts of digital technologies on employment and earnings are positive, if highly heterogeneous (table 2.1).

As discussed throughout this chapter, rigorous evidence remains limited, but it suggests that most gains accrue disproportionally to the better educated, with technology complementing the skills and assets of users.
But there are exceptions.

In Peru, between 2007 and 2009, new internet users had higher income growth than those who remained nonusers, with larger gains in rural areas.23 And in the United States the diffusion of broadband increased employment rates more in rural areas than in urban.24 What explains the aggregate differences?

The ﬁ rst factor is the type of technology.


Mobile phones can be particularly beneﬁ cial to people in more dis- advantaged groups—who often lack skills for using the internet, or work in agriculture, where mobile phones alone can pay off.

Thus the beneﬁ ts from mobile phones tend to be widespread.
In Peru, for EXPANDING OPPORTUNITIES 105 Table 2.1 Digital technologies aff ect employment and earnings, the evidence shows Authors Country Technology Key ﬁ ndings De los Rios (2010) Peru Internet Klonner and Nolen (2010) South Africa (rural) Mobile phones Kolko (2012) United States Internet Marandino and Wunnava (2014) Uruguay Laptops and internet Internet adoption was associated with labor income gains of between 13 and 19 percent.

There was no effect on the probability of ﬁ nding employment.
Mobile phone coverage increased (wage) employment by 15 percentage points, mostly due to increased employment among women, especially those without signiﬁ cant child care responsibilities.

Among men, it induced a shift from agricultural employment to other sectors.

Broadband expansion was associated with local population and employment growth, but average wages and overall employment rates were unaffected.
Localities with broadband became more attractive, and the supply of workers responded to job opportunities.

In two years, the One Laptop per Child program had no impact on average households’ labor earnings but led to a 33-percent increase in hourly labor income among households below the median income.

Richer households al- ready had access to technology before the program.

Ritter and Guerrero (2014) Peru (rural) Source: WDR 2016 team.
Internet and mobile phones Access to internet and mobile phones increased wage employment, the pro- duction of processed goods, and the prices farmers received for their products.

Mobile phones were the main driver for agricultural activity, while internet access was the main driver for employment outside agriculture.
both mobile and internet use, the better educated beneﬁ ted most, but while very few of the less edu- cated adopted the internet, they beneﬁ ted greatly from their new mobile phones.25 Second is the labor market context.

Technology makes a difference when it helps overcome obstacles to employment or higher productivity.
In Peru, mobile phones were more ben- eﬁ cial in agriculture, where lack of access to relevant and timely information kept people from accessing better opportunities, whereas internet access made more of a difference outside agriculture, where employers seemed to demand ICT skills and internet use.

If the constraints are elsewhere, technology will not make a difference.
In rural South Africa, the roll- out of mobile phone networks increased employment among women, but only for those who did not have signiﬁ cant family responsibilities.26 These aggregate effects of digital technologies on opportunities are mediated through three mecha- nisms (see ﬁ gure 2.1): • Creating jobs.

Digital technologies promote inclu- sion by boosting employment and earnings in the ICT sector or in ICT occupations across the economy.
But most important, they support jobs and earnings in sectors that use ICT when ﬁ rms and the self-employed adopt new technologies and grow, as well as through ICT-enabled outsourcing and entrepreneurship.

• Increasing worker productivity.

By taking on some tasks previously performed by workers, digital technologies augment workers’ skills, increasing their productivity and earnings.

Digital technolo- gies can also connect people to work and markets and facilitate the accumulation of productive assets.
This increases efﬁ ciency in the labor market and the overall economy by allowing workers and ﬁ rms to better leverage existing assets.

• Beneﬁ ting consumers.

When digital technologies automate processes and generate economies of scale, they can lower prices and create new goods and services, thus increasing consumer surplus.

While quantifying these beneﬁ ts is difﬁ cult, the evidence discussed in the rest of the chapter suggests that they accrue most to those already better off (table 2.2).
Employment in the ICT sector and in ICT occupations is limited and mostly for high-skilled workers.

In industries that use ICT, the potential is greater, especially for those who have skills that better complement the technology.

But the largest payoff from digital technologies is increased labor productivity.
Better and cheaper information that helps connect people to inputs, outputs, and work is particularly promising for the poor, since it addresses a key barrier to raising incomes for people previously disconnected from markets.

The lower communication costs associated with mobile phones, the most common technology for the poor today, can increase the efﬁ ciency of agriculture and labor markets, raising household incomes and reduc- ing poverty.
As governments and the private sector get better at tailoring digital services to the poor, those gains should increase.
106 WORLD DEVELOPMENT REPORT 2016 Table 2.2 Beneﬁ ts of digital technologies for workers and consumers: A scorecard Channel Poor Nonpoor Poor Nonpoor Impact so far Potential impact Creating jobs Negligible L L M Negligible L Increasing worker productivity L M M H L H Beneﬁ ting consumers M H H In the ICT sector and occupations In sectors that use ICT Increasing returns to human capital Connecting people to work and markets Increasing consumer surplus Source: WDR 2016 team.
L M H H H Note: Poor refers to the bottom 20 percent of the welfare distribution.

The diff erential impact summarizes the discussion in the chapter and is a qualitative assessment of the evidence.

ICT = information and communication technology; L = low; M = medium; H = high.

Creating jobs In ICT sectors and occupations In terms of employment, the ICT sector is small, has high entry barriers, and remains male dominated.
The ICT sector employs, on average, 1 percent of the workers in developing countries (ﬁ gure 2.5).
ICT occupations—such as network administrator and electrical and electronic engineer—are also 1 percent of employment in developing countries, and 2–5 percent in member-countries of the Organi- sation for Economic Co-operation and Development (OECD).27 Even in the United States, since 2000, new technology-related industries—such as e-commerce and social networking—have accounted for only 0.5 percent of employment.28 Nor is the sector labor intensive.
Instagram, a photo sharing app, had just 13 employees in 2012, when it was bought by Face- book for US$1 billion.

Facebook, in turn, had 5,000 employees at the time—compared with 145,000 at Kodak at its peak in photographic ﬁ lm in the 1990s.

Yet Facebook’s market value is several times what Kodak’s was back then.29 And most of these jobs are high-skilled.

In developing countries, on average, half of all workers in the ICT sector have a tertiary education, compared with one-quarter elsewhere.
The gender gap is also large, with men 2.7 times more likely than women to work in the sector and 7.6 times more likely to be in ICT occupations.30 While not numerous, ICT jobs pay well and can generate additional jobs through consumption and production spillovers.

The median hourly earnings in the ICT sector and in ICT occupations are 1.5 times higher than in urban non-ICT sectors or non-ICT occupations in developing countries.31 The high pay reﬂ ects a workforce that is better educated than aver- age.
It likely also reﬂ ects the relative scarcity of ICT workers in some countries, driving up the skill pre- mium.

These high-paying jobs create more demand and new jobs outside ICT.

In the United States and Turkey, one job in the high-tech industry generates an average of 3 to 5 additional jobs elsewhere in the local economy.32 Many of these additional jobs are low-skilled or medium-skilled in such local services as retail, cleaning, and food preparation.
Kenya’s mobile money service M-Pesa uses more than 80,000 agents or service locations that make an average proﬁ t of US$70 a month.33 Hormuud Telecom—the largest operator in Somalia—employs 5,000 staff but supports 25,000 agents.

Given the high skill require- ments of the ICT industry, these employment spill- overs are more likely to beneﬁ t the poor.

Expanding businesses that use ICT The greatest employment potential of digital tech- nologies lies outside the ICT sector.
By improving productivity and boosting ﬁ rms’ growth throughout the economy (chapter 1), digital technologies can increase aggregate employment and earnings.
In China, between 1997 and 2007, the increase in internet domains and users per capita had a positive impact on ﬁ rms’ employment in ICT-intensive industries.34 Figure 2.5 Employment in the ICT sector and in ICT occupations remains small EXPANDING OPPORTUNITIES 107 t n e m y o p m e l f o t n e c r e P 3.0 2.5 2.0 1.5 1.0 0.5 0 Tajikistan C a m bodia Lao P D R C hina, Yunnan Province Bangladesh Sri Lanka N epal G hana Vietna m Kenya Nigeria Kyrgyz Republic A ngola G eorgia India Tanzania Bolivia Ar m enia Nicaragua Paraguay Brazil C hile Peru M ongolia D o minican Republic C osta Rica U zbekistan C olo m bia Uruguay M acedonia, FYR ICT sector ICT occupations Source: WDR 2016 team, based on the Skills Towards Employability and Productivity (STEP) household surveys (World Bank, various years); Central Asia World Bank Skills surveys (World Bank, various years); Survey-based Harmonized Indicators Program (SHIP) (World Bank, various years); Socio-Economic Database for Latin America and the Caribbean (SEDLAC) (CEDLAS and World Bank); and South Asia Region MicroDatabase (SARMD) (World Bank, various years).
Data at http://bit.do/WDR2016-Fig2_5.

The STEP surveys used in this Report cover 11 countries: Armenia, Bolivia, Colombia, Georgia, Ghana, Kenya, Lao PDR, FYR Macedonia, Sri Lanka, Ukraine, and Vietnam, as well as China, Yunnan Province.

Note: The ICT (information and communication technology) sector includes ICT manufacturing industries, ICT trade industries, and ICT services (OECD 2011).

ICT occupations refer to ICT specialists (OECD 2004, 2014).
In Brazil, between 2009 and 2013, ﬁ rms in industries intensive in the use of ICTs had higher wage increases across skill levels than the rest of the economy (ﬁ gure 2.6), although they did not experience faster employ- ment growth.
Wage growth was especially high for workers moving across ﬁ rms.35 Recent studies, despite measurement difﬁ culties, ﬁ nd a positive causal effect of ﬁ rms’ technology adoption on employment and earnings, especially in ﬁ rms with skilled workers who can make the best use of digital technologies.
Thanks to a tax allowance program for ICT investments in small ﬁ rms in the United Kingdom, digital technologies raised labor productivity within ﬁ rms and increased the demand for workers performing high-skilled tasks.36 In Nor- way, a 10-percentage-point increase in broadband availability in a municipality raised wages of skilled workers by about 0.2 percent, while lowering wages for low-skilled workers.37 Internet-enabled off shoring and outsourcing, including online work Internet-enabled offshoring is an important source of jobs in developing countries and for women.
An estimated one in four jobs in the United States has already been offshored or could be offshored in the future.38 These jobs are often in business processing, including call centers and bookkeeping.

Such jobs include those that can be broken down into routine tasks but also those requiring high skills and judg- ment if they can be reliably performed and monitored remotely.
Almost half of business process outsourc- ing (BPO) is in banking and ﬁ nancial services, and another 20 percent is in high-tech and telecommuni- cations.

Some tasks of radiologists and other medical services are increasingly also offshored.

India, China, the Philippines, and South Africa are the leading BPO hosts.39 The BPO industry in India employs more than 3.1 million workers, 30 percent of them women.40 In the Philippines, it employs 2.3 percent of all workers (box 2.1).
In rural India, a three-year awareness pro- gram on opportunities in the BPO industry increased women’s enrollment in relevant training programs, as well as school enrollment among young girls, by 3–5 percentage points.41 New technologies are now also challenging the status quo of the outsourcing industry.

Many of the characteristics that make jobs “offshorable” also make them more vulnerable to automation.
So, as technology improves and wages rise, some of the jobs typically offshored, such as call center jobs, could be automated.

Indeed, a local health care company in 108 WORLD DEVELOPMENT REPORT 2016 Figure 2.6 In Brazil, internet and software use by ﬁ rms throughout the economy is associated with higher earnings Average annual wage growth, by ﬁ rms’ ICT intensity and workers’ wage levels, 2009–13 a.

All workers b.
All workers b.

New hires from last job t n e c r e P 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 t n e c r e P 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 Low wages Medium wages High wages Low wages Medium wages High wages Low-intensity ICT Medium-intensity ICT High-intensity ICT Source: Dutz and others 2015, for the WDR 2016.

Data at http://bit.do/WDR2016-Fig2_6.

Note: The categories of wage levels are terciles.

ICT = information and communication technology.


South Africa is already using Watson, IBM’s artiﬁ cial intelligence system, to assist in customer service.42 Outsourcing opportunities are increasing in other areas through online work, providing workers and ﬁ rms with access to larger, even global, employment marketplaces (box 2.2).

People can work for any employer anywhere, with parties buying and selling services that can be delivered online.
Upwork (for- merly Elance–oDesk), the largest online outsourcing service, had 2.8 million job postings worldwide in 2014.43 Online jobs range from the very simple that can be completed in a few minutes—such as sign- ups, forum participation, review writing, and website testing—to the more complex, such as software devel- opment, translation services, data entry, and admin- istrative support.
The online work market, though still a tiny fraction of overall employment, is worth around US$1 billion annually, up from US$700 million in 2009.44 Impact-outsourcing brings online work to vul- nerable communities.

Still in its infancy—employing around 150,000 workers, or 3 percent of the total BPO industry—it is taking hold in India, Kenya, and South Africa.
The government of Kerala, India, outsources information technology services to cooperatives of women from poor families through the Kudum- bashree (“Prosperity of the Family”) project.

Average earnings were US$45 a month, with close to 80 per- cent of women earning at least US$1 a day.

Nine in ten of the women had previously not worked outside the home.45 Samasource, RuralShores, and Digital Divide Data are three private service providers.
Samasource splits jobs into microwork for almost 6,400 workers, mostly in Ghana, Haiti, India, Kenya, and Uganda, on average more than doubling their previous income.46 Online work can prove particularly beneﬁ cial for women, youth, older workers, and the disabled, who may prefer the ﬂ exibility of working from home or working ﬂ exible hours.
On freelancer.com—an online outsourcing platform with more than 10,000 microworkers globally—57 percent of workers are between 16 and 25 years of age.47 In Elance (part of Upwork), 44 percent of workers are women, com- pared with just 25 percent in the nonagricultural economy (ﬁ gure 2.7).

In a survey on microworkers .com carried out for this Report, 27 percent of workers see being able to work at home and ﬂ exible hours as the main advantages of working online.
These are the reasons most cited, even more often than earning extra income, especially among women (ﬁ gure 2.8).
Internet-enabled entrepreneurship and self-employment By lowering information barriers and costs, the internet increases experimentation and gives rise to new opportunities for entrepreneurship and self- EXPANDING OPPORTUNITIES 109 Box 2.1 Business process outsourcing and jobs in the Philippines: Opportunities and challenges from technological change The information technology (IT) and business process out- sourcing (BPO) industry in the Philippines has been a driver of economic growth and job creation in the last decade.
It has grown at an average of 24 percent annually, and its share of the global off shore services market went from 5 percent in 2006 to 11 percent in 2013.

Direct employment reached 1 million full-time employees in August 2014 from virtu- ally zero in 1999, accounting for around 2.3 percent of the country’s total employment.

The industry has a robust voice sector (primarily call centers), accounting for 64 percent of the industry’s revenue.
Health care information management employment grew by 47 percent from 2012 to 2013.

IT out- sourcing revenues also grew by 52 percent from 2012 to 2013, while knowledge process outsourcing grew by 18 percent.

Earnings and skill requirements vary across these sec- tors.

Industry-speciﬁ c jobs tend to be higher skilled than those that cut across industries (such as human resources business processing), as they require more technical knowl- edge.
In 2012, average annual compensation per employee in the industry was around US$8,849, with the highest aver- age compensation in software development (US$17,383).

It was US$8,301 for contact centers and US$7,687 for other BPOs.
High-skilled, high-paid occupations—as are most research and development–related in knowledge process outsourcing (such as market research and medical jobs Source: WDR 2016 team, based on Capili 2015, for the WDR 2016. transcription), IT outsourcing (such as software and applica- tion maintenance), engineering services (such as engineer- ing design and digital mapping), and creative processes (such as art production and game testing and support)—are intensive in nonroutine cognitive and interpersonal tasks.
Middle-skilled occupations are intensive in routine cognitive tasks, mostly in nonvoice BPO (such as back-offi ce ﬁ nance and accounting or human resources), but can also include many of the jobs in voice business processing (such as cus- tomer service and technical support).

Progress in digital technologies and international com- petition increases the need to move to more high-value- added, nonroutine jobs.
In the Philippine IT-BPO industry, 85 percent of the revenues are generated in jobs inten- sive in routine cognitive tasks, with workers increasingly susceptible to automation.

Low wages will delay this process but are unlikely to halt it.

As the global market for complex services grows, providing a larger volume of high-value nonvoice services can promote the industry’s sustainability.
This transition requires a concerted eff ort among business, academia, and government to make sys- temic improvements across the IT-BPO ecosystem, such as enhancing telecommunications infrastructure and directing industry-government partnerships toward more nonvoice training and skills development.

employment (box 2.3).

Many are in the ICT sector, but others are ICT-enabled (see also chapters 1 and 4).
Alibaba in China, the world’s largest e-commerce platform by sales volume, supports an estimated 10 million jobs, or 1.3 percent of China’s workforce.

Online shop owners using Alibaba in China, on average, employ 2.6 additional workers.

Four in ten shop owners are women, 19 percent were previously unemployed, 7 percent were farmers, and about 1 percent are persons with disabilities.
Alibaba is esti- mated to support an additional 2 million jobs, most in logistics.48 In Morocco, home-based female weavers sell rugs and other textiles over the internet to keep a larger share of their proﬁ ts.49 Etsy, a peer-to-peer e-commerce platform focused on handmade or vin- tage items, and similar services, can take this to scale.
Etsy has 20 million active buyers and 1.5 million active sellers worldwide, with 31 percent of its sales outside the United States.50 As online commerce, the on-demand or sharing economy—in which people rent assets or command services directly from one another, coordinated through the internet—is growing rapidly, if still small overall and just emerging in developing countries.
More than two-thirds of internet users globally are willing to be part of the sharing economy.51 In Uganda, food delivery services online are used by the diaspora to send in-kind remittances to family members.

In Kenya, Sendy connects customers with motorcycle couriers for delivery services, which can then be paid with mobile money.
As of March 2015, Airbnb— the largest site for peer-to-peer accommodation— reported operating in more than 34,000 cities and 190 countries, with more than 25 million guests.52 Peer-to- 110 WORLD DEVELOPMENT REPORT 2016 Box 2.2 The economics of online outsourcing Online outsourcing or freelancing platforms match ﬁ rms and workers to perform work online.

They can reduce contracting costs and the time it takes to match employ- ers and employees.
Through Upwork, the largest of these platforms, the time it takes to hire a worker can fall from 43 to 3 days.a On the workers’ side, around 45 percent of free- lancers on Upwork earn most or all of their income through online work.

In oDesk—with Elance, one of the two original platforms behind Upwork—hourly earnings are on average 14 times higher than minimum wages in developing coun- tries (ﬁ gure B2.2.1, panel a).
This is partly explained by the fact that online workers are better educated than those in the general economy.

High-paying work is concentrated in information and communication technology (ICT) areas such as software development, which can pay twice as much as online work in writing and translation, and even three to four times more than that in customer support and sales.b Thanks to the internet and innovations in monitoring and feedback systems, online labor markets are becoming global.
Online job platforms increase the pool of talent for ﬁ rms, especially for smaller enterprises, and provide an opportunity to monetize skills that may not be in suffi cient demand in the local economy.

An individual in Mongolia with expertise in web development and a programming language such as Python can make close to US$40 an hour online.

On Upwork, 90 percent of the work is off shored.


On the largest platforms, most employers are located in devel- oped countries and most workers in developing countries.

Australia, Canada, and the United States are the largest employers.

On oDesk, Bangladesh, India, Pakistan, the Philippines, and the United States have the largest number of contractors in relation to their populations (ﬁ gure B2.2.1, panel b).
Yet the internet only partly overcomes labor market segmentation, and some barriers to inclusion and to fur- ther expansion of online labor markets remain.

On Upwork, a given worker is 1.3 times more likely to ﬁ nd work in her domestic market, and domestic contractors get paid more than international contractors for the same type of work.c Online outsourcing is most likely to function like a truly global market when tasks are less complex and involve fewer local institutions and less communications.
Additional constraints that could be addressed by policy are related to language (mainly English), regulations, pay- ment platforms, and trust.d Figure B2.2.1 Online labor markets provide work and fairly good pay for workers in developing countries a.

Mean hourly wage in oDesk b.

Number of oDesk contractors e g a w y l r u o h k s e D o n a e M ) s r a l l o d .

S .
S .

U ( y r t n u o c t a h t r o f 32.00 16.00 8.00 4.00 2.00 1.00 0.50 0.10 0.1 0 POL USA AUS GBR CAN CHN VNM IND LKA IDN PAK KEN BLR RUS UKR ROU PHL BGD 100,000 r e b m u N 10,000 PHL IND USA BGD PAK UKR GBR CAN KEN ROU LKA AUS POL ESP ITA ARG FRA VNM DEU MEX ZAF MAR NPL CHN IDN BRA 100 900 Population of country (millions) 1,000 ARM HRV 0 0 TUN BLR BGR SRB ARE 10 1.00 4.00 8.00 2.00 0.50 Country minimum wage (U.S. dollars per hour) 16.00 32.00 Source: Agrawal and others 2013.
Note: oDesk is now part of Upwork, together with Elance.

In panel a, the line inside the ﬁ gure is the 45-degree line along which hourly wages in oDesk are the same as the country’s minimum wage; in panel b, it is a regression line.

In panel b, the number of contractors refers to those who have ever worked on oDesk.

a. http://elance-odesk.com/online-work-report-global, accessed March 26, 2015. b. Agrawal and others 2013. c. Lehdonvirta and others 2014. d. Kuek and others, forthcoming.
peer car services such as Uber, which operates inter- nationally, or Didi Kuaidi in China, are growing fast.

Expanding the principles of the on-demand economy to the urban self-employed in developing countries could be particularly promising.

These workers often lack references and documented work histories when seeking jobs and depend on word of mouth to expand their customer base.
In this setting, the sharing econ- omy’s decentralized, crowd-based rating systems can help control quality, build trust, and maintain a live “resume.” Plumbers and handymen can expand their client pool by building strong reputations online.

These new jobs in the sharing economy have advantages for workers, but they also come with trade- offs.

The main advantages for workers are supple- mental income and ﬂ exibility.
In the United States, 61 percent of sharing economy participants say earning extra money is their main motive.53 Workers appear to sort into a working arrangement that suits their preferences and family circumstances.

Two-thirds of Uber drivers in the United States vary their hours EXPANDING OPPORTUNITIES 111 Figure 2.7 Online work expands women’s access to work Global nonagricultural employment composition by gender, “offl ine” and online percent of total employment a.
Total nonagricultural employment b. Online work through Elance (part of Upwork) Women, 25% Men, 75% Women, 44% Men, 56% Sources: WDR 2016 team, based on World Development Indicators (World Bank, various years) and Elance Annual Impact Report “Work Diff erently,” June 2013.

Data at http://bit.do/WDR2016-Fig2_7.

Note: Results are population-weighted.

China is not included.

For panel a, latest available data between 2008 and 2013.
Figure 2.8 Flexibility in hours worked and the ability to work from home are the main advantages of online work, but relatively poor pay and lack of career prospects are concerns Microworkers.com: Most important advantage (panel a) and disadvantage (panel b) of using an online work platform over a traditional job “offl ine” a.

Most important advantage b.
Most important disadvantage Able to earn extra money Higher chances of getting higher earnings than in jobs offline Able to work from home and work flexible hours Reduce time and cost for job search Reduce time and cost for registering the profile to find a job Provide access to the job market which was limited before Higher chances of getting a job that matches my skills and interests Many jobs in my area of expertise Chance to receive on-the-job training Payment is not good enough Friends and family do not understand what I am doing Do not have any social benefits Tasks posted expire and a vacancy is already closed Require access to an online payment system Require access to internet Require internet and computer skills Take a long time to register and the process is cumbersome Do not necessarily get to work on the tasks that you applied for The job is temporary, and it is not for a long-term career Tasks are posted only for limited industries Tasks are posted only for limited types of occupations and tasks 0 10 20 30 40 50 Percent of respondents Men Women 0 10 20 30 40 50 Percent of respondents Source: Survey of online workers at microworkers.com, where the majority of workers are from developing countries, especially South Asia.
Based on Imaizumi and Santos, forthcoming, for the WDR 2016.

Data at http://bit.do/WDR2016-Fig2_8.

112 WORLD DEVELOPMENT REPORT 2016 Box 2.3 Expanding opportunities through online music Usman Riaz began piano lessons at age six in his native Pakistan.

He later wanted to explore new instruments and musical styles, but he could not ﬁ nd the right teachers in his own country.
Instead, watching videos online, he taught himself percussive guitar, a style that uses the strings and the instrument’s body for percussive eff ects.

Riaz also used the internet to showcase his music.

His song “Fire Fly” went viral in 2011.

A year later, he shared a stage in Edinburgh with Preston Reed, one of his online idols.

The internet has exposed people around the world to new cultural inﬂ uences—not just global pop culture hits, but also in the tiniest niches.
Whether it has also helped many more artists in developing countries gain access to arts and entertainment markets is diffi cult to say, given the lack of suitable data.

Globally in 2014, revenues for recorded music were about US$15 billion and falling, compared with US$25 billion for live performances, whose revenues are rising.a Pirating, YouTube, and music streaming have led to an overall decline of music sales in developed and devel- oping markets.
Most of the revenue goes to the biggest stars: the top 1 percent of artists earn about 80 percent of recorded music revenue.b At the same time, ﬁ le sharing has raised the demand for concerts,c which has always been the biggest source of income for most musicians.d As the cost of recording and distributing music has gone down, online music sharing could become an eff ective advertising vehicle for musicians in developing countries—although limited internet access and slow speeds make this harder.
Even if only a small minority break into national or even international entertainment markets, the welfare beneﬁ ts of being able to learn from others and share talents on the internet can still be signiﬁ cant.

Source: Kabanda 2015, for the WDR 2016. a. PricewaterhouseCoopers 2015. b. Thompson 2015. c. Holland, Nosko, and Sorensen 2012. d. Connolly and Krueger 2006. worked by more than 25 percent from week to week.

This ﬂ exibility is likely to be valuable for women and youth and for people between jobs.
But these beneﬁ ts come at a possible cost since these jobs do not provide much work security or protection to workers.54 Increasing worker productivity Increasing returns to human capital Digital technologies can complement human capital, allowing workers to focus their efforts on activities with higher value and making them more productive.

Farmers can use precision agriculture or track live- stock.
Teachers can use massive open online courses (known as MOOCs) or online teaching tools like Khan Academy, better using study time inside and outside the classroom to increase practice and discussion, and dedicating more time to children who fall behind.

Researchers can dedicate more time to thinking and innovating rather than spending time searching for information or duplicating other people’s work.

Man- agers can work more easily with teams across borders.
In fact, there has never been a better time to be a well-educated worker.

Chapter 1 shows how digital technologies increase labor productivity within ﬁ rms.

Workers who are able to work with digital technol- ogies and complement them are well positioned to access more (and more rewarding) employment and higher wages.

Returns to education have fallen only in Latin America.
Everywhere, average private returns remain high—at 10 percent per year—despite large increases in the supply of educated workers in the last few decades.

Returns to tertiary education are the highest, at 14.6 percent; tertiary education is the only educational level for which returns have not fallen since the early to mid-1990s.55 That reﬂ ects strong demand for advanced skills, especially among women (ﬁ gure 2.9).
Returns to education are higher and have been rising more rapidly in ICT-intensive occupations compared to the rest of the economy (ﬁ gure 2.10).

Connecting people to work and markets Digital technologies help overcome barriers to pro- ductive employment and connect workers and entre- preneurs to (global) markets, clients, and suppliers.

This is particularly important for the disadvantaged or often-excluded groups such as the poor, women, minorities, the disabled, and people in remote regions (box 2.4).
For all of them, high search costs, long dis- tances, and a lack of information are key obstacles.

The internet makes labor markets more efﬁ cient by connecting a larger pool of individuals and ﬁ rms at lower cost.56 Indeed.com, Monster.com, and elempleo .com are international platforms that aggregate job vacancies from different sources and allow ﬁ rms to post job openings, and workers to apply for jobs and post résumés.
Similar services exist for local markets, such as aldaba.com in the Dominican Republic and kariyer.net in Turkey.

Social and professional net- working sites also provide information on potential workers, often on behavioral aspects and social ties not reﬂ ected in traditional resumes.

LinkedIn, the largest online professional network, has more than 310 million registered members, 67 percent outside the United States.
In Brazil, LinkedIn’s penetration rate is already at 8 percent.57 In most countries, online job search remains concentrated among youth and the best educated and grows with income: online job search among the employed and unemployed is above 20 percent in urban Armenia and Georgia, but below 5 percent in urban Bolivia, Ghana, the Lao People’s Democratic Republic, Sri Lanka, and Vietnam.58 Online job boards, social media, and matching platforms can improve labor market efﬁ ciency, espe- cially in developing countries and in the informal sector, where information failures are large.
Online job matching is cheaper and faster than traditional methods.59 In Peru, integrating mobile phones into traditional public intermediation services increased employment among job seekers by 8 percentage points in the short term.60 In Germany, online job seekers are better matched to jobs, are happier with work, and have higher chances of promotion and job security.61 But other studies ﬁ nd no effect of online tools on the speed of matching or on the length of unemployment.62 The large number of applications per vacancy and stale resumes and job posts makes it costly for employers to select workers and for work- ers to ﬁ nd available jobs.
As online tools become more advanced, however, matching is becoming more effective.

In the United States, the average unemploy- ment duration for internet searchers was 25 percent shorter than for noninternet searchers, reversing earlier results.63 Online tools can address many labor market fric- tions, but much of this potential remains unrealized.

A ﬁ rst challenge is reaching lower-skilled workers.

Some services, such as Souktel, are solving this via mobile phone (box 2.5).
Babajob in India and Duma in Kenya have also implemented innovations to reach the bottom of the pyramid.

They use text mes- saging and “missed calls” to connect low-skilled and informal workers to vacancies.
A second challenge is EXPANDING OPPORTUNITIES 113 Figure 2.9 Returns to education remain high despite signiﬁ cant expansion in the supply of educated workers, especially for tertiary education Average return to one additional year of education in tertiary education t n e c r e P 25 20 15 10 5 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 Women, low- and middle-income countries Men, low- and middle-income countries Women, high-income countries Men, high-income countries Source: WDR 2016 team, based on Montenegro and Patrinos 2014.
Data at http://bit.do /WDR2016-Fig2_9.

Note: Includes 97 countries and only wage employees.

The regressions control for potential experience and potential experience squared using individuals’ age.
Figure 2.10 Returns to education are particularly high in ICT-intensive occupations Wage premium, beyond returns to education, for working in an ICT-intensive occupation t n e c r e P 6 5 4 3 2 1 0 Low- and middle-income countries High-income countries Women Men Source: WDR 2016 team, based on Monroy-Taborda, Moreno, and Santos, forthcoming, for the WDR 2016.

Data at http://bit.do/WDR2016-Fig2_10.


Note: An ICT-intensive occupation scores 4 or higher in an index between 0 (no use of technology at work) and 6 (most use of technology at work).

ICT = information and communication technology.

114 WORLD DEVELOPMENT REPORT 2016 Box 2.4 Bridging the disability divide through digital technologies For most people, technology makes things easier.

For people with disabilities, it makes things possible.
—Mary Pat Radabaugh, formerly with the IBM National Support Center for Persons with Disabilities Prakash lost his sight at birth.

Today he is a successful entrepreneur and programmer running his own information technology (IT) company in a mid-size city in India.

Screen- reading and voice-recognition software enable him to use a computer and write computing programs, and the internet helps him ﬁ nd and connect with clients.

Technology aug- ments his business and his life.


Around the world, more than 1 billion people have dis- abilities, 80 percent of them in developing countries.

They face infrastructure and environmental barriers to social, ﬁ nancial, and civic participation, which digital technologies can help overcome.

Technology enables multiple means of communication—voice, text, and gestures—to access information and engage with others.
Magniﬁ cation, voice recognition, and text-to-speech beneﬁ t persons with visual, cognitive, learning, and mobility disabilities.

Short message service (SMS), instant messaging, telephone relay, and video captions reduce communication barriers for those with hearing and speech disabilities.

Hands-free navigation and gesture-controlled interfaces help those with severe mobility impairments.

Source: Raja 2015, for the WDR 2016.


But if not designed to be accessible, digital technolo- gies can widen the disparities between persons with and without disabilities.

Free and low-cost mobile apps off er increased functionality for persons across the disabil- ity spectrum.

Assistive software is available for feature phones.

Accessibility enhancements for web browsers promote greater internet use by persons with disabilities.
Governments should focus on building the capacity of pub- lic bureaucracies, teachers, vocational trainers, employers, and information and communication technology (ICT) professionals to design accessible content and support ICTs for persons with disabilities; developing the legal, policy, and regulatory foundation for accessible ICT; supporting, through public-private partnerships, the development of accessible ICT, such as local language text-to-speech and voice-recognition software; and mainstreaming accessibil- ity in all public services off ered through ICT, such as disaster warnings and communications, public services, and ﬁ nan- cial services.
providing supporting services.

There is high demand for supporting services in online work, especially from women.

In Souktel, 40 percent of women and 30 percent of men report a need for career coaching.64 A third challenge is receiving up-to-date vacancy information, since many postings are stale.

Employ- ers also report a fairly high rate of no-shows for interviews.
A two-side rating system—quality control on vacancies’ expiration dates, and short message service (SMS) reminders to candidates selected for interviews—can address some of these shortcomings.

Making work more ﬂ exible Digital technologies can bring women and new entrants into the labor market, especially in white- collar occupations, by allowing people to work on different schedules or from different locations.
In Georgia, Romania, and Ukraine, more than 10 percent of employment is part-time, up from less than 5 per- cent a decade earlier.65 Video conferences and e-mail make it easier to work away from an ofﬁ ce.

In the European Union, telework doubled to reach 9 percent in the ﬁ rst half of the 2000s, and around 23 percent of enterprises in the EU-15 employed teleworkers in 2006, up from 16 percent in 2003 and 18 percent in 2004.
In the United States, in 2009, one-quarter of workers used telework regularly.66 The rise in telework has been particularly rapid among female workers in Europe.67 Budget airlines, such as JetBlue, manage their customer support centers largely with home workers, mostly women.68 Telework can also make it easier for youth to combine school and work and for older workers to work longer.

These new work arrangements can address skill gaps and increase productivity.
Facilitated by the internet, home-based work in a 16,000-employee travel agency in China improved worker productivity by 13 per- cent.69 And where there is a shortage of doctors, tele- medicine and examinations of digital X-rays can be very helpful.
In Uruguay, through teleconferencing, EXPANDING OPPORTUNITIES 115 Box 2.5 Using digital technologies to match workers with jobs: Souktel in West Bank and Gaza Souktel is an online job-matching service started in 2009 and operating primarily in West Bank and Gaza, but also active in the Arab Republic of Egypt, Jordan, Morocco, Rwanda, and Somalia.

There are more than 15,000 regis- tered job seekers.
The service registers job seekers through short message service (SMS) and online, provides informa- tion on vacancies, advises on resume preparation, and does active job matching by screening potential candidates for vacancies.

Notiﬁ cations on relevant job vacancies are sent through voice calls and SMS once or twice a week.

Job seek- ers in the platform are young (80 percent are age 15–25) and well educated (all have completed secondary and half have completed tertiary education).
Among Souktel’s core users, 4 of 10 do not have jobs.

Women are 30 percent of all online job seekers in Souktel, a share that is 15 percent- age points higher than at the national level (ﬁ gure B2.5.1, panel a).

There are 200 registered employers, 80 percent of which are medium in size.

The main beneﬁ t that job seekers see in Souktel’s ser- vice is saving time and money.
Most workers look for jobs that match their skills and experiences, but more than one- third look for jobs in new occupations or industries.

Souktel connects users to better-paying jobs.

The share of workers earning less than the overall average monthly earnings (around US$500 per month) drops both for men and women after ﬁ nding a job through Souktel (ﬁ gure B2.5.1, panel b).

About 70 percent of users have been invited for a job interview at least once.
Employers report that using online job platforms allows them to hire from a prescreened pool of high-quality candidates and reduces the time and cost for hiring.

Firms report a reduction in recruiting costs of about 20 percent.

Figure B2.5.1 Online platforms improve female labor force participation and access to higher-paying jobs a.
Share of the labor force nationally and in Souktel b. Souktel job seekers earning less than US$500 a month in the job before and after using Souktel t n e c r e P 80 60 40 20 0 t n e c r e P 100 80 60 40 20 0 National Souktel Men Women Men Women Before Souktel After Souktel Source: Imaizumi and Santos, forthcoming, for the WDR 2016.

Data at http://bit.do/WDR2016-FigB2_5_1.


English is being taught to ﬁ rst graders by teachers from the Philippines, raising the children’s English scores and the English proﬁ ciency of Uruguayan teachers.70 Improving access to markets and productive inputs Digital technologies, especially the internet, make it easier for people to sell products in new markets.

E-commerce platforms are one example.


In Uganda, wider mobile phone coverage induced market par- ticipation of farmers in remote areas, especially among those producing perishable crops.71 In India, e-Choupal has provided computers and internet access in rural areas.

Farmers can place orders for inputs, and directly negotiate the sale of their produce with buyers.
With 6,500 kiosks, it now reaches 4 mil- lion farmers in more than 40,000 villages.72 Digital technologies can increase access to more productive assets and better quality services, raising 116 WORLD DEVELOPMENT REPORT 2016 Box 2.6 The impact of digital technologies on remittances Online and mobile money transfer systems off er new cost-eff ective means of sending money.
In Kenya, among the 53 percent of adults who reported having sent remittances in the past year, 90 percent did so using a mobile phone.a Today, the average cost of sending money is 8 percent of the remitted value.

Mobile technology can lower this cost by removing the need for the physical presence of staff and customers, while ensuring timely and secure transactions.

Digital technologies make domestic and international remittances cheaper.
In Kenya, in 2008 shortly after M-Pesa entered the market, the cost of sending US$100 domesti- cally was US$12 by MoneyGram, US$20 by bank wire, US$6 by postal money order, and US$3 by bus, compared to US$2.50 by M-Pesa.

In Cameroon, costs have declined by 20 percent since mobile money entered the market.

Prices have also fallen for international remittances.
In the United Kingdom-Bangladesh corridor, the cost of sending US$200 through Western Union fell from 12 percent in 2008 to 7 per- cent in 2014 after the entry of digital competition.

Between the United States and Mexico, Xoom charges 4.4 percent for online money transfers, down from Western Union’s 6.2 per- cent.

But the costs are still high for the poor, since they make many small transactions, which tend to be more expensive— more than 5 percent for amounts less than US$5.
Across the board, traditional remittance service provid- ers are building their own mobile and online capabilities, Source: Plaza, Youseﬁ , and Ratha 2015, for the WDR 2016. a. Demirgüç-Kunt and others 2015. but international digital remittance services have yet to take off in a substantial way.

As of early 2012, only 20 percent of 130 mobile banking operators worldwide off ered such services.
The value of international remittances through mobile phones accounted for less than 2 percent of global remittances in 2013.

Policy action is called for on several fronts.

First is fostering innovative cross-border mobile money transfer technologies.
That requires harmonizing banking and tele- communications regulations to enable banks to participate in mobile money transfers, mobile companies to off er mobile money services without exclusivity agreements, and telecommunications ﬁ rms to off er micro-deposit and savings accounts.

It also requires simplifying regulations aimed at stopping money laundering and the ﬁ nancing of terrorism for small-value transfers.
And it requires ensuring that mobile distribution networks are open to multiple international remittance service providers.

Second is increasing competition by eliminating telecom monopolies and exclusivity contracts.

The experience in the United States-Mexico corridor shows how eliminating an exclusivity agreement between Western Union and Elektra can reduce prices.
The interoperability of money transfer operators in remittance markets, as in Indonesia, Pakistan, Sri Lanka, and Tanzania, can reduce prices further.

an individual’s long-term productive capacity.

They can help build human capital throughout the life cycle, managing risks and increasing access to ﬁ nan- cial capital and remittances (sector focus 2; spotlight 2; box 2.6).

Since the poor are often most constrained by these factors, they stand to beneﬁ t the most.
Mobile money accounts can drive ﬁ nancial inclu- sion.

In Sub-Saharan Africa, 12 percent of adults have mobile money accounts, compared with just 2 percent worldwide, and 45 percent of them have only a mobile money account.73 In Kenya, access to mobile money has helped in managing risk.
Statistically comparable households that were not connected to M-Pesa, the mobile money service, experienced on average a 6–10 percent reduction in consumption in response to sim- ilar shocks.74 And biometric tools that reduce the costs of identifying borrowers can improve access to ﬁ nan- cial and other services at the bottom of the pyramid.75 Through social and professional networking sites and better connections with friends and family, the internet also enlarges, deepens, and leverages social capital to ﬁ nd jobs and access resources (spot- light 3).76 In the United States, internet users have a larger extended network activated when looking for a job.77 Digital technologies can also increase agency and modify aspirations, affecting social norms that can be barriers to participation, employment, and productivity, especially for women,78 much the same as with soap operas in Brazil and cable television in India.79 In Africa, the internet appears to broaden social interactions with groups with different politi- cal views or religious beliefs.80 The internet and EXPANDING OPPORTUNITIES 117 mobile phones also increase ties between migrants and those remaining in the home country.81 Improving access to information For the poor—who rely on mobile phones and often did not have access to a ﬁ xed line—the biggest gains from digital technologies are likely to come from lower information and search costs.
When making agriculture and labor market decisions, individuals often rely on informal sources, such as family and neighbors, or are left with no information: six in ten farmers in Boyaca, Colombia, do not know the prices in the capital city.82 Information technologies can inform workers about prices, inputs, or new technol- ogies more quickly and cheaply, reducing friction and uncertainty, eliminating costly journeys, and reduc- ing the risks of accidents and crime.83 In rural Niger, mobile phones reduced search costs by 50 percent.84 In turn, these beneﬁ ts can reduce poverty.
In rural Peru, mobile phones increased household real consumption by 11 percent between 2004 and 2009 and reduced pov- erty by 8 percentage points.85 Mobile phones have also been found to reduce poverty in East Africa.86 Using technology for getting information on prices, weather, soil quality, and new technologies, and for coordinating with traders is becoming more common in agriculture (sector focus 1).
Among ﬁ sh- ermen in the Indian state of Kerala, price information on mobile phones increased their proﬁ ts 8 percent.87 In Honduras, farmers who got market price informa- tion via SMS reported an increase of 12.5 percent in prices received.88 In Argentina, the TRAZ.AR program to track animals increased proﬁ ts per kilo of meat by 8 percent.89 In Pakistan, thanks to mobile phones, farmers shifted to more perishable but higher return cash crops, reducing postharvest losses from the most perishable crops by 21–35 percent.90 Digital technologies make the largest difference when learning about information in distant markets or among disadvantaged farmers who face more informa- tion constraints.91 An adult education program on using simple mobile phones in Niger increased internal labor migration and communication with migrants on labor market conditions in faraway regions.92 Gains and uses are more common when the information transmit- ted is simple (as with prices or weather) rather than nuanced or difﬁ cult to convey (as in agricultural exten- sion).93 Similarly, when information provided through technology is not relevant to local needs or when there are other constraints to economic activity—such as physical infrastructure or market structure—there are fewer or no gains, as in cases in Ethiopia and Nigeria.94 Beneﬁ ting consumers My life became easy after I started using the internet.
We can learn about any subject.

It also helped me earn some income online by using freelancer sites.

It helps me to ﬁ nd health and beauty tips, to know current events and news.

Through internet, I am able to stay connected with my friends and relatives.
—Young woman, microworker in Amazon Mechanical Turk, September 201495 Beyond earning opportunities, the internet offers many beneﬁ ts to individuals as consumers, such as consumer convenience, expanded choice, better qual- ity leisure time, and access to more knowledge.

These beneﬁ ts are consumer surplus, often not captured in GDP statistics (chapter 1).

Digital technologies have thus enhanced welfare.


Across 12 countries in Africa, 62 percent of people believe that their family is better off because of mobile phones, whereas only 21 percent disagree (17 percent are not sure).

And 76 percent of people say mobile phones help save on travel time and costs.

A majority (62 percent) also believe that mobile phones make them more secure (ﬁ gure 2.11).
The annual consumer surplus from Google search has been estimated at Figure 2.11 Mobile phones improve sense of security and save time Africa: Respondents that agree with each statement on beneﬁ ts and use of mobile phones, 2011–12 I use it to check on safety of loved ones Saves on travel time and cost My family is better off because I have a mobile phone It makes me feel more secure or safe It lets me get more done during the day It helps me to find work I use it to mobilize the community or for political events I use it to access free educational content 0 10 20 30 40 50 60 70 80 90 Percent Women Men Source: WDR 2016 team, based on Research ICT Africa surveys (various years).
Data at http://bit.do /WDR2016-Fig2_11.
118 WORLD DEVELOPMENT REPORT 2016 US$500 per user, or US$150 billion for the 300 million users.96 In Estonia, digital signatures saved 20 min- utes per signature.97 In Europe and the United States, consumers are willing to pay an average of US$50 a month for services that they now get for free on the internet.98 Large consumer surpluses have also been estimated for Brazil, China, and Mexico.99 The rapid adoption of digital technologies, despite the costs, speaks for itself.
In developing countries, 5 percent of consumption goes into ICT, ranging from 2.8 percent in the poorest households to 6.6 percent in the richest.

In Africa, in addition to covering the cost of the hardware, the median phone owner spends more than 6 percent of his or her monthly income on mobile phones for calls and SMSs.
The share is over 13 percent when accounting for people who own a mobile phone but do not work (mostly youth and spouses).100 Beneﬁ ts to consumers, while signiﬁ cant, also come with risks.

There are concerns about loss of pri- vacy (chapter 4); information overload, as more and more information—some relevant and some not—is at our ﬁ ngertips; and “overconnectivity,” since people are constantly online and reachable.

The line between leisure and work is blurring.


Digital technologies make leisure time more enjoyable and less costly, but also make workers more productive and allow them to work away from the ofﬁ ce.
More than one-third of internet users in the United States report working longer hours because of technology, despite also feel- ing more productive.101 Labor market polarization can lead to greater inequality For workers, digital technologies generate new opportunities for employment and earnings, but also risks.

One major risk is related to the speed of labor market changes and the destruction of jobs.
Nonstandard forms of work and shorter job ten- ures are likely to become more common, especially among youth.

Internet access has been associated with more job-to-job ﬂ ows, within the same ﬁ rm and across employers.102 Large-scale automation can also accelerate job destruction, especially in developed countries.
In addition to factory automation, there is automation of logistics and processing, digitization (data entry, publishing/printing), and self-service (document creation and management versus clerical support, or retail self-checkout).103 These changes are good for aggregate productiv- ity, as discussed in chapter 1, but can create challenges for individuals in the transition to new jobs.

This is especially the case when the skill needs of new jobs are different from those of the old jobs.
Beyond skill-upgrading, the challenge is to ensure that labor regulations facilitate and do not impede these tran- sitions, and that social protection systems support workers when they are between jobs or not working regularly.

A second risk relates to the changing nature of work and the quality of internet-enabled jobs, such as microwork or jobs in the on-demand economy.
These new forms of work provide workers and ﬁ rms with ﬂ exibility and improve efﬁ ciency in the use of resources, but also come with a possible erosion of workers’ bargaining power and a lack of beneﬁ ts, such as unemployment and health insurance or severance pay.

In most cases, workers are considered independent contractors rather than employees.
In a world where a job in a ﬁ rm has been a pathway out of poverty because ﬁ rms help share risks and provide capital, training, and technology,104 higher nonwage employment and this “new informality” may not be desirable.

In developing countries, most work does not have these beneﬁ ts, but especially in advanced countries, a balance is needed between efﬁ ciency and protection to avoid a “race to the bottom” in terms of workers’ protections.
Already, some microwork platforms and companies in the sharing economy provide insurance to workers and collect taxes, but these new develop- ments in the labor market raise questions about traditional approaches for protecting workers.

As dis- cussed in chapter 5, this will probably require reforms not only in the new industries but also in the tradi- tional ones to ensure that all workers—irrespective of their type of work contract—have basic protections.
Perhaps the biggest risk from technological change, however, is that of widening income inequal- ity.

Although technologies are becoming widespread, the economic payoffs are not.

The poor almost exclu- sively use only mobile phones not connected to the internet.

And even if they had access to the internet, they lack the skills to use it productively, with many still unable to read in the ﬁ rst place.
Positive impacts from using digital technologies—as with other tech- nologies in the past century—are most likely to be captured by those already better off.

In the United States, the adoption of advanced internet applications by ﬁ rms led to substantial wage growth in the 6 per- cent of counties that were the wealthiest, the most educated, and had an IT-intensive industry, with no effect elsewhere.
Technology explains more than half the difference in wage growth between already well- off counties and others.105 The risk of rising inequality is evident in the declining shares of (routine) labor in national income, and the “polarization” of the labor market—that is, the declining employment in middle-skilled occupations relative to those in low- and high-skilled ones, and the heightened competition for low-skilled jobs.
The concern is that the ladder to the middle class is pulled away as middle-skilled jobs disappear or are funda- mentally transformed by digital technologies.
Declining shares of labor in national income Various factors, including technology, are shifting the distribution of income within countries away from routine labor and toward nonroutine labor and capital.106 In the past few decades, and especially after 2000, the share of national income going to workers has fallen steadily in developed and many developing countries, driven by a falling share of income going to workers performing mostly routine tasks that fol- low exact, well-deﬁ ned procedures that can be easily automated (ﬁ gures 2.12 and 2.13).
In the United States, at the technological frontier, the share of income going to routine labor has fallen from 38 to 23 percent since the late 1960s, with a simultaneous rise in the nonroutine labor share from 24 to 34 percent.

In Hon- duras and Romania, in the 2000s, the income share of nonroutine labor increased from 28 to 32 and from 21 to 25 percent, respectively, with declines in the share of routine labor.107 Where the labor share has fallen most, inequality has risen most (ﬁ gure 2.14).
A grow- ing literature also links recent technological change to widening inequality.108 Figure 2.12 United States: Labor share in national income is falling, driven by routine labor Share of routine and nonroutine labor in total income ) % ( e r a h s e m o c n I 45 40 35 30 25 20 15 10 Routine labor Nonroutine labor EXPANDING OPPORTUNITIES 119 Figure 2.13 Labor shares in national income are falling in many countries, including some developing countries Trends in labor shares in output since 1975 percentage points every 10 years Poland Mexico Hungary Estonia Bahrain Slovenia Lithuania South Africa Norway Luxembourg Micronesia, Fed.
Sts.

Namibia Latvia New Zealand China Finland Tunisia Argentina Slovak Republic Germany Austria Sweden France Italy Australia Taiwan, China Canada Japan Denmark Switzerland United States Netherlands Belgium Czech Republic Spain Singapore United Kingdom Portugal Bolivia Turkey Armenia Colombia Kenya Thailand Costa Rica Iceland Belarus Moldova Korea, Rep. Ukraine Brazil –15 –10 –5 0 5 10 Change in labor shares Source: Eden and Gaggl 2014, for the WDR 2016.

Data at http://bit.do /WDR2016-Fig2_12.


Source: Karabarbounis and Neiman 2013.

Data at http://bit.do /WDR2016-Fig2_13.
120 WORLD DEVELOPMENT REPORT 2016 Figure 2.14 Falling labor shares in national income are associated with rising inequality Growth in Gini coeffi cient vs. growth in labor share in national income, 1995–2010 n i t n e i c i f f e o c i i n G e h t n i e g n a h C ) % ( e m o c n i r o n o i t p m u s n o c 30 25 20 15 10 5 0 –5 –10 –15 –20 CHN FIN DNK LVA BGR EST CRI NOR ITA ESP GBR HND GRC PAN ARG TUN BLR PRY IRL –30 –25 –20 –15 –10 –5 0 Change in the share of national output going to labor (%) Source: Eden and Gaggl 2015, for the WDR 2016.
Data at http://bit.do/WDR2016-Fig2_14.

Employment polarization Declining labor shares coincide with the polariza- tion of labor markets, most notably in high-income countries.109 Employment is growing in high-skilled, high-paying occupations (managers, professionals, technicians) and low-skilled, low-paying occupations (elementary, service, and sales workers).

Middle- skilled, middle-paying occupations (clerks, plant and machine operators) are being squeezed (ﬁ gure 2.15).
In high-income countries, on average, the share of routine labor in employment has fallen by about 0.59 percentage points a year since 1995, or almost 12 percentage points for the period.
In the United States, local labor markets susceptible to automation due to specialization in routine task-intensive occupations have no net decline in employment, but they expe- rience polarization in manufacturing and services.110 There are signs that employment is also polarizing in a number of low- and middle-income countries.

The average decline in the share of routine employment has been 0.39 percentage points a year, or 7.8 per- centage points for the period.
China is an exception, since the mechanization of agriculture increased the share of routine employment.111 Labor markets in low- income countries such as Ethiopia, with a large share of employment in manual occupations, are also not polarizing; neither is employment in Mongolia or Latin American countries where other factors—such as a commodity-driven boom beneﬁ ting low-skilled work- ers—could play a larger role in shaping labor markets.112 Yet declining labor shares in income and job polar- ization are only symptoms.
At their heart is the fact that digital technologies complement and augment some skills (and thus some workers) while replacing others.

Since not everybody has the skills that go well with digital technologies, many can end up falling behind.
Education and skills thus determine whether the promise of digital dividends is achieved, or whether technological advances translate into more inequality in a race between skills and technology.113 Understanding this dynamic is critical: inequality will increase if more workers do not acquire the mod- ern skills most in demand.
But if education and train- ing systems increase the supply of workers who meet the changes in skill demands, more workers would beneﬁ t from technological change and inequality could decrease.

The race between skills and technology With rising computing power, combined with the connectivity and informational value of the internet, digital technologies are taking on more tasks.

They are particularly good at performing tasks that follow explicit, codiﬁ able procedures—that is, routine tasks.
Some of these tasks are cognitive, such as processing payrolls, keeping books, or doing arithmetic.

Others are manual or physical, requiring simple motions and muscle power, such as driving a train or assembling goods.

These tasks can be easily automated.

Nonrou- tine tasks, by contrast, are less amenable to automa- tion.
Doing research, maintaining personal relation- ships, and designing new products have proven hard to automate; so have manual tasks that involve signiﬁ - cant dexterity, such as cleaning and providing security services or personal care.

Technology is even moving into areas once thought to be the exclusive domain of humans, such as driving or writing news articles.
So, the impact of digital technologies on jobs depends on the type of tasks and how technology either complements or substitutes workers in those tasks.

A job comprises many tasks, each character- ized by the skills most used to perform it (cognitive, socioemotional, or manual) and by how amenable it is to automation or codiﬁ cation (table 2.3).

In some cases, technology augments labor by complementing workers.
Both the researcher and the hairdresser do tasks that are nonroutine and not easily programmed into a computer, but technology makes the researcher (who uses more advanced skills at work) much more productive, while barely affecting the hairdresser.

This means that technology is skill-biased.

EXPANDING OPPORTUNITIES 121 Figure 2.15 The labor market is becoming polarized in both developed and developing countries Annual average change in employment share, circa 1995–circa 2012 a.
High-income countries 1.5 1.0 0.5 0 –0.5 –1.0 s t n o p i t e g a n e c r e P –1.5 Luxe m bourg Slovenia G reece France s t n o p i t e g a n e c r e P 2.0 1.5 1.0 0.5 0 –0.5 –1.0 –1.5 –2.0 –2.5 Spain A ustria Lithuania Iceland Poland U nited Kingdo m S w eden Korea, Rep. Estonia S witzerland Israel Ireland N orw ay C anada D en m ark N e w Zealand Croatia Finland G er m any C hile Slovak Republic Barbados Russian Federation U nited States C zech Republic A ustralia N etherlands Portugal H ungary Uruguay Italy Argentina b.
Low- and middle-income countries South Africa H onduras M alaysia Philippines D o minican Republic Tanzania G uate m ala Pana m a M auritius Turkey M acedonia, FYR U kraine U ganda Serbia El Salvador Bolivia Thailand Egypt, Arab Rep. Ja m aica India Sri Lanka Bhutan M ongolia C osta Rica N a mibia Kazakhstan G hana Pakistan Ethiopia Botsw ana Nicaragua Barbados Peru C hina High-skilled occupations (intensive in nonroutine cognitive and interpersonal skills) Middle-skilled occupations (intensive in routine cognitive and manual skills) Low-skilled occupations (intensive in nonroutine manual skills) Sources: WDR 2016 team, based on ILO Laborsta (various years); I2D2 (World Bank, various years); National Bureau of Statistics of China (various years).
Data at http://bit.do /WDR2016-Fig2_15.

Note: The ﬁ gures display changes in employment shares between circa 1995 and circa 2012 for countries with at least seven years of data.

The classiﬁ cation follows Autor 2014.

High-skilled occupations include legislators, senior offi cials and managers, professionals, and technicians and associate professionals.

Middle-skilled occupations comprise clerks, craft and related trades workers, plant and machine operators and assemblers.
Low-skilled occupations refer to service and sales workers and elementary occupations.

For the United States, comparable data could be accessed only for a short period (2003–08); consistent with Autor (2014), the observed polarization is limited in this period, with most of it having taken place in earlier years.

In other cases, workers are in jobs that are routine, whether mostly manual or mostly cognitive, and are susceptible to automation and to seeing their jobs profoundly transformed or vanishing.
In these cases, technology is labor-saving.

The fundamental questions then become: To what extent are different occupations and countries’ labor markets affected by skill-biased and labor-saving digital technologies?
122 WORLD DEVELOPMENT REPORT 2016 Table 2.3 Interactions between technology and skills at work n o i t a m o t u a f o e s a E ) g n i v a s - r o b a l s i l y g o o n h c e t ( Ease of complementarity (technology is labor-augmenting) High (tasks intensive in cognitive analytical and socioemotional skills) Low (tasks intensive in manual skills) High (routine tasks) Low (nonroutine tasks) 1 4 Bookkeepers Proofreaders Clerks Researchers Teachers Managers Machine operators Cashiers Typists Cleaners Hairdressers Street vendors 2 3 Source: WDR2016 team, adapted from Acemoglu and Autor 2011.
Note: Workers in occupations in quadrant 4 can beneﬁ t greatly because the majority of their tasks are diffi cult to automate, and the core of their work is in tasks in which digital technologies make them more productive.

Occupations in quadrants 1 and 2 are composed of many tasks that can be easily automated.

Productivity in occupations in quadrant 3 is by and large not directly aff ected by digital technologies.
And what are the typical characteristics of workers in occupations that, in the absence of effective policies, stand to gain or lose from technological change?

Skill-biased technological change and the new digital divide As Brynjolfsson and McAfee write in The Second Machine Age, “There’s never been a better time to be a worker with special skills or the right education, because these people can use technology to create and capture value.
But there’s never been a worse time to be a worker with only ‘ordinary’ skills and abilities to offer, because computers, robots, and other digital technologies are acquiring these skills and abilities at an extraordinary rate.”114 So, recent skill-biased tech- nological change favors workers with advanced skills (table 2.4).

Not only is overall employment moving toward occupations intensive in these more advanced skills, but even within a given job, skill demands are similarly shifting.
Because of this, two sets of skills are increasingly important in today’s labor markets: ICT skills and Table 2.4 Recent evidence on skill-biased technological change Authors Country Findings Akerman, Gaarder, and Mogstad (2015) Norway Broadband adoption in ﬁ rms complements skilled workers performing nonroutine tasks and substitutes for workers performing routine tasks.
Autor, Katz, and Kearney (2008) United States Autor, Katz, and Krueger (1998) United States Patterns of wage inequality are best explained by a modiﬁ ed version of the skill-biased technical change hypothesis, which emphasizes information technology in complementing abstract (high-education) tasks and substituting for routine (middle-education) tasks.

Digital technologies widen wage differentials.


Skill upgrading within industries accounts for most of the growth in the relative demand for college workers, especially in more computer- intensive industries.

Berman, Somanathan, and Tan (2005) Gaggl and Wright (2014) India Trade openness and reform promote technology adoption and diffusion and increase the nonproduction worker shares of employment and total wages in manufacturing, even within industries.
United Kingdom A tax allowance on ICT investments among small ﬁ rms leads, in the short run, to an increase in demand for nonroutine cognitive-intensive work, some substitution of routine cognitive work, and no effect on manual work.

Marouani and Nilsson (2014) Malaysia Without skill-biased technological change, skilled wage earners should expect lower wages and higher unemployment, and unskilled labor should expect higher wages and lower unemployment.
Srour, Taymaz, and Vivarelli (2013) Turkey Domestic and imported technologies increase the demand for skilled labor ﬁ ve to six times more than the corresponding demand for unskilled labor.

Source: WDR 2016 team.

Note: ICT = information and communication technology.
EXPANDING OPPORTUNITIES 123 Box 2.7 Skills wanted: Key concepts Beyond foundational cognitive skills, such as basic literacy and math, a well-educated worker in a modern economy needs to develop the following skills: Nonroutine, higher-order cognitive skills.
These refer to the ability to understand complex ideas, deal with complex information processing, adapt eff ectively to the work envi- ronment, learn from experience, engage in various forms of reasoning, to overcome obstacles by critical thought.a More speciﬁ cally, these include skills such as unstructured prob- lem solving, and critical thinking, learning, and reasoning.

Technical skills, including information and communication technology (ICT) skills.
Technical skills are those abilities needed to carry out one’s job, such as the ability to repair a water leakage for a plumber, the knowledge to operate a machine for a worker at a factory, or the knowledge to a. Neisser and others 1996. b. Cunningham and Villasenor 2014. c. European Commission (EC 2004); OECD 2004. d. Cunningham and Villasenor 2014. work with a software for a person at a bank.b They also include ICT skills.
ICT skills refer to the eff ective application of ICT systems and devices, and range from ICT specialists who have the ability to develop, operate, and maintain ICT systems, to basic ICT users, who are competent users of the mainstream tools needed in their working life (e-mail, Excel, Outlook, PowerPoint, Word).c Nonroutine interpersonal, socioemotional skills.
Socio- emotional skills (also called soft or noncognitive skills) encompass a broad range of malleable skills, behaviors, attitudes, and personality traits that enable individuals to navigate interpersonal and social situations eff ectively.d These include grit or the perseverance to ﬁ nish a job or achieve a long-term goal, working in teams, punctuality, organization, commitment, creativity, and honesty.

higher-order cognitive and socioemotional skills (box 2.7).
Since 2000, the ICT intensity of employment has increased by almost 10 percent in low- and middle- income countries, almost twice as fast, on average, as in high-income economies (ﬁ gure 2.16).

The share of employment in occupations intensive in nonroutine cognitive and socioemotional skills has also increased in low- and middle-income countries, from 19 to 23 percent.
However, the decline in occupations inten- sive in routine skills was even larger, from 50 to 44 percent (ﬁ gure 2.17).115 This is the driving force behind the polarization of labor markets.

The new economy offers, therefore, a premium for ICT skills, strong foundational cognitive and socioemotional skills, and for more advanced nonroutine 21st-century skills such as critical thinking, complex problem-solving, creativity, and expert communication.
In fact, work- ers using these “new economy” skills and technology are better remunerated—by 25–40 percent—than their peers with the same level of education but per- forming traditional tasks and jobs.116 Poor digital literacy limits the productive use of digital technologies It is hard to use the internet when, even among youth, more than half have a level of functional literacy below what will enable them to participate productively in life, as in Albania, Indonesia, Jordan, Malaysia, or Peru.117 About three-quarters of third-graders in Mali and Uganda cannot read.118 Beyond basic literacy, ICT skills are deﬁ cient.
In Africa, 7 in 10 people who do not use the internet say they just don’t know how to use it, and almost 4 in 10 say they do not know what the internet is.119 In high-income Poland and the Slovak Republic, one-ﬁ fth of adults cannot use a computer.120 The use of ICT skills at work is unequal, but their importance is growing.

On average, one-third of urban workers (and 20 percent of the bottom 40 in urban areas) in developing countries use a computer at work, for example (ﬁ gure 2.18).
This number is likely to raise quickly, with ICT use increasing as countries become richer and as work becomes more complex (ﬁ gures 2.16 and 2.19).

Employers are looking for ICT skills, but cannot ﬁ nd them.
In the former Yugoslav Republic of Mac- edonia, 43 percent of ﬁ rms say ICT skills are very important for workers, but more than 20 percent say that workers lack them.121 Although the same workers lacking ICT skills often also lack other skills or face other barriers to employment, digital literacy limits their employment opportunities (ﬁ gure 2.20).
The use of digital technologies at work is associated with 124 WORLD DEVELOPMENT REPORT 2016 Figure 2.16 Employment is becoming more intensive in the use of digital technologies Change in the ICT intensity of employment, 2000–12 t n e c r e P 35 30 25 20 15 10 5 0 –5 –10 M oldova C osta Rica Ro m ania South Africa Lithuania Sa m oa W est Bank and G aza India Latvia Philippines M alta Russian Federation Ja m aica M alaysia N a mibia Barbados Pana m a C a m bodia M exico Turkey M auritius M acedonia, FYR Bulgaria Peru Croatia Baha m as, The El Salvador U kraine Thailand Average, low- and middle-income countries Average, high-income countries Source: WDR 2016 team, based on Monroy-Taborda, Moreno, and Santos, forthcoming, for the WDR 2016, using ILO Laborsta (various years).
Data at http://bit .do/WDR2016-Fig2_16.

Note: ICT (information and communication technology) intensity of employment is based on an index between 0 (no use of technology at work) and 19 (most use of technology at work), averaged by occupation (at the three-digit level) and weighted by employment.

Figure 2.17 Nonroutine skills are becoming more important over time Employment composition by type of occupation according to skills requirements, 2000–12 a.

High-income countries b.
Low- and middle-income countries t n e m y o p m e l l a o t t f o t n e c r e P 45 40 35 30 25 20 15 10 5 0 t n e m y o p m e l l a o t t f o t n e c r e P 60 50 40 30 20 10 Nonroutine cognitive or interpersonal Routine cognitive or manual Nonroutine manual Source: WDR 2016 team, based on ILO Laborsta (various years).
Data at http://bit.do/WDR2016-Fig2_17.

Note: Data are simple cross-country averages.

Classiﬁ cation of occupations according to skills requirements follows Autor 2014 and reﬂ ects the types of skills most intensely used in each occupation.

higher earnings, even after accounting for educa- tional attainment.
Across a sample of eight develop- ing countries, the return associated with using ICT at work is around 40 percent.122 In Brazil, and focusing on workers most similar to one another, returns to internet use are about 10 percent.123 High-order cognitive and socioemotional skills are more important in the new economy Technological progress is redeﬁ ning the nature and content of jobs.

Some of today’s jobs are new and require new skills—software publishers, data scientists, enterprise mobile developers.
Others have long existed but have been transformed.

Consider, for example, the job description of an accountant in the 1970s and today.

Specialized softwares have automated many of the accountant’s original tasks, shifting her job toward more advisory services and critical thinking.

Employers now demand more “new economy” skills: that is, high- order cognitive and socio emotional skills, as evidenced in countries as diverse as Brazil, Malaysia, and FYR Macedonia (ﬁ gure 2.21).
At the aggregate level and within ﬁ rms, new technologies substitute for workers performing routine tasks, while making skilled workers who execute nonroutine abstract tasks more productive.124 Across 28 studies, more than half of the top ﬁ ve skills demanded by employers are socioemotional, another 30 percent are higher-order cognitive, and 16 percent are technical.125 High-order cognitive skills include reasoning, problem solving, and critical thinking, while socioemotional skills refer to behavior, person- ality traits, and attitudes, such as grit, teamwork, self- discipline, dependability, and leadership.
These are things that are still hard for technology to replicate.

These new economy skills pay off.


Workers with strong cognitive and socioemotional skills in Arme- nia, Georgia, the Kyrgyz Republic, Tajikistan, and Vietnam are more likely to be employed and have better-quality jobs.126 In Vietnam, within a given industry, performing nonroutine analytical tasks car- ries a 23-percent earnings premium, and interactive (that is, interpersonal) tasks a 13-percent premium, whether combined with routine or nonroutine tasks (ﬁ gure 2.22).
In Armenia and Georgia, the premium for problem solving and learning new things is close to 20 percent.127 More generally, in 12 of 16 mostly developing countries, wages in nonroutine occu- pations increased signiﬁ cantly more than wages in routine occupations between 2005 and 2011.128 In addition to technological change, other factors help explain these global labor market trends.
Trade, urbanization, structural transformation, and global- ization fundamentally shape labor markets and in a number of cases are likely to be even more important than technology.

In some Latin American countries, for example, commodity-driven economic booms have boosted low-wage earnings and show no polar- ization at the aggregate level.
Moreover, distinguish- ing among factors is more difﬁ cult because they are related to one another.129 Yet technological change seems to be an important part of the explanation.

First, occupations most inten- sive in the use of digital technologies are also most intensive in nonroutine cognitive and interpersonal skills (ﬁ gure 2.23).
Second, globalization and trade do not fully explain the observed polarization.130 Given EXPANDING OPPORTUNITIES 125 Figure 2.18 In developing countries, one-third of urban workers use digital technology at work Urban workers who use a computer at work, conditional on working t n e c r e P 50 40 30 20 10 0 Men Women 15–29 30–49 50+ Gender Age group Average Upper 60% Bottom 40% Income distribution Source: WDR 2016 team, based on STEP household surveys (World Bank, various years).
Data at http:// bit.do/WDR2016-Fig2_18.

Note: “Average” refers to the average use of technology among all urban workers in 11 countries where the STEP survey was conducted.

“Upper 60%” and “Bottom 40%” refer to asset distribution of individuals’ households.
Figure 2.19 Employment becomes more intensive in ICT use as economies grow Share of employment in high–ICT-intensity occupations, circa 2013 t n e c r e P 60 50 40 30 20 10 0 NLD DNK SWE USA AUT IRL GBR BEL CAN FIN DEU FRA JPN EST CZE SVK POL KOR ESP ITA NOR MKD GEO ARM RUS UKR VNM BOL COL KEN LKA GHA LAO 0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 GDP per capita (constant U.S. dollars) Source: Monroy-Taborda, Moreno, and Santos, forthcoming, for the WDR 2016, based on STEP (World Bank, various years), PIAAC household surveys, and World Development Indicators (World Bank, various years).
Data at http://bit.do/WDR2016-Fig2_19.

Note: GDP = gross domestic product; ICT = information and communication technology; PIAAC = Programme for the International Assessment of Adult Competencies.

the weight of China in manufacturing supply chains, the decline in routine labor in the rest of the world could simply be the result of a shift of routine labor to China’s manufacturing sector.
Between 2000 and 2010, the share of employment in routine occupations 126 WORLD DEVELOPMENT REPORT 2016 Figure 2.20 Lack of ICT skills is often a constraint to employment Share of working-age individuals in urban areas who report that lack of ICT skills is a barrier to employment and higher earnings, circa 2013 t n e c r e P 50 40 30 20 10 0 Vietna m Bolivia Lao P D R Kenya C olo m bia C hina, Yunnan Province Ar m enia G hana Sri Lanka (rural) Lao P D R (rural) G eorgia Sri Lanka U kraine M acedonia, FYR Source: WDR 2016 team, based on STEP household surveys (World Bank, various years).
Data at http:// bit.do/WDR2016-Fig2_20.

Note: ICT = information and communication technology.

in China rose from 19 to 27 percent (see ﬁ gure 2.15, panel b).

Yet manufacturing employment in China is also polarizing, for the increase in routine labor is explained by the mechanization of agriculture.
Moreover, across most countries with relevant data, employment is polarizing even within services, sug- gesting an additional effect in skill demand over and above what can be explained by trade or the structural transformation of developing economies.131 This evi- dence is also consistent with the evidence for OECD countries linking changes in skills requirements to technological changes, even within occupations.132 Labor-saving technologies: Automation and job displacement There is concern, especially in advanced countries, that technology is killing jobs and depressing wages.133 Manufacturers are using machines that substitute for workers in warehouses or auto plants.
More than 200,000 industrial robots come into use each year, and that number is rising.134 Increasingly, automation is taking place in services.135 In call cen- ters, technology can answer routine customer service requests.

In retail, technology and “big data” suggest what to buy.

Software is handling accounting, trans- lations, and paralegal services.
Travel agents have all but disappeared, with three-quarters of all travel in the United States now booked online.136 In the public sector too, digital technologies are substituting for workers performing routine tasks.
In the Indonesian Treasury, electronic budget planning and execution is linked to job redeﬁ nitions and reassignments for around 5,000 workers (of 8,000) who previously pro- cessed payments, disbursements, and cash manage- ment.137 In Pakistan, the automation of systems in the central bank made 3,000 of 12,000 employees redun- dant (mostly low-skilled staff).
The savings boosted the salaries of remaining employees.138 Two-thirds of all jobs could be susceptible to auto- mation in developing countries in coming decades, from a pure technological standpoint (ﬁ gure 2.24).

Estimates for the United States and Europe range between 50 and 60 percent of jobs.139 Given expected advances in artiﬁ cial intelligence, falling ICT prices, and increased coverage of the internet, the potential for automation is clear.
Rapid automation of a large number of jobs would be problematic: It may take time for new jobs to be created, and even if they are, retraining takes time and may be difﬁ cult.

Yet, even if technologically feasible, large-scale net job destruction due to automation should not be a con- cern for most developing countries in the short term.
Even in the United States, on average, there were no net employment declines in local labor markets most sus- ceptible to automation (that is, those specialized in rou- tine, task-intensive occupations).140 New jobs and new tasks in existing occupations are created.
Machines and digital technology are not perfect or even good substitutes for many tasks (at least not yet), especially those requiring adaptability, common sense, and cre- ativity.141 The expansion of automated teller machines (ATMs) in banks went hand-in-hand with an expan- sion of bank transactions, branches, and employment.
Cashiers continue to do some of the things that ATMs do, but they also do other things, such as client support, where human interaction remains important.142 Full automation of jobs takes time, even in the developed world.

In the United Kingdom, an exoge- nous increase in ICT investment between 2000 and 2004 led to a short-term increase in the demand for nonroutine skills, but only to the limited substitution of routine workers during that period.143 Why?
Because it takes time to make the necessary organizational changes (chapter 1), and because labor reorganizations tend to happen in periods of recession rather than in booms.144 Not all disruptive technologies are adopted quickly, implemented fully, or yield immediate bene- ﬁ ts.145 Barriers to technology adoption, lower wages, and a higher prevalence of jobs based on manual dex- terity in developing countries mean that automation is likely to be slower and less widespread there (see ﬁ gure 2.24).
But as wages rise, and in countries with EXPANDING OPPORTUNITIES 127 Figure 2.21 Nonroutine analytical and socioemotional skills are becoming more important, especially in jobs performed by younger cohorts Evolution of the skills intensity of jobs, measured as mean skills percentile of base year, Brazil, Malaysia, and Macedonia, FYR, various years, 2001–11 a. Brazil (cohort born before 1955) b. Brazil (cohort born after 1974 70 60 50 40 30 s b o j f o y t i s n e n t i s l l i k s n i e g n a h C 70 60 50 40 30 2002 2003 2004 2005 2006 2007 2008 2009 2002 2003 2004 2005 2006 2007 2008 2009 c. Malaysia (cohort born before 1955) d. Malaysia (cohort born after 1974 70 60 50 40 30 2001 2002 2003 2004 2005 2006 2007 2009 2010 e. Macedonia, FYR (cohort born before 1955 70 60 50 40 30 70 60 50 40 30 70 60 50 40 30 2001 2002 2003 2004 2005 2006 2007 2009 2010 f. Macedonia, FYR (cohort born after 1974) 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011 Nonroutine cognitive and interpersonal skills Manual skills Routine cognitive skills Sources: WDR 2016 team, based on Socio-Economic Database for Latin America and the Caribbean (SEDLAC) (CEDLAS and the World Bank); East Asia and Paciﬁ c Poverty (EAPPOV) Database (World Bank, various years); and Europe and Central Asia Poverty (ECAPOV) Database (World Bank, various years); and following Autor, Levy, and Murnane 2003; Acemoglu and Autor 2011; Aedo and others 2013; Arias and others 2014.
Data at http://bit.do/WDR2016-Fig2_21.

Note: The y-axis represents the percentile of the skill distribution for jobs held by each cohort in any given year, with respect to the corresponding median skills intensity of jobs held by that cohort in the initial year.

An increase means that jobs increased in intensity in that particular skill.

For Malaysia (panels c and d), data for 2008 were unavailable.

large manufacturing or offshored activities, there is more (and faster) scope for automation.
Concerns about automation are not new.

Past fears of technology leading to mass unemployment (and boredom)—from the Luddites in the midst of the Industrial Revolution to Keynes during the Great Depression—have gone unrealized (box 2.8).146 The assembly line, after all, replaced the artisans mak- ing carriages.
Back in the 1960s, with the creation in the United States of the National Commission on 128 WORLD DEVELOPMENT REPORT 2016 Figure 2.22 New economy skills, beyond levels of education, pay off Urban Vietnam: Average return to diff erent task combinations, controlling for education and demographics, 2012 t n e c r e P 25 20 15 10 5 0 –5 –10 Analytical*** Interactive* Manual Analytical Interactive*** Manual Nonroutine Routine Source: Bodewig and others 2014.

Data at http://bit.do/WDR2016-Fig2_22.


Note: Returns are estimated using a wage regression that controls for education, sex, experience, and economic sector.

Signiﬁ cance level: * = 10 percent, *** = 1 percent.

fostering entrepreneurship and improving produc- tivity and the allocation of resources, have led in due time to more jobs elsewhere.

Will this time be different?


Large factories and electriﬁ cation did lead, as now, to a polarization of employment by hollowing out the middle of the skill distribution.

The share of employment of blue-collar workers in manufacturing fell from 39 percent in 1850 to 23 percent in 1910, as new capital goods allowed factory owners to unbundle and simplify tasks that could now be performed by unskilled workers.
Elec- triﬁ cation increased the relative demand for workers intensive in clerical and managerial skills compared with manual and dexterity skills among white-collar workers.
Among blue-collar workers, it increased the demand for manual workers relative to the demand for workers performing tasks intensive in dexterity needed to operate machines before electriﬁ cation.147 Despite these similarities, the biggest difference from past waves of technological progress is that the polarization of the labor market today is affect- ing both blue-collar and white-collar workers.148 It is probably easier for white-collar workers to transition to other white-collar jobs, but in the aggregate, there may be fewer well-paying jobs for a large and diverse pool of potentially dislocated workers.
Even if all those jobs do not fully disappear—unlikely in a short period—they will be signiﬁ cantly transformed.

Technology, Automation, and Economic Progress, there were also concerns about automation in this wave of technological change.

Unemployment fears have gone unrealized because new technologies, by And here is where a second lesson from history is relevant.
Individuals and governments adapted to technological change, but this process took time and required deep institutional changes in education, Figure 2.23 Digital technologies go hand in hand with nonroutine new economy skills ICT intensity and skills intensity, by occupation a. ICT intensity and nonroutine analytical skills b. ICT intensity and routine manual skills ) 5 o t l 1 e a c s ( l a c i t y l a n a e n i t u o r n o N 5 4 3 2 1 ) 5 o t l 1 e a c s ( l a u n a m e n i t u o R Intensity of ICT use at work Intensity of ICT use at work Source: Monroy-Taborda, Moreno, and Santos, forthcoming, for the WDR 2016, based on STEP household surveys (World Bank, various years).
Data at http://bit.do/WDR2016-Fig2_23.

Note: Ninety-ﬁ ve percent conﬁ dence intervals.

The y-axis is a standardized score (from 1 to 5) that reﬂ ects the intensity of the use of the particular type of skills as estimated by Autor, Levy, and Murnane (2003) and expanded by Acemoglu and Autor 2011.

The intensity of ICT use is an index between 0 (no use of technology at work) and 19 (most use of technology at work).

ICT intensity is averaged by occupation.

ICT = information and communication technology.
EXPANDING OPPORTUNITIES 129 Figure 2.24 From a technological standpoint, two-thirds of all jobs are susceptible to automation in the developing world, but the eff ects are moderated by lower wages and slower technology adoption Estimated share of employment that is susceptible to automation, latest year 100 80 60 40 20 n a c t a h t ) % ( est Bank and G aza G eorgia U zbekistan Kyrgyz Republic Tajikistan Nigeria U kraine C a m bodia Bolivia Nicaragua C osta Rica India Thailand Ro m ania M alaysia El Salvador Ecuador A ngola Albania Ethiopia Bangladesh G uate m ala M auritius N epal South Africa Serbia Pana m a D o minican Republic M ongolia Bulgaria Paraguay M acedonia, FYR C hina Lithuania M alta O E C D Argentina Croatia Latvia C yprus Seychelles Uruguay Adjusted (technological feasibility + adoption time lags) Unadjusted (technological feasibility) Sources: WDR 2016 team, based on STEP surveys (World Bank, various years); Central Asia World Bank Skills surveys (World Bank, various years); Survey-based Harmonized Indicators Program (SHIP) (World Bank, various years); Socio-Economic Database for Latin America and the Caribbean (SEDLAC) (CEDLAS and the World Bank); South Asia Region MicroDatabase (SARMD) (World Bank, various years); Europe and Central Asia Poverty (ECAPOV) Database (World Bank, various years); East Asia and Paciﬁ c Region Poverty (EAPPOV) Database (World Bank, various years); the I2D2 dataset (International Income Distribution Database; World Bank, various years); ILO Laborsta database (various years); the National Bureau of Statistics of China (various years); Frey and Osborne 2013; Comin and Hobjin 2010.
Data at http://bit.do/WDR2016-Fig2_24.

Note: The unadjusted probabilities of automation for occupation are from Frey and Osborne (2013), weighted by employment.

The adjusted probabilities account for the slower pace of tech- nology adoption in poorer countries, using the adoption lag of earlier technologies (Comin and Mestieri 2013).

See Monroy-Taborda, Moreno, and Santos, forthcoming, for the WDR 2016.

OECD = Organisation for Economic Co-operation and Development.
Box 2.8 Concerns about technological unemployment are not new We are being affl icted with a new disease of which some readers may not yet have heard the name, but of which they will hear a great deal in the years to come—namely, technological unemployment.

This means unemployment due to our discovery of means of economising the use of labour outrunning the pace at which we can ﬁ nd new uses for labour.
—John Maynard Keynes “Economic Possibilities for Our Grandchildren,” 1931 The situation will have been made the more serious by the advances of automation.

The world of A.D. 2014 will have few routine jobs that cannot be done better by some machine than by any human being.

Mankind will therefore have become largely a race of machine tenders.

Schools will have to be oriented in this direction .

.

.
.

.

It is not only the techniques of teaching that will advance, however, but also the subject matter that will change.

Even so, mankind will suff er badly from the disease of boredom .

.

.

The lucky few who can be involved in creative work of any sort will be the true elite of mankind, for they alone will do more than serve a machine.
—Isaac Asimov “Visit to the World’s Fair of 2014,” 1964 social protection, and labor regulations.149 The answer to whether things may turn out differently this time, while unsatisfactory, is: “It depends.” It depends on the ability and speed of creating new jobs elsewhere in the economy (chapter 1).

It depends on how individ- uals, ﬁ rms, and policy makers respond to the change in skills requirements.

And it depends on how well the social protection system supports dislocated workers.
130 WORLD DEVELOPMENT REPORT 2016 The future of jobs Be an expensive complement (stats knowhow) to something that’s getting cheaper (data).

—Hal Varian, Chief Economist, Google, 2014 Technological progress makes the jobs challenge more complex.
Digital and mechanical technologies, and deindustrialization, mean that the manufactur- ing sector is likely to generate fewer jobs than in the past, especially for unskilled workers.150 ICT manufac- turing can be expected to create jobs, although mostly high-skilled and likely concentrated in speciﬁ c coun- tries, as now.

Since manufacturing jobs have been an important source of better-paying jobs as workers move out of agriculture, this is an important devel- opment.
The service sector is also increasingly being automated.

Of particular concern are jobs that have so far actually grown thanks to digital technologies, such as low- and middle-skilled call center jobs.

Employment in the ICT service industry, even more than its manufacturing counterpart, is expected to grow, but also among higher-skilled workers in lead- ing countries.

Future employment growth is likely to come from jobs that cannot be fully or partially automated, largely outside the ICT industry.
New jobs are also likely to emerge in the digital economy—in the analysis of data such as data scientists, in the development and main- tenance of apps and other software, and in support ser- vices.

New opportunities will also arise in ICT-enabled services, such as the on-demand economy.

But the signiﬁ cance for employment generation, especially in most developing countries, is likely to be small.
The potential for employment creation lies in the rest of the economy, as digital technologies allow businesses to expand.

Among the low-skilled, some services that must be delivered face-to-face or require awareness and situational adaptability (housekeep- ers, hairdressers) are likely to grow.

Among the high-skilled, occupations will rely on modern skills involving creativity and social interactions.
Some observers call this the polarization in “the high-tech, high-touch” economy.151 Although impossible to predict in advance, jobs are likely to arise in new industries and occupations.

New industries arising from digital technologies since 2000 account for only 0.5 percent of employment in the United States,152 and there is evidence of (young) skilled workers having to take on less-skilled jobs.153 But historically, economies have been able to create enough jobs through technological change.
The initial labor market polarization caused by factories in the 19th century in the United States led to an upskilling of employment as increases in middle-skilled sales and clerical employment compensated for the decline in blue-collar jobs.
With electriﬁ cation, displaced workers typically moved to lower-skilled jobs at lower wages, such as truck drivers, but large increases in new middle-skill employment outweighed the decline in blue-collar employment.154 While the steam engine in the 18th century led to the disappearance of coachmen for horse-drawn carriages155 and to the substitution of workers in mining, in due time it also was at the center of steam-powered boats, locomo- tives, and automobiles.
Mechanics, road building and maintenance, and dealerships have created many jobs of diverse skill proﬁ les ever since.

Yet as a result of this process of job creation and destruction, technological change disrupts labor mar- kets and can hurt individuals whose skills are substi- tuted by technology, because they often do not have the skills required in many of the new jobs.

Even for those who stay within the same occupations, jobs will be transformed, requiring modern skills.
The speed of these changes appears to be accelerating, intensify- ing creative destruction and the pace of labor market changes.

Since digital technologies have different applica- bility to different kinds of work, the extent of disrup- tion across countries will reﬂ ect differences in eco- nomic and occupational structures.

Numerical clerks or secretaries, often users of digital technologies, also perform many tasks that can be easily automated.
Managers or software developers, by contrast, while intensively using digital technologies, also comple- ment them well, so they are not easily substituted by machines.

And for occupations that use little technol- ogy, some are hard to automate, such as hairdressers, while others could be automated, such as assemblers (ﬁ gure 2.25).
More advanced economies can expect larger dis- ruptions in the near future since they use more tech- nology at work and are experiencing faster changes in skill requirements (ﬁ gure 2.26).156 And while they have smaller shares of employment in routine occupations susceptible to automation, their higher wages make it easier for automation to be economically viable.
Low- and middle-income countries can also expect substan- tial disruptions, albeit with a time lag, given their rapid technological adoption and large number of workers in routine occupations.

Their low skill base suggests important challenges ahead, however.

In poorer coun- tries, where wages are lower and technological adop- tion is slower (chapter 1), the disruptions are likely to arrive more slowly, giving more time for policies and institutions to adapt.
All this has implications for Figure 2.25 The interaction between technology and jobs varies by occupation Probability of being computerized and intensity in use of ICT at work, by occupation EXPANDING OPPORTUNITIES 131 Average intensity in use of ICT at work Agriculture workers Waiters and bartenders Subsistence farmers Clerks Cooks Metal-processing operators Food processors Assemblers Secretaries (general) Tellers Numerical clerks Finance professionals Drivers Shop salespersons Transport and storage laborers Mining and construction laborers Cleaners Garment workers Protective services workers Sales and purchasing agents and brokers Business services agents Average probability of being computerized Handicraft workers Sales, marketing, and public relations professionals Administration managers Hairdressers, beauticians Retail and wholesale trade managers Administration professionals Managing directors and chief executives Software and applications developers and analysts Street and related service workers Hotel and restaurant managers Secondary education teachers Medical doctors Sales managers Legal professionals Mining, manufacturing, and construction supervisors Legislators Information and communication technology service managers ) ( 1.0 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 0 2 4 6 8 10 12 14 16 Intensity in use of ICT at work (technology complementing workers) Sources: WDR 2016 team, based on STEP household surveys (World Bank, various years) and Frey and Osborne 2013.
Data at http://bit.do/WDR2016-Fig2_25.

Note: The probability of being computerized is obtained from Frey and Osborne (2013).

ICT intensity is an index between 0 (no use of technology) and 19 (most use of technology).

ICT = information and communication technology.

The red lines represent the average values of ICT intensity (x-axis) and of computerization (y-axis) across the pooled sample of 10 developing countries with STEP household surveys.
whether countries need not just to develop modern skills among children and youth, but also to come up with a strategy for the retraining and lifelong learning of the current stock of (older) workers.

The challenge is to start reforms today to max- imize the digital dividends and to prepare for any disruptions.
Even if expected labor market changes are similar in Malaysia and South Africa, Poland and Turkey, or Finland and Italy, skill systems vary widely and not all are prepared to equip workers with skills that complement technology.

This process needs to start very early in life, and education and training systems are notoriously difﬁ cult to change.

So, any reform takes many years to have effects, which is why there is a race between skills and technology.
Some skill systems are well-positioned, but for many others, skills—and hence, people—are losing the race.

Making the internet work for everyone To design policy responses to technological change, it is important to understand who the changes are likely to affect the most, and how the process plays out both in terms of employment and earnings.

As discussed, employment is likely to polarize, with routine occupa- tions losing ground to nonroutine occupations.
These changes in labor demand have in turn implications for earnings.

But employment polarization does not necessarily mean wage polarization.

Three interrelated factors mediate the impact of digital technologies on earnings: • Complementarity with technology.

Workers in jobs that use and complement technology are likely to see both an increase in employment and an increase in earnings because of higher productivity.

This is the case for workers who use nonroutine cognitive skills and ICT skills.
Workers in routine occupations, however, will see less demand for their skills, bringing down both their employment and their wages.

• Product demand.

If workers produce goods or ser- vices that consumers keep buying as they get richer or as the price declines, increases in productivity can translate into increases in wages.

This is often the case for workers with nonroutine skills pro- ducing, say, knowledge, management expertise, or medical services.
If not, increases in productivity can lead to lower employment and earnings in that sector because fewer workers can satisfy demand, as for many agricultural goods.

132WORLD DEVELOPMENT REPORT 2016The young, the better educated, and those already better off are most likely to beneﬁ t from digital tech-nologies—with older workers, those with less educa-tion, and the poor falling behind.
The former group is more likely to have more advanced skills—especially cognitive and ICT skills—regardless of their occu-pation or work status.158 In addition, these groups are disproportionally likely to be in, or to move into, occupations that pay well and are likely to grow in the future—those intensive in nonroutine skills (ﬁ gure 2.27).159 Recent evidence from the United States shows that there has been a marked decline in the rate at which workers transition into routine employment (particularly among the young) but that women and those with higher education levels have found it easier to adjust to these changes by moving into the high-paying, nonroutine cognitive jobs.160 A big challenge for policy makers, especially in rap-idly aging societies, is managing skill obsolescence.
Recall that the surge in the demand for new economy skills has been concentrated among young workers (see ﬁ gure 2.21).

Digital technologies accelerate the depreciation of skills and work experience, affecting especially older workers (box 2.9).

But obsolescence is not destiny or the same for all types of skills.
Most liter-ature argues that younger workers have a comparative advantage in tasks where problem solving, learning, and speed are important (“ﬂ uid” abilities), and older workers have an advantage when experience and ver-bal abilities matter more (“crystallized” abilities).161 But evidence from Germany shows that workers in their 50s experienced a more rapid growth in tasks intense in ﬂ uid cognitive skills than those in their 30s.162 Box 2.10 examines the gender impacts in more depth.A policy agendaDigital technologies improve overall welfare and can reduce poverty, but without complementary policies, many beneﬁ ts can go unrealized and inequality can increase.
To capitalize on the beneﬁ ts—and to do • Labor supply.

The higher the skill requirements for a job, the more difﬁ cult it is for new workers to enter that market.

So, higher demand for workers would translate into higher wages.

If, however, it is easy to retrain for a new job or skill requirements are low, there can be downward pressure on wages because of increased competition.
Workers in nonroutine cognitive occupations are likely to see their higher productivity rewarded as higher earnings because entry barriers are high.
But low-skilled workers in nonroutine manual occupations are likely to see their earnings fall over time as middle-skilled workers in routine occupations are displaced and start competing for the available jobs in low-paying occupations (table 2.5).157Therefore, the main winners from technological change will have and use new economy skills and gain employment in nonroutine cognitive occupations.
ARGAUSAUTBELCHECHLCYPCZEDEUDNKESPESTFINFRAGBRGRCHRVHUNIRLISLISRITALTULUXLVAMLTNLDNORPOLPRTSVKSVNSWESYCURYAGOALBBGRCHNCRIDOMECUMEXMKDMNGMUSMYSPANPRYROUSRBTHATURZAFBGDBOLGEOGTMINDKGZNGANICSLVTJKUKRUZBETHKHMNPL05.613Adaptability(quality-adjusted years of education)Low (0)High (1)Expected labor market disruptionHighUpper-middleLower-middleLowGDP income groupAverage expectedlabor market disruptionAveragequality-adjustedyears of educationFigure 2.26 The key policy challenge: Adapting the skills agenda to expected labor market disruptions Expected labor market disruption and quality-adjusted years of education Sources: WDR 2016 team, based on STEP surveys (World Bank, various years); Central Asia World Bank Skills surveys (World Bank, various years); SHIP (World Bank, various years); SEDLAC (Cedlas and the World Bank); SARMD (World Bank, various years); ECAPOV (World Bank, various years); EAPPOV (World Bank, various years); the National Bureau of Statistics of China (various years); ILO Laborsta database (various years); World Development Indicators (World Bank, various years); World Economic Forum’s Competitiveness Index (WEF, various years).
Data at http://bit.do/WDR2016-Fig2_26.Note: Labor market disruption is an index that goes from 0 (no disruption) to 1 (highest disruption).

It is the standardized summation of two components, equally weighted: the probability of an average job being computerized (Frey and Osborne 2013, and adjusting for adoption lags), and the intensity of ICT use at work.
For each country, the ICT intensity of employment corresponds to the average for countries at the next level of development, to be more forward-looking.

The quality-adjusted years of education are constructed by adjusting average years of education for each country with the World Economic Forum’s quality-of-education indicator.

For example, if a country has, on average, 10 years of education and scores 3.5 on the indicator (which ranges from 0 to 7), its quality-adjusted years of education are 5.
See Monroy-Taborda, Moreno, and Santos, forthcoming, for the WDR 2016.

GDP = gross domestic product.Table 2.5 Expected impacts of technological change on employment and earningsType of occupation(by skills intensity)Expected impact onEmploymentEarningsNonroutine cognitivePositivePositiveRoutine cognitive and manualNegativeNegativeNonroutine manualPositive NegativeSource: WDR 2016 team, based on Autor 2014.
EXPANDING OPPORTUNITIES 133 Figure 2.27 The less educated and the bottom 40 percent of the welfare distribution are most vulnerable to technological changes in the labor market Ratio of employment by occupation type to total employment a.

By educational attainment b.


By socioeconomic status o i t a R 3.0 2.5 2.0 1.5 1.0 0.5 0 Nonroutine cognitive Secondary education or less Routine cognitive or manual Nonroutine manual Tertiary education o i t a R 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0 Nonroutine cognitive Routine cognitive or manual Nonroutine manual Bottom 40% Upper 60% Source: WDR 2016 team, based on the I2D2 dataset (International Income Distribution Database; World Bank, various years).

Data cover 117 countries.


“Bottom 40%” and “Upper 60%” refer to the welfare distribution (either of income or consumption) of individuals’ households.

Classiﬁ cation of occupations follows Autor 2014.

Data at http://bit.do/WDR2016-Fig2_27.

Note: A ratio higher than 1 means that workers with the given level of education are disproportionately likely to be in the given occupation type.

A ratio lower than 1 means that workers are relatively unlikely to be in a given occupation type.
so without leaving people behind—internet access (chapter 4) needs to be complemented with an “ana- log” policy agenda.

In addition to supporting entre- preneurship and innovation to expand businesses and job opportunities, this agenda should ensure that education and training systems, labor regulations, and social protection institutions support all workers in seizing the opportunities that the internet gener- ates (chapter 5).

The most crucial element is skills development.


A modern economy requires workers with mod- ern skills.

For people to become online workers and traders, farmers to use technology to become more productive, or for workers to access modern, Box 2.9 The challenge of keeping up with new technologies in Mexico Technology is making many skills obsolete and reducing the returns to experience, especially among older workers.
In Mexico, as in other Latin American countries, wage inequality has declined since 2000.

A declining skill pre- mium has been one of the drivers of this trend because the wages of the low-skilled rose and those of the high-skilled fell.

The average hourly wage for college-educated workers fell 2 percent a year between 2001 and 2014.
Why have high-skilled wages declined in Mexico, when in most countries, especially outside of Latin America, returns to tertiary education continue to rise (despite increasing educational attainment everywhere)?

It could simply be that the supply of educated workers has out- paced demand for them.
But there are three alternative explanations for the decline in relative wages of skilled workers: low-quality tertiary educated graduates, a skills mismatch among young workers, or skills obsolescence among older workers.

New research ﬁ nds that the fall in the skills premium is driven at least partly by skills obsolescence among older workers.

First, the earnings of the oldest cohort, above age 50, declined fastest (40 percent during the period).
But for the youngest cohort—aged between 23 and 30—earnings increased.

Second, earnings start to decline at a younger age over time.

If age is a proxy for work experience, this means that, among older workers, the return to education and the return to experience are falling.

This could be evi- dence of an accelerated skills obsolescence.

Source: WDR 2016 team, based on Campos-Vazquez, Lopez-Calva, and Lustig, forthcoming.
134 WORLD DEVELOPMENT REPORT 2016 Box 2.10 Digital technologies and economic opportunities: A gender lens Digital technologies can empower women economically and socially.
Because social norms and time and mobility constraints are often more severe for women than for men, women could beneﬁ t greatly from technology.a Digital technologies can reduce gender gaps in labor force participation by making work arrangements more ﬂ exible, connecting women to work, and generating new opportunities in online work, e-commerce, and the sharing economy.
In Elance, a platform for online work now part of Upwork, 44 percent of workers are women, compared to an average of 25 percent in the nonagricultural economy globally.

Business process outsourcing in India employs more than 3.1 million workers, 30 percent of them women.

Four in ten online shop owners on Alibaba are women.

Moreover, technology can help improve women’s access and accumulation of productive assets.
The digitization of land registries, for example, can be particularly beneﬁ cial for women.b These improved opportunities, in turn, can increase investments in young girls’ human capital.c Technology-driven shifts in skills demand can reduce wage gaps, especially among the better educated.
Women are well positioned to gain from a shift in employment toward nonroutine occupations, and away from physical work.d In Germany and the United States, the use of digital technologies at work explains a signiﬁ cant share of the increase in female labor force participation and employ- ment in the past few decades.e Similar changes have taken place in Brazil, Mexico, and Thailand, and also explain a large part of the reduction in gender wage gaps.f New technologies level the playing ﬁ eld, particularly among the better educated, who take on jobs that use their compara- tive advantage in nonphysical work.g Recent evidence from the United States shows that it is the better educated and women who are able to get the high-paying jobs intensive in nonroutine skills as middle-skilled jobs shrink.h Digital technologies also impact women’s voice and agency.
Increased access to information can aff ect gender norms and aff ect aspirations, often faster than expected.i Social media is an additional outlet for women to participate in public discussions and voice their opinions (spotlight 3).
“My Dress, My Choice” in Kenya, a social media move- ment against female violence that mobilized thousands of Kenyans, including through street protests, eventually led to changes in relevant laws.j Some of the new innovations of the digital economy, such as digital payments, mobile money, and taxi sharing rides, can also increase women’s agency and control over economic resources, and their safety.
For example, in Niger, greater privacy and control of mobile transfers, compared to manual cash transfers, shifted intrahousehold decision making in favor of women, the recipients of the transfer.k But in many countries, gender gaps in technology use, and in working in the ICT sector, remain vast.

Over 1.7 billion women in low- and middle-income countries do not own mobile phones.

Women in those countries are 14 percent less likely to own a mobile phone than men, on average.
Women in South Asia are 38 percent less likely to own a phone than men.l Barriers to access can be particularly salient in the case of the internet, especially in poor and remote localities where access is predominantly outside the home, and where social norms for socializing or safety concerns can become a barrier.m In Africa, for example, women are 50 percent less likely to use the internet than men.n In addition to ownership and access, lack of control over the use of the technology can be an additional barrier for women.
In the Arab Republic of Egypt and in India, for example, 12 percent of women stated that they did not access the internet more often because they did not think it was appropriate, and more than 8 percent did not access it more often because family or friends would disapprove.o In the labor market, women are also much less likely to work in the information and communication technology (ICT) sector or in ICT occupations, which are well paid.
These lat- ter gaps partly reﬂ ect women’s low participation in science, technology, engineering, and math (STEM) education, itself a product of early gender-based biases in formal and infor- mal education (chapter 5).

Even with gender parity in ownership, access, and control over digital technologies, gains are not automatic.

They need to be complemented with analog changes that address the underlying barriers to women’s employment, voice, and agency.
In rural South Africa, for example, mobile phones increased employment mostly among women, as long as they did not have large child care responsibilities.p In addition, technologies can have gender-diff erentiated eff ects, as shown throughout this chapter.

This suggests that interventions around digital technologies would become more eff ective if they were more gender-informed, including by having women participate early on in the design of interventions and of the technologies themselves.
Moreover, by circumventing, rather than eliminating, some of the barriers to employability faced by women, (Box continues next page) EXPANDING OPPORTUNITIES 135 Box 2.10 Digital technologies and economic opportunities: A gender lens (continued) the internet could actually delay necessary reforms.

For example, home-based work could help connect women to work in environments where social norms or child care responsibilities are a barrier to women working outside the home.
But if working outside the home continues to be seen as unacceptable for women or if there is no availability of aff ordable child care, technology could end up delaying fundamental reforms.

Addressing these underlying con- straints remains key to the gender and overall economic agenda.

a.

World Bank 2011. b.

World Bank 2014b.

In Rwanda, the Land Tenure Regularization Programme demarcated and digitized 10 million plots.
Households that registered their land were more likely to invest in it, and this eff ect was twice as strong for female-headed households (Ali, Deininger, and Goldstein 2014).

c. Oster and Millett 2013. d. Rendall 2010; Weiberg 2000. e. Black and Spitz-Oener 2007; Rendall 2010; Weiberg 2000. f. Rendall 2010; Autor and Price 2013; Black and Spitz-Oener 2007. g. WDR 2016 team, based on STEP household surveys (World Bank, various years).

h. Cortes and others 2014. i.


La Ferrara, Chong, and Duryea 2012; Jensen and Oster 2009. j. Seol and Santos 2015. k. Aker and others 2014. l. GSMA 2015. m. Gomez (2014) shows, for developing countries, that women—unlike men—prefer using the internet in public libraries rather than in private cybercafés because they are safer and despite poorer service.

n. WDR 2016 team calculations, based on Research ICT Africa surveys (various years).
o. Intel and Dalberg Global Development Advisors 2012. p. Klonner and Nolen 2010. better-paying jobs, skills need to be upgraded.

Current and future workers need to develop the lifelong cog- nitive, technical, and socioemotional skills required of a well-educated worker in the 21st century.

Work- ers also need to be capable of processing the ever- increasing information available on the internet.
Building these skills requires actions affecting all relevant environments for learning: families, schools, universities, training systems, and ﬁ rms.

Given the speed of technological changes, these skills will also require constant updating throughout the life cycle as workers prepare for careers that last more than one job.

Digital technologies themselves can help (sector focus 2 and chapter 5).
Complementary reforms are also needed in tax policy, social protection, and labor market institutions to facilitate the transition of workers from old economy jobs to new economy jobs, and address the distributional consequences of the digital revolution.

Notes 1.

World Bank 2014c.

2.

Throughout this chapter, “opportunities” refer to people’s short- and long-term capacity to generate income (Bussolo and Calva 2014).
In addition, and taking a wide perspective, it is also used to include gains to consumers.

3.
WDR 2016 team, based on STEP surveys (World Bank, various years); Central Asia World Bank Skills surveys (World Bank, various years); Survey-based Harmonized Indicators Program (SHIP) (World Bank, various years); Socio-Economic Database for Latin America and the Caribbean (SEDLAC) (CEDLAS and the World Bank); South Asia Region MicroDatabase (SARMD) (World Bank, various years); Europe and Central Asia Poverty (ECAPOV) Database (various years); East Asia Paciﬁ c Poverty (EAPPOV) Database (World Bank, various years); the I2D2 dataset (International Income Distribu- tion Database) (World Bank, various years); ILO Laborsta database (ILO, various years); and the National Bureau of Statistics of China (various years).
Automation probabilities adapted from Frey and Osborne (2013).

4.

WDR 2016 team calculations, based on ILO Key Indicators of the Labour Market (KILM; various years), ILO Laborsta database (various years), World Bank’s International Income Distribution Database (I2D2; various years), and the National Bureau of Statistics of China (various years).

For more details, see ﬁ gure 2.15.

5.

WDR 2016 team calculations, based on World Devel- opment Indicators (World Bank, various years).
136 WORLD DEVELOPMENT REPORT 2016 6.

ITU’s (International Telecommunication Union) World Telecommunication/ICT Indicators (ITU, various years), Gallup World Poll, and Eurostat Information Society Statistics (EC 2015).

7.

This, like the rest of the chapter, is based on house- hold survey data.

Subscription data, often based on estimates, are widely available but have upward and downward biases.
Although less readily available, household surveys can better account for sharing of mobile phones, or for one individual having more than one subscription or phone.

8.

Handel 2015, for WDR 2016; Aker 2010b.

9.

WDR 2016 team, based on Research ICT Africa sur- veys (various years).

10.

Veeraraghavan, Yasodhar, and Toyama 2009.

11.


WDR 2016 team, based on the Argentina National Institute of Statistics and Census, Brazilian Inter- net Steering Committee, Colombia Directorate of Statistical Methodology and Production, European Commission Eurostat database (various years), Mexico National Institute of Statistics and Geogra- phy, and Uruguay National Institute of Statistics.

12.

Eurostat (EC, various years), for the WDR 2016.

13.
13.

WDR 2016 team, based on Brazilian Internet Steer- ing Committee and Mexico National Institute of Statistics and Geography.

33.

CGAP 2014.

34.

Fernandes and others 2015.

35.

Dutz and others 2015, for the WDR 2016.

36.

Gaggl and Wright 2014.

37.

Akerman, Gaarder, and Mogstad 2015.

38.

Blinder and Krueger 2013.

39.

Kennedy and others 2013.

40.

NASSCOM 2014.

41.

Jensen 2012.

42.

IBM 2014.

43.

See http://elance-odesk.com/online-work-report -global, accessed October 2, 2014.

44.
44.

Agrawal and others 2013.

45.

Heeks and Arun 2010; Kennedy and others 2013; Monitor Inclusive Markets 2011.

46.

Samasource 2015.

Digital Divide Data has more than 1,300 employees, with 10 percent of its data management operators having physical disabilities (Digital Divide Data 2014).

Ruralshores is active in remote rural areas in India and has 2,500 employees (http://ruralshores.com/about.html).

47.

Imaizumi and Santos, forthcoming.

48.

China Association for Employment Research 2014.

49.
49.

Schaefer-Davis 2005.

50.

See https://www.etsy.com/about/?ref=ftr, accessed May 15, 2015.

14.

WDR 2016 team, based on Research ICT Africa sur- 51.

Based on an online survey of 60 countries world- veys (various years).

15.

WDR 2016 team, based on Brazilian Internet Steer- ing Committee and Mexico National Institute of Statistics and Geography.

16.

WDR 2016 team, based on Gallup World Poll, vari- ous years.

17.

WDR 2016 team calculations, based on Research ICT Africa surveys (various years).
18.

ICT surveys for Argentina, Brazil, Colombia, Mex- ico, and Uruguay; and Eurostat (EC, various years).

19.

WDR 2016 team calculations, based on Research ICT Africa surveys (various years).

20.

Gomez 2014.

21.

Ritter and Guerrero 2014.

22.

Galperin and Viecens 2014; Pimienta, Prado, and Blanco 2009.

23.

De los Rios 2010.

24.

Atasoy 2013.

25.

Ritter and Guerrero 2014.

26.

Klonner and Nolen 2010.

27.

OECD Key Economic Indicators Database, latest year available (circa 2011).

28.
28.

Berger and Frey 2014.

29.

Brynjolfsson and McAfee 2014.

30.

WDR 2016 team, based on STEP household surveys (World Bank, various years).

31.

WDR 2016 team, based on STEP household surveys (World Bank, various years).

32.

Moretti and Thulin 2013 for the United States; Maloney and Valencia 2015 for Turkey.

wide done by Nielsen in 2013 (Van Welsum 2015).

52.

See https://www.airbnb.com/about/about-us, ac cessed March 11, 2015.

53.
53.

See http://www.gravitytank.com/pdfs/info_graphics /SharingEconomy_web.pdf, as cited in Van Welsum 2015.

54.

In a study of Uber in the United States, Hall and Krueger (2015) show that drivers aged 18–29 years are 19 percent of all Uber drivers, compared to 8.5 percent among regular taxi drivers and chauffeurs.

Female drivers are 13.8 percent of Uber drivers, compared to 8 percent elsewhere.
At the same time, however, Uber drivers are less likely than tradi- tional employees to have health insurance, and half leave Uber within 50 weeks.

55.

Montenegro and Patrinos 2014.

56.

Bagues and Sylos 2009; Nakamura and others 2009; Stevenson 2009.

57.

See http://press.linkedin.com/.

58.

WDR 2016 team, based on STEP household surveys (World Bank, various years).

59.

Kuhn 2014; Raja and others 2013.

60.

Dammert, Galdo, and Galdo 2014.

61.

Mang 2012.

62.

Kuhn 2014; Kroft and Pope 2014.

63.


Kuhn and Mansour 2014.

64.

Imaizumi and Santos, forthcoming, for the WDR 2016.

65.

Arias and others 2014.

66.

OECD 2011.

EXPANDING OPPORTUNITIES 137 67.

World Bank 2011.

68.

See http://blog.jetblue.com/index.php/2013/09/05 /unpacked-working-from-home/, accessed June 19, 2015.

69.

Bloom and others 2014.

70.

See http://www.philstar.com/education-and-home /2013/06/13/953332/ﬁ lipino-teachers-uruguay.

71.

Muto and Yamano 2009.


72. e-Choupal, “The Status of Execution.” http://www .itcportal.com/businesses/agri-business/e-choupal .aspx.

73.

World Bank 2014a; Demirgüç-Kunt and others 2015.

74.

Jack and Suri 2014.

75.

Fingerprint scanning among paprika farmers in Malawi increased repayment rates (IFPRI and World Bank 2010).

76.

For a discussion on personal networks and labor markets, see Granovetter (1973) and Calvo- Armengol (2004).

77.

Boase and others 2006.

78.

World Bank 2011.

79.


La Ferrara, Chong, and Duryea 2012; Jensen and Oster 2009.

80.

WDR 2016 team, based on Research ICT Africa surveys (various years).

81.

De, Mohapatra, and Plaza, forthcoming, for the WDR 2016.

82.

Camacho and Conover 2011; Jensen 2010.

83.

Goyal 2010; Aker 2010a; Best and others 2010; Aker 2011; Martin 2010.

84.

Aker and Mbiti 2010.

85.

Beuermann, McKelvey, and Vakis 2012.

86.

May, Dutton, and Munyakazi 2011.

87.

Jensen 2007.

88.


Pineda, Aguero, and Espinoza 2011.

89.

Galiani and Jaitman 2010.

90.

Asad 2014.

91.

Aker 2010a; Pineda, Aguero, and Espinoza 2011.

92.

Aker 2010a.

93.

Aker 2011.

94.

Tadesse and Bahiigwa 2015; Jagun, Heeks, and Whalley 2008.

95.

Amazon Mechanical Turk is an online work plat- form.

The quote was obtained through an online questionnaire of online workers done in September 2014 for this Report.

96.

Varian 2011.

97.

Government of Estonia 2015.

98.


Interactive Advertising Bureau 2010.

99.

Greenstein and McDevitt 2011.

100.

WDR 2016 team, based on Research ICT Africa sur- veys (various years).

101.

Pew Research Center 2014.

102.

In the United States, the median tenure for male wage and salary workers was lower in 2014 at 5.5 years, compared with 5.9 years in 1983 (Copeland 2015).

Dutz and others (2015, for the WDR 2016) show more turnover among young workers in industries intensive in ICT in Brazil.
See also Stevenson 2009.

103.

Handel 2015, for the WDR 2016.

104.

World Bank 2012, 2013.

105.

Forman, Goldfarb, and Greenstein 2012.

106.

Eden and Gaggl 2014; Karabarbounis and Neiman 2013.

Eden and Gaggl (2015, for the WDR 2016) sug- gest that while the fall in the routine share of labor is linked to technological change, the shift in the labor share compared with that of capital may be a more complex story.
In the United States, housing prices have been identiﬁ ed as a key driver in the rise of capital shares (Bonnet and others 2014).

This chapter focuses on the fall of routine labor within the labor share, as this is more clearly linked to technological change.

107.

From 16 to 14 percent in the case of Honduras, and from 18 to 16 percent in the case of Romania (Eden and Gaggl 2015, for the WDR 2016).

108.
108.

Acemoglu 2002; Aghion and others 2015; Dabla- Norris and others 2015; Garicano and Rossi- Hansberg 2006; Jaumotte, Lall, and Papageorgiou 2008; Autor, Katz, and Krueger 1998.

109.

Acemoglu and Autor 2011; Akcomak, Kok, and Rojas-Romagosa 2013; Autor and Dorn 2013; Goos, Manning, and Salomons, forthcoming.

110.

Autor, Dorn, and Hanson, forthcoming; Autor, Dorn, and Hanson 2013.

111.
111.

The number of workers in agriculture declined in China between 2000 and 2010, but the number of workers within the sector that were machine or equipment operators almost doubled (WDR 2016 team, based on the National Bureau of Statistics of China, various years).

112.

Dutz and others 2015; Messina, Oviedo, and Pica 2015 for Mexico and Peru.

113.
113.

Goldin and Katz (2008) refer to a race between edu- cation and technology when discussing the case of the United States, but the phrase was ﬁ rst used by Tinbergen (1975).

114.

Brynjolfsson and McAfee (2014, 11).

115.
115.

Oviedo and others (forthcoming) use STEP house- hold surveys (World Bank, various years) from 10 developing countries to characterize the typical tasks done across occupations, and show that, indeed, occupations that are considered intensive in nonroutine cognitive and socioemotional skills require workers to do more complex reading, write longer texts, use more advanced math, contact more clients, collaborate more with others, as well as do more thinking, learning, supervising, and present- ing.
By contrast, these occupations do fewer routine and manual activities, such as operating machines and doing physical activities.

116.

WDR calculations based on STEP household sur- veys (World Bank, various years).

138 WORLD DEVELOPMENT REPORT 2016 117.

This is referred to as functional literacy.


Functional illiteracy is deﬁ ned as the proportion of exam tak- ers (15-year-olds) who score below a level 2 on the Programme for International Student Assessment (PISA) reading test (WDR 2016 team, based on OECD PISA 2012 scores).

118.

World Bank 2014c.

119.

WDR 2016 team, based on Research ICT Africa (var- ious years).
Among those who do not cite a lack of connection as a reason for not using the internet, 3 out of 10 say they do not use the internet because they do not know how to.

120.

PIAAC survey.

121.

World Bank 2010.

122.

Valerio and others, forthcoming.

Most of this liter- ature remains focused on the returns to computer use (Spitz-Oener 2008; Sakellariou and Patrinos 2003).
Most studies are not based on random assignment of the technology, and estimates likely reﬂ ect that these workers have other characteristics or skills that command an earnings premium.

In a randomized experiment using ﬁ ctitious resumes for white-collar occupations in Buenos Aires and Bogota, ICT skills increased the probability of receiving a job callback by one percentage point (Lopez-Boo and Blanco 2010).

123.

Correa and de Sousa 2015, for the WDR 2016.

124.

Akerman, Gaarder, and Mogstad 2015.


125.

Cunningham and Villasenor 2014.

126.

Valerio and others 2015a, 2015b; Ajwad and others 2014a; Ajwad and others 2014b; Bodewig and others 2014.

127.

Valerio and others 2015a; Valerio and others 2015b.

128.

Eden and Gaggl 2015, for the WDR 2016.

129.

For example, it is often difﬁ cult to distinguish between trade and technology (chapter 1).

130.
130.

Akcomak, Kok, and Rojas-Romagosa 2013; Autor, Dorn, and Hanson, forthcoming; Eden and Gaggl 2014; Karabarbounis and Neiman 2013; Michaels, Natraj, and Van Reenen 2014.

131.

WDR 2016 team, based on I2D2 data (World Bank, various years).

132.

Autor 2014; Autor and Dorn 2013; Autor, Levy, and Murnane 2003; Spitz-Oener 2008; MacCrory and others 2014.

133.

Autor 2014; Summers 2014; Brynjolfsson and McAfee 2014.

134.

Ryder 2015.

135.

Autor, Dorn, and Hanson, forthcoming.

136.

Statista 2015.


137.

World Bank team under the Government Financial Management and Revenue Administration Project.

Other regulatory and business processes changes also help explain the redundancy of workers.

138.

WDR 2016 team interview with Dr. Ishrat Hussain, former governor of the State Bank of Pakistan, Jan- uary 30, 2015.

139.

Bowles 2014; Frey and Osborne 2013.

140.

Autor, Dorn, and Hanson, forthcoming.

Their analy- sis examines the period between 1980 and 2007.

141.

Autor 2014.

142.


Handel 2000.

143.

Gaggl and Wright 2014.

144.

Jaimovich and Siu 2012.

145.

Handel 2015, for the WDR 2016.

146.

Luddites were English textile workers who pro- tested rapid automation in the early 19th century by destroying the machinery used to replace them.

147.

Crafts 2015, for the WDR 2016; Katz and Margo 2013; Gray 2013.

148.

MacCrory and others 2014.

149.

Crafts 2015, for the WDR 2016.

150.

For a discussion on “premature” deindustrializa- tion, see Rodrik 2015.
151.

Turner 2014.

152.

Berger and Frey 2014.

153.

Beaudry, Green, and Sand 2014.

154.

Crafts 2015, for the WDR 2016.

155.

Brynjolfsson and McAfee 2014.

156.

Countries in Europe and Central Asia are a case in point.

Starting from a comparable institutional and economic level in the early 1990s, countries that carried out the most economic reforms (for example, the Czech Republic, Estonia, and Poland) have seen a more rapid shift toward new economy occupations (Arias and others 2014).
Historically, GDP per capita has also been a strong determinant of technology adoption (Crafts 2015).

157.

Autor 2014.

158.

WDR 2016 team, based on STEP household surveys (World Bank, various years).

159.

Acemoglu and Autor 2011; Aedo and others 2013; Arias and others 2014; Autor and Price 2013; Autor, Levy, and Murnane 2003; Bruns, Evans, and Luque 2012.

160.

Cortes and others 2014.

161.

Skirbekk 2013.

162.

Skirbekk 2013.

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146 WORLD DEVELOPMENT REPORT 2016 SECTOR FOCUS 2 Education Educational policy makers and planners face a per- sistent challenge related to the potential use of infor- mation and communication technologies (ICTs) in remote, low-income communities around the world: most products, services, usage models, expertise, and research related to ICT use in education come from high-income contexts and environments.
One conse- quence is that “solutions” enabled by technology are imported and “made to ﬁ t” in environments that are often much more challenging.

Sometimes this works; sometimes it doesn’t.

The One Laptop per Child proj- ect in Peru provided hundreds of thousands of pieces of low-cost computing equipment to students in rural schools.
But early research found no evidence of increased learning in math or language.1 This is one high-proﬁ le example of the difﬁ culties faced in introducing hardware-centric educational technology projects conceived in highly developed environments into less developed places without sufﬁ cient atten- tion to local contexts.

An alternate approach would consider how to inno- vate using existing technology that is already avail- able in a local environment.
In addition to exploring the uses of new technologies, it might also be useful to ask, How can we innovate using what is already avail- able?

In many low-resource communities, the best technology is the one that people already have, know how to use, and can afford.

In most circumstances, this is the mobile phone.


The SMS Story project in rural Papua New Guinea is one example of an inno- vative approach to using a “new” technology in ways that meet local needs and that the original designers of the technologies may not have dreamed of.

Few educational environments are more challeng- ing than those found in remote locales in the Paciﬁ c This sector focus was contributed by Michael Trucano.

island nation of Papua New Guinea.


These areas are characterized by poverty, low levels of literacy, geo- graphic remoteness, linguistic diversity (over 800 languages are spoken across the island nation), low teacher quality, and a lack of teaching and learning materials.

Many rural classrooms have few books— and some none at all.

Few students read at grade level, and teachers often do not know what materials they are meant to cover in a given week—or how to teach them effectively.
Most of them do, however, have mobile phones.

The SMS Story project demonstrates that it is pos- sible to orient and motivate teachers in useful ways using technologies already at hand.

It sent daily text message stories and teaching tips to teachers as an aid to help improve student reading.

The result?

Teachers were reminded and motivated to teach reading every single day.
While reading comprehension did not noticeably improve, the intervention halved the num- ber of children who could not read anything.

While this was hardly a “silver bullet” solution, SMS Story offers one model for using connected technologies in simple ways to help address some long-standing, seemingly intractable challenges facing educators in rural schools in Papua New Guinea.
While no one would suggest that these results imply that these schools do not need books, such simple interventions can be modestly transformative in ways that are inclusive, efﬁ cient, and scalable.2 The evidence base for investments in educational technologies in middle- and low-income countries is weak—but growing.

Until recently, there were few rigorous randomized studies on the impact of investments in educational technologies that could inform related policy decisions; now there are almost two dozen.
In addition, a signiﬁ cant body of practical evidence has also been collected based on experiences EDUCATION 147 147 in middle- and low-income countries.
Characteristics of many successful technology-enabled educational projects in such places include: • A focus on the “guided use” of technology, and not just providing tools for general use; • Providing relevant curricular materials; • The shared use of devices in school settings; • Attention to pedagogy, teacher support, and development; • Using technologies in ways that are supplemental and practical; and • Using evaluation mechanisms that go beyond outputs.3 A number of key challenges remain that inhibit the potential positive impact of new technologies on teaching and learning.
Foremost among these are a pernicious focus on providing technology alone, and a related belief that educational challenges can be overcome simply by providing more and better devices and connectivity.

The so-called Matthew Effect of educational technology holds that those most likely to beneﬁ t from the use of new technol- ogies in educational settings are those who already enjoy many privileges related to wealth, existing lev- els of education, and prior exposure to technology in other contexts.
Policies that neglect to consider this phenomenon may result in projects that exacerbate existing divides within an education system, and indeed within larger society.

Education challenges cannot be overcome simply by providing more and better ICT devices and con- nectivity.

There is sometimes talk that technology will replace teachers.
In reality, experience from around the world demonstrates that, over time, the role of teachers becomes more central—and not peripheral—as a result of the introduction of new technologies.4 That said, while technology will not replace teachers, teachers who use technology will replace those who do not.
These teachers, in addition to having a suite of basic technology-related skills, will be asked to take on new, often more sophis- ticated duties and responsibilities in ways that will challenge the existing capacity of many educational systems to prepare and support teachers over time.

Understanding the local education challenge and context before proposing a technology-driven solution is a critical ﬁ rst step.
A number of recent articles in the popular press have proclaimed many high-proﬁ le efforts to use new technologies within educational systems, including variations of the One Laptop per Child initiative in countries around the world, as “failed experiments.” The speed of techno- logical change almost always outpaces the ability of educational planners to keep up.
When it comes to the use of technology in education, educational sys- tems may therefore be fated to exist effectively in a state of permanent experimentation.

That said, exper- iments should, by deﬁ nition, teach something.

A sad fact of too many experiments in educational tech- nology use around the world remains that they have implemented technological “solutions” to problems that have not been well understood.

If you are pointed in the wrong direction, technology may help you get there more quickly.
At a fundamental level, many of these efforts are not really failures of technology, but rather a result of poor planning and an inability to learn from failure and adapt.

As such, they are not a result of technology failures, but rather human ones.

Notes 1.

Cristia and others 2012.

2.

Kaleebu and others 2013.

3.

Drawn from Arias Ortiz and Cristia (2014).

4.

McEwan 2014; Trucano 2015.

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http://siteresources .worldbank.org/EDUCATION/Resources/EduTech Blog2014_all_the_posts.pdf.
148 WORLD DEVELOPMENT REPORT 2016 ENABLING DIGITAL DEVELOPMENT Social media 3 T H G I L T O P S When considering another person in the world, a friend of your friend knows a friend of their friend, on average.
—Lars Backstrom and colleagues, “Four Degrees of Separation” (2012) That remarkable statement cannot yet be applied to everyone in the world, but a 2011 study showed that it pertained to the active users of Facebook—some 721 million people at the time, and their 69 billion friend- ships.1 The average of 3.7 intermediary links between randomly selected people in the global Facebook pop- ulation contrasts with the 5.7 links between Nebraska residents and Bostonians documented in Milgram’s famous “six degrees of separation” study from 1967.2 From 2011 to early 2015, the network’s user base had doubled, with each user having an average of 338 “friends.” This is more than twice Dunbar’s number, which asserts that 150 is the maximum number of stable relationships that humans can retain.3 These statistics show some of the ways in which social net- works are expanding and changing with the advent of social media on the internet.
Social networks are fundamental to human soci- ety.

They constitute the fabric of relationships that support trust, reputation, and social cohesion.

For instance, a debtor may be less likely to default on a loan if both she and her lender share a dense network of mutual friends.

Social networks exert peer pressure on behavior and shape aspirations for work, marriage, and consumption.

By deﬁ ning social boundaries, they can be instruments both of social inclusion and exclusion.
They also are a conduit of gossip, slander, WDR 2016 team, incorporating contributions from Robert Ackland and Kyosuke Tanaka.

harassment, bullying, and infectious disease, as well as job opportunities and innovative ideas.

One of the clearest channels by which networks affect economic development is the diffusion of innovations.

Networks provide the medium through which people learn of an innovation.
Adoption by a trusted person then initiates a chain reaction of adoptions through the network, accelerating as peer pressure bears on laggards.

The impacts can be large.


An experimental study on the adoption of weather insurance (an unfamiliar innovation) by Chinese farmers found that, while attending an intensive information session on the product boosted take-up rates by 43 percent, merely having a friend who attended such a session had almost half that effect, and was equivalent in impact to a 15-percent subsidy.4 Impacts were larger when those initially informed were more central to the network.
Social networks are also important channels for transmission of health behavior, and there is a tendency for people with poor health behavior to clump in networks isolated from those with healthier behaviors.5 Enter the internet, in the form of Facebook, LinkedIn, and Twitter based in the United States; Sina Weibo and WeChat in China; VK in the Russian Federation; and many other social media platforms designed to encourage the formation of social links.
There are many types of social media, but social net- working sites and micro blogs are most relevant in the context of social and economic development.

A simple typology is based on whether communication is directed at speciﬁ c recipients, and whether ties are explicit (prompted by invitation, acceptance, or refer- ence within a social network) or not (table S3.1).

Social scientists distinguish between weak ties and strong ties in social networks.
Weak ties exist between SOCIAL MEDIA 149 149 Table S3.1 Relationships in diff erent types of social media Type of ties Explicit Implicit Direction of ties and examples Directed Undirected Friendship networks (Facebook, Google+) Microblog networks (Sina Weibo, Twitter) Semantic networks (recommendation systems, social tagging systems) News groups, blogs Source: Ackland and Tanaka 2015. people who could be considered acquaintances rather than friends.
Such ties can be useful to transmit novel information about technologies or other useful and new knowledge, since information comes from peo- ple with whom interaction is more sporadic.

Strong ties, between people who have more in common (family, friends, or close colleagues), are a source of emotional support but may be less important as a source of novel information, since members of a close group are likely to have the same information.
Strong ties within “closed” groups with relatively weak ties to outsiders can be important, as this may increase trust and facilitate coordination, in part because of the high reputational cost of bad or unproductive behav- ior within the group.

Social capital is likely higher in groups linked by strong ties.

Social networking sites are considered more important for developing strong ties, while microblogs foster weak ties.
One observer compared Facebook to a cocktail party where you are surrounded by people you know and like, while Twit- ter is like someone standing at a street corner with a megaphone shouting “Check this out!” Social media platforms change the dynamics of social networks in at least three ways.

First, they encourage expansion of the scope and density of net- works, since links are very easy to form, regardless of physical distance.

Second, they speed the diffusion of information between links.
Third, they increase the visibility of opinions and some behaviors across the network.

Research on the development impacts of social media is still at an early stage, but there is some evidence on how they affect economic development, how they prompt changes in behavior, how they help in emergency situations, and how they can increase people’s voice.6 that social media supported microﬁ nance by facilitat- ing information ﬂ ow to the poor and small business owners.
A study of a group of women in Jakarta showed that their use of social media encouraged their entre- preneurial activities and helped them ﬁ nd customers for their products, although the speciﬁ c context of this study—they were middle-class urban residents—may not be transferable to every other place.

Social media sites can also be a source for economically useful data, including about consumer preferences and complaints.
Social media and behavioral change Commercial ventures take advantage of the features of social media—often for marketing purposes—as they exploit the huge amounts of information about personal preferences, buying habits, and relation- ships.

But online behavior can also be channeled in ways that are consistent with development.
For instance, individuals can be encouraged to share their progress in meeting exercise or learning goals with their social network, thus using peer pressure and competition to maintain motivation.

Experiments show that, in principle, networks can be manipulated to encourage desired outcomes.
For instance, an online experiment showed that when participants were networked in tight clusters, a promoted health practice diffused more quickly than in a loosely struc- tured network.7 Social media and emergencies Social media and economic development Social media act as a channel for communication and information exchange, thus reducing transaction costs for economically beneﬁ cial, as well as potentially harmful, interactions.
Research in Nigeria showed Before, during, and after natural disasters or other urgent crises, social media platforms are useful for disseminating information and as a management tool, such as to channel requests for assistance.

The key contribution is that information does not just ﬂ ow one way from ofﬁ cials to citizens as through radio or television, but in all directions between ofﬁ - cials, citizens, and the private sector.
3 3 T T H H G G I I L L T T O O P P S S 150 150 WORLD DEVELOPMENT REPORT 2016 WORLD DEVELOPMENT REPORT 2016 Social media and community voice Recent events such as the Occupy Wall Street move- ment or the Arab Spring have raised questions about the role of social media in facilitating social change.

Some analysts think social media played a central role, including by spreading democratic ideals across borders.

They also make movements less dependent on charismatic leaders or ideologues.
Others are more skeptical, arguing that revolutions occurred long before social media, and the apparent inability to form strong leadership through such tools can reduce the chances for lasting change.

An additional issue is the role of social media in spreading false information or to correct misinformation.

The intensity of a crisis changes the quality of infor mation shared on Twitter.
And, interestingly, fact-checking conversations on Twitter are more likely to occur between strangers than between friends.

Whether social media can encourage collective fact-checking will inﬂ uence its role in social learning in the context of social and eco- nomic development.

There is still much to learn about the role that social media can play in development.
One important lesson is that their impact is country-speciﬁ c and context-speciﬁ c. Variations in access to technology and education obviously matter.

But there are also large variations in how people use social media and how they share information.

People will more likely share information broadly if they think they can inﬂ uence events or policy.

There is evidence that peo- ple in more authoritarian countries are less likely to forward (re-tweet) information.
Finally, general-purpose social media platforms may have less of an impact in poor communities compared with more targeted social media interven- tions.

Examples in other parts of the Report show that purpose-built platforms set up by public institutions or development agencies as part of program deliv- ery may be more effective.

They could, for instance, deliver extension services to farmers or connect par- ticipants with leaders to foster aspirational change.
3 3 T T H H G G I I L L T T O O P P S S Notes 1.

By March 2015, Facebook had 1.4 billion active monthly users worldwide.

2.

Milgram 1967.

3.

Dunbar 1992.

4.

Cai, de Janvry, and Sadoulet 2015.

5.

Centola 2011.

6.

See Ackland and Tanaka 2015 for individual references.

7.

Centola 2010.

References Ackland, Robert, and Kyosuke Tanaka.

2015.

“Develop- ment Impact of Social Media.” Background paper for the World Development Report 2016.

World Bank, Washington, DC.


Backstrom, Lars, Paolo Boldi, Marc Rosa, Johan Ugan- der, and Sebastiano Vigna.

2012.

“Four Degrees of Separation.” Presented at ACM Web Science Con- ference 2012, Evanston, IL, June 22–24.

Cai, Jing, Alain de Janvry, and Elisabeth Sadoulet.

2015.

“Social Networks and the Decision to Insure.” American Economic Journal: Applied Economics 7 (2): 81–108.

Centola, Damon.

2010.

“The Spread of Behavior in an Online Social Network Experiment.” Science 329 (5996): 1194–97.
————.

2011.

“An Experimental Study of Homophily in the Adoption of Health Behavior.” Science 334 (6060): 1269–72.

Dunbar, Robin.

1992.

“Neocortex Size as a Constraint on Group Size in Primates.” Journal of Human Evolu- tion 22 (6): 469–93.

Milgram, Stanley.

1967.

“The Small World Problem.” Psychology Today 2 (1): 60–67.
SOCIAL MEDIA SOCIAL MEDIA 151 151 CHAPTER 3 Delivering services Have digital technologies made governments more willing and able to deliver services to their citizens?

Not yet.
Not yet.

Governments have invested heavily in dig- ital technology over the past two decades, and these efforts have made it easier in many countries for busi- nesses to ﬁ le taxes, and for the poor to get an ofﬁ cial identity allowing them to receive welfare payments and vote in elections.

Digital technologies have also enabled governments to receive regular feedback from service users, improving service quality.
But all too often the successes are isolated—limited to a few activities, sectors, or locales.

Many investments in e-government fail to have any impact other than wasting scarce ﬁ scal resources.

Digital channels for mobilizing citizens to pressure policy makers to become more responsive have had little effect.

And the new technologies have enhanced the capacity of unaccountable governments for surveillance and control.
In sum, digital technologies have helped will- ing and able governments better serve their citizens, but they have not yet empowered citizens to make unwilling governments more accountable.

Efﬁ cient service delivery requires a capable gov- ernment that can implement policies and spend pub- lic resources effectively.
It also requires an empow- ered citizenry able to hold politicians and policy makers to account so that governments serve citizens and not themselves or a narrow set of elites.1 Digital technologies can strengthen government capability and empower citizens through three mechanisms (ﬁ gure 3.1).

They overcome information barriers and promote participation by citizens in services and in elections.
They enable governments to replace some factors used for producing services through the auto- mation of routine activities, particularly discretion- ary tasks vulnerable to rent-seeking, and to augment other factors through better monitoring, both by citizens through regular feedback on service quality and within government through better management of government workers.
And by dramatically lower- ing communication costs through digital platforms, they enable citizens to connect with one another at unprecedented scale, fostering citizen voice and col- lective action.

But the impact of these mechanisms on capability and empowerment depends on the strength of gov- ernment institutions.

Institutions are the formal and informal rules that shape the incentives and behav- iors of politicians, government ofﬁ cials, and citizens.
Strong institutions create incentives for politicians to work toward the public good and for bureaucrats to be accountable to those politicians.

Digital tech- nologies, aligned with the incentives of politicians, government ofﬁ cials, and service providers, can thus be highly effective in improving outcomes.
By con- trast, politicians in clientelist political institutions are largely accountable to a small set of elites and reject digitally enabled reforms that hurt vested inter- ests; instead, they use these technologies for greater control.

And patronage-based bureaucracies resist e-government advances that would reduce discretion and rent-seeking.
This misalignment between digital technologies and weak or unaccountable institutions creates the twin risks of increasing elite control and wasting scarce public resources on ineffective e-government projects.

Why do these institutional constraints persist?

Digital technologies, particularly social media, have uncovered egregious abuses of public authority and triggered both virtual and physical citizen protests around scandals.
But they haven’t sustained collective action around failures of service delivery.

Service delivery problems are more difﬁ cult to monitor and attribute to speciﬁ c government ofﬁ cials, and only rarely become salient in ﬂ ashpoint events that trig- ger protests—like the excessive use of force by police.

And they cannot be improved by one-off actions that change a bad policy or pass a new law.
Addressing ser- vice delivery failures requires sustained citizen voice through effective ofﬂ ine mobilization by civil society organizations.

But in the absence of willing and able governments to partner with, civil society initiatives often remain small, with limited citizen interest or impact.

The dependence of digital technology on initial institutional conditions, though, varies by service and activity.
For services and activities based on more routine tasks that are easy to monitor, digital technologies can improve outcomes rapidly and signiﬁ cantly—even when institutions are relatively weak.

In effect, the technology substitutes for the institutions, as with cash transfers, licensing and registration services, and monitoring elections, all much improved by digital technologies in many low-income countries.
But for services and activities that require more discretion from workers and are hard to monitor, the quality of institutions is much more important, and digital technologies have an incremental effect.

The technology only comple- ments or augments the initial institutions, as with teaching, health care, and organizational manage- ment, where digital technologies have an impact only if institutions are strong.
Given the importance of institutions for service delivery, the policy agenda is to use digital technol- ogies to strengthen institutions.

The variation in interaction of institutions and digital technologies by service and activity, and the considerable hetero- geneity of institutions even within countries, can guide policy and open many possibilities for service improvements in even the most challenging con- texts—in short, for digital dividends.
Connected governments The advent of the internet in the mid-1990s triggered the rapid diffusion of e-government systems to auto- mate core administrative tasks, improve the delivery of public services, and promote transparency and accountability.
By 2014, all 193 member-states of the United Nations had national websites: 101 enabled citizens to create personal online accounts, 73 to ﬁ le income taxes online, and 60 to register a business.2 In all, 190 countries had automated government ﬁ nan- cial management, 179 had automated customs, and 159 had automated tax systems.
And 148 countries had digital identiﬁ cation schemes, although only 20 had multipurpose digital identiﬁ cation for such ser- vices as voting, ﬁ nance, health care, transportation, and social security.
Developing countries have invested more in core government administration systems like ﬁ nan- cial management, customs, and tax management DELIVERING SERVICES 153 Figure 3.1 A framework for digital technologies and government service delivery DIGITAL TECHNOLOGIES Overcome information barriers Augment existing factors Generate economies of scale INCLUSION EFFICIENCY INNOVATION Participation State capability Voice R I S K : E L I T E C O N T R O L A N D F I S C A L WA S T E Source: WDR 2016 team.
than in transactional government-to-citizen and government-to-business services like e-ﬁ ling of taxes and portals that enable citizens to access a variety of services from one website (ﬁ gure 3.2).
Policy priorities are also evident in cross-national patterns of the detailed indexes of different e-government systems constructed for this report.3 The level of e-government unsurprisingly increases with per capita income, but the gap between high-income and low-income Figure 3.2 Low-income countries have invested heavily in e-government Main e-government systems, 2014 e-customs Financial management e-procurement Tax management Human resources e-ID e-filing e-services portal 0 20 40 60 80 100 Percent High-income Middle-income Low-income Sources: WDR 2016 team, based on World Bank Global e-Government Systems database 2015b; World Bank Global Digital Identiﬁ cation for Development (ID4D) database 2015c; UN 2014.
Data at http://bit.do /WDR2016-Fig3_2.

154 WORLD DEVELOPMENT REPORT 2016 Figure 3.3 The priority in low-income countries has been core e-government systems, 2014 Indexes of e-government systems, by income and region a.
Core systems b. Online services All countries High-income: OECD Upper-middle-income Lower-middle-income High-income: Non-OECD Low-income North America All countries High-income: OECD High-income: Non-OECD Upper-middle-income Lower-middle-income Low-income North America Europe and Central Asia Europe and Central Asia Latin America and the Caribbean Middle East and North Africa c. Digital ID All countries High-income: OECD High-income: Non-OECD Upper-middle-income Lower-middle-income Low-income South Asia Middle East and North Africa Europe and Central Asia South Asia Latin America and the Caribbean Latin America and the Caribbean Middle East and North Africa East Asia and Pacific Sub-Saharan Africa East Asia and Pacific South Asia Sub-Saharan Africa Sub-Saharan Africa East Asia and Pacific North America 0 0.2 0.4 0.6 0.8 1.0 0 0.2 0.4 0.6 0.8 1.0 0 0.2 0.4 0.6 0.8 1.0 Index Index Index Sources: WDR 2016 team, based on World Bank (2015b) Global e-Government Systems database; World Bank Global Digital Identiﬁ cation for Development (ID4D) database; UN 2014.
Data at http://bit.do/WDR2016-Fig3_3.

Note: The left and right of each box plot represent the ﬁ rst and third quartiles, and the line in the middle of each box plot is the median.

The two ends of the whiskers represent the 10th and the 90th percentile observations.
The core e-government index in panel a measures the automation and integration of countries’ ﬁ nancial management information systems (including budget formulation and execution functions, source of public ﬁ nance data, and treasury account structure); human resources management information systems (including personnel management and payroll); e-tax systems (including e-ﬁ ling and tax administration systems); e-customs; and e-procurement.
The online services, panel b, index is prepared by the United Nations Department of Economic and Social Aff airs as part of its overall e-government index.

The Digital ID index, panel c, measures the extent to which electronic identiﬁ cation can be used to access services, whether it features magnetic-strip or smart-chip technology, and whether it has embedded digital signature capabilities.

OECD = Organisation for Economic Co-operation and Development.
countries is lowest for administrative systems and highest for online services for citizens and businesses, with digital identiﬁ cation systems in the middle (ﬁ g- ure 3.3).

Fifteen middle-income countries score in the top quartile of administrative e-government systems, with Brazil, Colombia, Mexico, and Peru in the top 10 worldwide, and Nepal, Rwanda, and Uganda scoring highly among low-income countries.
India and Paki- stan have more advanced digital identiﬁ cation sys- tems than high-income North American countries, pointing to the potential for “leapfrogging” that these technologies offer.

Governments are more intensive users of infor- mation technology than ﬁ rms.
Survey data on the use of digital technologies (computers, mobile phones, and the internet) in nonagricultural jobs from 30 countries show that in all but one country, a higher share of public sector workers are in jobs that require frequent use of the technology in their daily work as compared to private sector workers (ﬁ gure 3.4).

This gap is not surprising for developing countries, where most ﬁ rms are small and in the informal sector.
For example, more than 60 percent of public sector workers are in jobs that require intensive use of tech- nologies in Bolivia, Colombia, and Kenya, compared with only approximately 20 percent of private sector workers.

But the gap persists in 22 of the countries when the public sector is compared only with large private sector ﬁ rms (those with more than 50 employ- ees).

Governments are also more intensive users of technology in high-income countries like Germany, Japan, and the United States.
this Whether substantial investment in e-government has strengthened state capability and improved outcomes will be explored at length in the next section.

One indication of the limited return on these investments is citizen use of e-government services, which has lagged behind supply (ﬁ gure 3.5, panel a).
Even in countries where internet access is not a constraint, as in Europe, citizens use e-government mostly to get information (on average 44 percent of individuals in the European countries for which data are available visited a government website at least once in the past year to get information) and not for trans- DELIVERING SERVICES 155 Figure 3.4 Governments use digital technologies more intensively than private sector ﬁ rms, 2014 Share of workers in jobs that require intensive use of digital technologies (private or public sector) Kenya Bolivia Colombia Vietnam United States Japan Estonia Spain Canada Netherlands Ghana Germany Poland Macedonia, FYR Lao PDR Italy Sri Lanka United Kingdom Czech Republic Slovak Republic France Belgium Armenia Ireland Austria Finland Georgia Denmark Norway Sweden 0 20 40 60 80 Percent Private sector firms Large firms (50+ employees) Public institutions Sources: WDR 2016 team, based on STEP 2014 and PIAAC 2014 household surveys.
Data at http://bit.do/WDR2016-Fig3_4.

Note: Excludes the agricultural sector.

Public institutions include government administration, public utilities, and state-owned corporations.

The countries are sorted in descending order of the gap between the public and the private sectors.

acting with government (only 29 percent returned a form online in the past year).
These patterns are also reﬂ ected in surveys of citizens in Australia, Canada, and New Zealand—countries that rank 8, 10, and 15, respectively, in the provision of online services.

The majority of respondents use government websites for information and prefer to use traditional channels like voice calls to undertake transactions such as register- ing their children for day care.4 Both between and within European countries, the use of e-services depends on income.
Three times as many citizens use online services in the richest coun- tries than in the poorest, with a similar gap between the highest and lowest income quartiles within countries (ﬁ gure 3.5, panel b).

Within countries, use is unsurprisingly associated with age, education, and urban residence.

Businesses are more likely than individuals to use the internet to transact with the government (ﬁ gure 3.5, panel c), and the use of e-services by business is also less sensitive to income across countries.
In low-income countries, limited internet access means that mobile phones, not the internet, drive interconnectedness, as chapter 2 discussed.

Surveys of the use of digital technologies in 12 African coun- tries reveal that only 5 percent of individuals had used the internet to obtain information from, or interact with, the government, compared to 63 percent of respondents who had used their mobile phones to contact health workers (ﬁ gure 3.6).
Internet-based e-services will therefore be biased against the poor in developing countries.

Mobile e-government portals have become more common, nearly doubling from 25 countries in 2012 to 48 in 2014, but still are not on par with internet services.5 More than three-quarters of countries archive information on their websites for education, health, and ﬁ nance services, but fewer than half send e-mail or Rich Site Summary (RSS) updates, and only a handful send short message ser- vice (SMS) updates.
Greater state capability and citizen participation What impact have these signiﬁ cant investments in e-government had on strengthening government capability to deliver services and expanding citizen participation?

If politicians and policy makers want to improve services, they need a capable government to convert policies and spending into better outcomes.

Resources must be collected and spent without leak- age.
Teachers and health workers must be present in classrooms and clinics, and then must be motivated to work.

Beneﬁ ciaries of government programs must be properly identiﬁ ed and reached.

And governments often must help citizens make better decisions, overcoming bad habits or a lack of information.
But as underlined in the 2004 World Development Report, Making Services Work for Poor People, and subsequent research, weaknesses in each of these links in the service delivery chain make services fail in develop- ing countries.

Improving government capability or implementation capacity is key for effective service delivery.
156 WORLD DEVELOPMENT REPORT 2016 Figure 3.5 Citizen use of e-government in Europe depends highly on income, 2014 a. e-government use, by type of activity c. e-government use across Europe, by type of user Any business use e-procurement Obtain information Return forms Obtain forms Any individual use Return forms Obtain forms Obtain information 0 20 40 60 80 100 Percent of businesses and individuals b. e-government use, by characteristic of individual user Total population Education: none and low 55–74 years of age Income: 1st quartile Rural Female Income: 4th quartile Education: high 100 80 BGR MKD LTU POL LVA EST SVKSVN PRT GRC MLT CZE HRV HUN CYP ESP ITA FIN AUT NLD FRA BEL SWE DNK IRL DNK SWE FIN DEU NLD 60 40 FRA AUT BEL DEU IRL ESP ROU LVA SVK SVN EST HUN GRC PRT MLT CYP LTU CZE NOR NOR LUX LUX ITA HRV POL 20 BGR MKD ROU 0 0 20,000 40,000 60,000 80,000 Income, per capita (PPP), US$ Businesses Individuals 0 20 40 60 80 100 Percent of businesses and individuals Source: WDR 2016 team, based on Eurostat (EC 2014).
Data at http://bit.do/WDR2016-Fig3_5.

Note: Panels a and b show how businesses (in blue) and individuals (in green) use e-services for 29 European countries by type of activity and individual characteristics.

Panel c shows the variation in use across the European countries.

Individuals refer to those aged 16 to 74; businesses refer to those with 10 or more employees.

PPP = purchasing power parity.
Figure 3.6 Mobile phones are the main channel for citizens to interact with governments in Africa, 2014 Digital technologies can help improve govern- ment capability and citizen participation by: Used internet to get information from government Used internet to read or download news, magazines, or books Used internet to interact with government Used mobile phone to contact health care workers Used mobile phone to mobilize community 0 20 40 60 80 Percent of individuals Sources: WDR 2016 team, based on Research ICT Africa surveys 2014 of 11 countries.
Data at http://bit .do/WDR2016-Fig3_6.

Note: The left and right of each box plot represent the ﬁ rst and third quartiles, and the line in the middle of each box plot is the median.

The two ends of the whiskers represent the 10th and the 90th percentile observations.
• Informing citizens and giving them an offi cial identity so that individuals can make better decisions for their health, their safety, and education for their children, and can access a variety of publicly and privately provided services; • Streamlining processes to reduce discretion and opportunities for rent-seeking, ensuring that public resources are collected and spent efﬁ ciently, with- out leakage; • Receiving feedback from service users to regularly track satisfaction, identify problems, and improve service quality; • Improving service provider management through better monitoring so that government workers both show up at work and are productive.
Digital technologies have had varying impacts across these channels (table 3.1).

The clearest impact involves addressing a lack of information and weak DELIVERING SERVICES 157 Table 3.1 The impact of digital technology on government capability to deliver services: A scorecard Channel Impact of technology Main problem to address Do digital technologies solve the problem?
Informing citizens and giving them an identity Streamlining processes Receiving user feedback Improving service provider management Source: WDR 2016 team.
H M M L Poor information and communication • Yes, when poor information is the main barrier to improving service outcomes High transaction costs; rent-seeking • Sometimes, given the considerable heterogeneity of impacts across countries and the high risks and rewards of reforms High transaction costs; rent-seeking • Yes, when citizens have an incentive to complain and services can be easily monitored • No, otherwise Information asymmetries • Yes, for reducing ghost workers and absenteeism • No, for improving provider accountability for services that cannot be easily monitored Note: Channels are arranged by degree of technology impact.
L = low; M = medium; H = high.

communication—citizens’ lack of knowledge about issues that affect their welfare, their inability to com- municate with one another and with government, and government’s inability to be informed about citizens.

For example, the provision of information to citizens, particularly to poor citizens in remote locations through mobile phones, has helped people make better decisions on a variety of issues.
And dig- ital identiﬁ cation, by giving poor citizens a veriﬁ able identity, has enabled them to participate in public and private services previously denied to them.

Digital technologies have been less effective in solving government failures associated with rent- seeking and in strengthening the incentives of gov- ernment bureaucrats and service providers to per- form due to principal-agent problems associated with information asymmetries.
Automating government functions and services has been at best partially suc- cessful; these are often complex and costly systems to implement.

The failure rate is high, and so is the risk of wasting public funds.

Citizen feedback has been effective when citizens have an incentive to provide feedback and the services are fairly easy to monitor, and when governments have the capacity to respond to this feedback.

It is not effective when these condi- tions are absent.
Aside from a few isolated examples of reducing absenteeism, digital technologies have not signiﬁ cantly improved service provider manage- ment in government bureaucracies.

Informing citizens and giving them an identity Digital technologies are enabling governments to overcome barriers of geography, low physical con- nectivity, and limited administrative capacity to pro- vide information and deliver services to previously unreached citizens, improving citizen participation and choice.
The most popular and promising inno- vations in poor countries entail the use of mobile phones to implement a variety of health interven- tions—so-called “m-health” (mobile health) initiatives.

These can focus on either health providers, such as point-of-service data collection, disease surveillance, health-promotion campaigns, and telemedicine; or on citizens, such as SMS reminders to parents to get children vaccinated or to patients to undertake ther- apy (sector focus 3).
While hundreds of pilot m-health initiatives are underway, robust evidence in devel- oping country contexts is limited largely to the pos- itive effects of reminding patients to adhere to their antiretroviral therapy schedules.6 Initial results from pilots in Bangladesh, India, South Africa, and Tan- zania suggest that regular SMS communication can induce similar behavior changes in expectant moth- ers by providing information on neonatal health.7 The initial results are also promising from m-health initiatives that assist health providers in recording patient information, monitoring pregnancies, and reporting drug stock-outs.8 158 WORLD DEVELOPMENT REPORT 2016 Box 3.1 Digital technology and crisis management Digital technologies have helped monitor and manage human and natural disasters, such as wars, ﬂ oods, earth- quakes, and epidemics.
The internet can help in coordi- nating data ﬂ ows and improving the timeliness of decision making, while mobile phones can disseminate vital infor- mation.

Social media can also help survivors communicate their status and mobilize volunteer resources and donations outside the disaster zone.
A few examples of responses to recent crises show the range of possibilities: • The Ebola epidemic in Guinea, Liberia, and Sierra Leone created logistical challenges for the organizations that responded, not least how to pay ﬁ eldworkers in remote and rural locations, many of them not local.
The United Nations Development Programme set up a scheme to use mobile phones to make direct payments to the Ebola response workers in Sierra Leone and Liberia, who num- bered some 60,000 at the height of the crisis.a • The earthquakes that struck Nepal in April and May 2015 left at least 8,500 people dead, more than 17,000 injured, and many thousands homeless.

Although donations came in from all over the world, ensuring that aid reached the areas most aff ected proved a challenge.
One response, coordinated by Kathmandu Living Labs,b was to develop a dynamic map (quakemap.org) as a centralized platform for displaying incident reports and off ers of assistance.
The map is built around the OpenStreetMap and uses the Ushahidi platform for incident reports—both based on open-source software and crowdsourced information.c • Recovering from conﬂ ict and civil war requires long- term nation building, and more than 40 countries have adopted Truth and Reconciliation Commissions (TRCs) to assist in this process.d The Liberia TRC received some 20,000 statements from Liberians, at home and in the diaspora.
Many depositions were audio and video recordings, now stored as a permanent memorial at the TRC website (http://trcoﬂ iberia.org/).

Interestingly, the videos have been viewed four times more often than the TRC’s ﬁ nal report, indicating the reach of multimedia for storytelling at the human scale.e a.

See http://www.sl.undp.org/content/sierraleone/en/home/presscenter/articles/2015/05/12/mobile-pay-for-thousands-of-ebola-workers.html.

b.

See http://www.kathmandulivinglabs.org/.


c. See http://www.bbc.com/news/world-asia-32603870.

d. Kelly and Souter 2014. e. Best 2013.

This use of digital technologies to overcome geo- graphic, infrastructure, and administrative bottle- necks to information and communication is particu- larly powerful in emergencies like disease outbreaks, natural disasters, and conﬂ ict (box 3.1).
Digital technologies can also strengthen social norms and promote civic behavior like voluntary tax compliance or energy conservation through “peer comparisons”—making an individual’s actions more observable to others and making others’ actions more observable to the individual.9 For instance, tax evasion is pervasive in developing countries.
Some governments collect less than half the taxes due to them.10 Simple behavioral nudges, such as naming and shaming tax delinquents by publishing their names on websites, can be a cost-effective inter- vention even in low government capacity contexts.
Such peer comparisons have improved tax com- pliance in Norway and the United States, although the developing country evidence is more mixed.11 Comparisons of a household’s power consumption with that of neighbors, as done by companies like Opower, can also help conserve energy through peer pressure.12 Weaknesses in civil registration in developing countries mean that approximately 2.4 billion people in the world do not have birth certiﬁ cates and other ofﬁ cial documents to prove who they are, preventing many from opening bank accounts, registering prop- erty, or receiving public transfers.13 Digital identiﬁ - cation (ID) programs that use biometrics to register and authenticate individuals, although complex and thus risky to implement, provide a robust solution to this problem.
They enable poor countries to leapfrog the decades-long processes that developed countries went through to build their traditional, paper-based civil registration systems (see spotlight 4).

These schemes are expanding; 148 of 197 countries have some form of electronic ID.
But only 20 countries have a multipurpose ID with digital signature capa- bility that can be used for multiple online and ofﬂ ine services; 100 have digital identiﬁ cation systems lim- ited to a few functions (services like voting or public sector payroll that cover only subsets of the general population); and 49 have no digital ID of any kind.14 Evidence on the impact of these schemes, while largely anecdotal, points to signiﬁ cant potential ben- eﬁ ts of reducing leakages in government welfare DELIVERING SERVICES 159 Box 3.2 Empowering women through digitally enabled social programs Safety net programs are becoming more eff ective through digital systems for registering, authenticating, and pay- ing beneﬁ ciaries, promoting inclusion and empowering women.
Consider the Absa Sekulula (“It’s easier”) welfare pay- ment card in South Africa, the Benazir Income Support Programme (BISP) in Pakistan, and a pilot mobile money cash transfer experiment in rural Niger.

The programs in Pakistan and South Africa rely on a debit card payment mechanism linked to an effi cient management information system and biometric identity database.
When beneﬁ - ciaries register, their personal data and biometrics are captured and authenticated in minutes, a biometric debit card is issued in a few days, and the system automatically credits cardholder accounts monthly with the appropriate grant amount.

In Pakistan, 4.5 million BISP beneﬁ ciary households receive their payments through debit cards within 72 hours of disbursement from the government.
So, the elderly, parents, and people with disabilities no longer have to wait in line for cash or worry about keeping their payments safe.

The Niger pilot led to improved nutrition for children, in part because of the time savings for mothers.

Female empowerment is one major beneﬁ t of the BISP and the Niger programs.
Women in BISP mostly receive the payments on behalf of their households, increasing their authority to make decisions on how the cash is spent, their mobility, and their engagement with formal institutions.

The Niger mobile transfer, by reducing the observability of the amount and timing of the cash transfer, increased wom- en’s bargaining power in the household, changing house- hold agricultural activities and expenditures in ways that beneﬁ t women.
To quote Amina Bibi, a BISP beneﬁ ciary, “Women are being encouraged and empowered.

Because of this program people who did not let their women leave the house earlier are allowing them to do so.
Women now have conﬁ dence that they, too, can do something for the betterment of their family.” Sources: WDR 2016 team, based on http://worldbank.org/safetynets/howto; http://www.bisp.gov.pk; Oxford Policy Management 2015; Aker and others 2014. programs and empowering women through ﬁ nancial inclusion and access to government cash transfers (box 3.2).
Biometric registration, authentication, and pay- ments in India’s National Rural Employment Guarantee Scheme, the world’s largest workfare program, reduced the time for paying beneﬁ ciaries by 29 percent and leak- ages by 35 percent (see spotlight 4).15 But these schemes are complex and have all the risks of wastage associ- ated with large government information technology projects.

They also raise concerns about government surveillance, violation of privacy, and data integrity.
A more recent initiative around digital informa- tional services is the open data movement, publishing government data in machine-readable format as a plat- form for the private sector to develop applications to deliver new e-services to citizens.

Countries continue to join the Open Government Partnership, but initiatives are in their infancy.
According to the Global Open Data Index, only 13 percent of the datasets in 110 countries were “open”—public, machine-readable, and nonpropri- etary.16 Many governments have no desire to open their data or lack the capability to do so.
Making meaningful, good-quality data publicly available depends on sound core administrative systems—countries with more advanced core systems have greater budget transpar- ency (ﬁ gure 3.7)—and on effective interministerial Figure 3.7 e-government systems increase the transparency of government budgets, 2014 0.6 0.4 0.2 0 NAM NZL ZAF SWE NOR CHL PRT KOR GEO PER COL USA SVN CZE SVK UGA BGR GBR HRV JOR FRA AFG PNG BGD MWI BIHBWA UKR PAK HND MNG GTM CRI POL MLI MOZ LKA LBR RUS SLE IDNITA DEU GHA KEN ESP TZA BRA AZE TTO ALB ROU KAZ NPL PHL MEX TLS SRB MAR MKD TUR SLV NIC LBN VEN STP AGO BFA MYS DOM ECU THA –0.2 IND ZWE COD KHM KGZ ) x e d n i ( y c n e r a p s n a r t t e g d u B –0.4 NER BEN TJK VNM BOL RWA TUN YEM CMR DZA SEN FJI NGA TCD ZMB EGY CHN QAT –0.4 –0.2 0 0.2 0.4 Core e-government systems Sources: WDR 2016 team, based on Open Budget Index 2014 data (International Budget Partnership 2014) and the World Bank (2015b) Global e-Government Systems database.
Data at http:// bit.do/WDR2016-Fig3_7.

Note: Controlled for income.

Budget transparency is measured by the Open Budget Index.

160 WORLD DEVELOPMENT REPORT 2016 cooperation and coordination.

The necessary support- ive ecosystem of a vibrant private sector and civil soci- ety to use open data is also often missing.

The impact after governments open up is also unclear.
In the United States and the United Kingdom, the take-up of open data has been limited to a few sec- tors where there is consumer demand, like real estate, transport, energy, and health care, so the private sector has an incentive to develop applications on the open data platform.17 In Kenya, Moldova, and the Philippines, which have opened hundreds of govern- ment datasets, the motive has been more to increase transparency than to spur business opportunities for the private sector.
In locales in Kenya and the Philip- pines, fewer than 15 percent of survey respondents with internet access had heard of the Open Data Ini- tiative.18 Some media and civil society organizations use open data in their advocacy campaigns, but such initiatives generally are few and fragmented.

Streamlining processes Automation applied to an effi cient operation will mag- nify the effi ciency .

.

.

automation applied to an ineffi cient operation will magnify the ineffi ciency.
—Bill Gates The efﬁ ciency of some government tasks and services can be improved through automation that eliminates routine manual processes prone to error and manip- ulation, reduces the number of government interme- diaries in a transaction, and establishes audit trails to curtail rent-seeking.

Digital registration and payment systems have, for example, signiﬁ cantly reduced leak- ages in transport subsidies for the poor in Colombia (box 3.3).
Given the importance of mobilizing and man- aging resources, almost all countries have tried to auto- mate budget preparation, execution, and accounting and some aspects of tax and customs administration.

Management information systems are also exten- sively used in education, health, land management, and social protection services.
In the past decade, one-stop shops or service centers that provide citizen and business services—such as registration, licensing, records, bill payments—in a single physical space or web portal have become popular, with initiatives in many countries, including Azerbaijan, Bangladesh, Brazil, Cambodia, India, Kenya, Moldova, Mozam- bique, Oman, Peru, and Uganda (box 3.4).
Given the methodological difﬁ culties in measuring government productivity, the impact of e-government must be assessed indirectly through, for instance, changes in ﬁ rms’ perceptions of tax compliance costs, the competitiveness of government procurement, and corruption in taxation and government contracting after the introduction of e-government systems in a country.
These indirect measures, from regular sur- veys of ﬁ rms in select European and Central Asian Box 3.3 Targeted public transit beneﬁ ts in Bogotá Public transit is essential for 64 percent of the 8 million peo- ple living in Bogotá, Colombia.

As in many major cities, hous- ing is often distant from work, especially for low-income resi- dents.

But using public transit can be costly for the poor, who spend about 25 percent of their income on transportation, compared to 3.5 percent for high-income residents.
To help overcome this spatial mismatch, the city built an integrated public transport system (SITP) anchored by the Transmilenio bus rapid transit and collective bus transport.

To increase aff ordability for low-income users, the city introduced a subsidy—in 2014; it gave a 50-percent discount for 40 trips per month.

Eligibility is tied to a database of beneﬁ ciaries of social programs (SISBEN), and by February 2015 it reached about 26 percent of the target population.
The subsidy is transferred on smart fare cards activated and replenished at charging stations.

This technology lower scope for makes it easier and more ﬂ exible to provide targeted demand-side subsidies with leakage and abuse.

Most public transit systems, in contrast, rely on undiff erentiated supply-side subsidies.

Linking the transit user and SISBEN databases makes targeting effi - cient.

Introduction of the smart card system has not been without startup problems.
The smart cards do not work on the entire system yet.

Someone traveling on diff erent portions (“Phases”) of Transmilenio and on the collective system will need two smart cards and possibly cash as well.

These parallel systems need to be integrated into the SITP.

Technically, this is straightforward (for example, by using turnstiles that receive the smart cards in all the buses and stations).
The challenge is to achieve consensus between the bus operators, the collection ﬁ rm in charge of the smart cards, and the city’s government.

Source: Rodriguez and Monroy-Taborda, forthcoming, for the WDR 2016.
DELIVERING SERVICES 161 Box 3.4 Streamlining services through one-stop service centers With committed political leadership, one-stop computer- ized service centers can provide citizens with access to a broad range of public services from multiple government departments at one location quickly and easily—expand- ing options, saving time, speeding delivery, and reducing opportunities for corruption.
In rural Karnataka, India, for instance, the more than 800 Nemmadi Centers operating since 2006 provide birth and death certiﬁ cates, caste certiﬁ cates, income certiﬁ cates, ration cards, land records, and pensions, among other ser- vices.
Compared with typical government offi ces, citizens get these services in the centers with 3.4 fewer visits, 58 fewer minutes spent in the visits, 23 days faster processing, and 50 percent less chance of being asked for a bribe.a But this experience of Karnataka is not replicated in many other states of India.

One study found that the scope and impact of service centers vary considerably across states.
The greater the prevalence of petty corruption, the fewer services off ered, particularly services for which bribes can be extracted.

The integrated citizen assistance units (unidades de atendimento integrado, or UAI) in Minas Gerais, Brazil, provide another model.

With 30 shops and 1,800 employ- ees, the UAI off er access to services from 15 government agencies.

In 2012, they handled more than 6.2 million citi- zen transactions, up sevenfold in three years.
Employment and ID services are most popular, with the majority of users from lower-income groups.

The UAI were designed to overcome institutional con- straints that plagued the state’s prior attempt at service integration.

The earlier generation of service centers was staff ed by low-performing civil servants seconded by par- ticipating agencies and lacked standard operating proce- dures.

Long wait times could be abused by citizens willing to pay to advance in the queue.
The new system strengthened oversight from the Secretariat for Planning and Management, which reports directly to the governor.

It introduced a ﬁ rst-come, ﬁ rst- served ticketing system.

And citizen complaints submitted online must be resolved within two days.

Coordinators at the UAI “situation room” monitor the average wait time, the number of citizens served, and the number of atten- dants on duty at each service center to reallocate resources to manage demand in real time.
A private contractor staff s the service centers, thus bypassing restrictions for civil servants and allowing the centers to off er extended hours to citizens.

Each participating agency provides an on-site supervisor to oversee its programs.

Conﬂ icts occasionally arise between UAI coordinators and the agency-employed supervisors.
As one government offi cial noted, “When you tell a police offi cer he is no longer the authority in that place, it doesn’t go down very well.”b Sources: Bussell 2012; Majeed 2014. a. Bussell 2012. b. Majeed 2014. countries, show that the impact of e-government is mixed and varies considerably across countries.19 Filing of taxes electronically (e-ﬁ ling) is meant to reduce the administrative burden to businesses and citizens by minimizing interactions with tax ofﬁ cials and reducing opportunities for rent-seeking—and by lowering the time it takes businesses to ﬁ le tax returns, make payments, and receive refunds.
Indeed, advanced e-ﬁ ling systems in a country (e-ﬁ ling of tax forms and e-payment of taxes) lowered the likelihood of being inspected by tax ofﬁ cials by an average 13 per- cent in select countries in Europe and Central Asia.20 But shifting only to the simpler e-ﬁ ling system that did not enable online payment of taxes had no effect (ﬁ gure 3.8, panel a).

Nor did e-ﬁ ling on average reduce the number of visits by tax ofﬁ cials (ﬁ gure 3.8, panel b).
These effects vary considerably across countries, with Belarus, Kazakhstan, and Kosovo having the biggest declines in inspections, and Bosnia and Her- zegovina, Montenegro, and Tajikistan reporting an increase in inspections after the introduction of the e-government system.

E-ﬁ ling also lowered ﬁ rms’ perceptions of paying bribes to tax ofﬁ cials only mar- ginally, with medium-size ﬁ rms and ﬁ rms that export less likely to pay bribes to tax ofﬁ cials after the intro- duction of e-ﬁ ling.
E-ﬁ ling and e-payment help on average to reduce the time it takes businesses to prepare and pay taxes, as measured by the assessments of experts in the Doing Business data for 75 countries that introduced these systems between 2005 and 2014 (ﬁ gure 3.9).

Overall the time taken declined by roughly 25 percent in the ﬁ ve years after the system was introduced across the sample, with the time dropping by more 162WORLD DEVELOPMENT REPORT 2016of taxpayers and tax ofﬁ cials to use these systems.
The importance of complementary reforms is illus-trated by the contrasts of South Africa and Belarus with Tajikistan and Uganda.

South Africa’s tax mod-ernization reforms, which began in 2007, coupled the technology initiatives with simplifying the tax code and reforming business processes in the tax authority.

For example, revenue targets became a compulsory feature of the performance scorecards of managers.
Online tax ﬁ ling increased from 40,000 individual tax returns in 2006 to more than 2 million in 2009, with signiﬁ cant reductions in tax compliance costs.22 In Belarus, e-ﬁ ling was similarly part of a broader reform to lower compliance costs for citizens, including sim-plifying the tax code, setting up taxpayer facilitation services, and reaching out to the business community.
But in Tajikistan, e-ﬁ ling was not mandatory, use was low, and most businesses continued to submit paper returns, in part because they did not trust that online submissions would be secure but also because tax inspectors continued to pester ﬁ rms.23 And in Uganda, the electronic forms were more complicated than the manual ones, and taxpayers had to ﬁ le paper returns in addition to the e-ﬁ ling.24 As a result, the time to prepare and pay taxes increased in Uganda, and tax inspections increased in Tajikistan.
Effective service delivery requires efﬁ cient and transparent government procurement of goods and services.

Procurement is particularly vulnerable to collusion and corruption; e-procurement, through greater transparency and less discretion, can result in signiﬁ cant budgetary savings and better-quality infrastructure.
In India and Indonesia, e-procurement increased competition by making information on gov-ernment contracts widely available and by encourag-ing more ﬁ rms, particularly those outside the region where the project was located, to bid.

It also improved the quality of the infrastructure projects through shorter delays and better construction.25 Firms’ perceptions of the impact of e-procurement in Europe and Central Asia, however, are quite mixed.
Systems that provide only information on govern-ment contracts online or that also enable ﬁ rms to bid for these contracts online had no effect on average on ﬁ rm perceptions of the competitiveness of public procurement (ﬁ gure 3.10, panel a).

In Belarus, Georgia, and the Slovak Republic, ﬁ rms were more likely to bid for government contracts after an e-procurement system was introduced, but in Armenia, Bosnia and Herzegovina, and Tajikistan they were less likely.
Transactional e-procurement systems increased the competitiveness of procurement only in the higher- income countries in the sample, suggesting that nontechnological factors correlated with a country’s than half in Belarus (from 987 hours to 183 hours), Costa Rica (from 402 hours to 163 hours), and Kenya (from 432 hours to 202 hours).21 To have impact, e-government systems need to be accompanied by regulatory and administrative reforms—changing laws and management practices, simplifying tax procedures, and increasing the ability e-filinge-filing and e-payment–20–100102030Percent changeBelarusAverage (3 countries)GeorgiaKazakhstanTajikistanBosnia and HerzegovinaMontenegroSerbiaAverage (8 countries)KosovoKyrgyz RepublicUzbekistanArmeniaa.
Likelihood of being visited by tax officials Statistically not significantStatistically significante-filinge-filing and e-payment–80–60–40–2002040GeorgiaAverage (3 countries)KazakhstanBelarusTajikistanBosnia and HerzegovinaMontenegroKyrgyz RepublicAverage (8 countries)ArmeniaUzbekistanSerbiaKosovo Percent changeb.

Change in the number of visits by tax officialsStatistically not significantStatistically significantSource: Kochanova, Hasnain, and Larson, forthcoming, for the WDR 2016.
Data at http://bit.do/WDR2016-Fig3_8.Note: The panels show the impact of introducing electronic tax ﬁ ling after controlling for ﬁ rm-speciﬁ c characteristics and ﬁ xed eff ects.

The bars stand for the average eff ects in each country.
Based on a sample of 25,969 ﬁ rms (panel a) and 14,232 ﬁ rms (panel b) from the World Bank Enterprise Survey.Figure 3.8 The likelihood of being visited and the number of visits by tax offi cials after e-ﬁ ling was introduced vary in select European and Central Asian countries 163DELIVERING SERVICESlevel of development determine their impact.
Sur-prisingly, e-procurement was not associated with any reduction on average in ﬁ rm perceptions of cor-ruption in government contracting, but again with considerable variation (ﬁ gure 3.10, panel b).

Nor were there signiﬁ cant average differences across types of ﬁ rms or in the functionality of the systems.
This negative ﬁ nding is striking because one of the main reasons for investing in these systems is reducing corruption in contracting and increasing the value-for-money of government capital spending.E-procurement is also conditional on regulatory, institutional, and human resource factors for impact.
In one of India’s leading reformers in e-procurement, Karnataka state, reform was underpinned by an amended procurement law that made it mandatory to use the government e-procurement portal for all state departments and agencies.
Run from the chief minister’s ofﬁ ce to give it authority, the system was implemented under a public-private partnership to bring in skills from the market.26Figure 3.9 e-ﬁ ling and e-payment on average reduced the time required to prepare and pay taxesSources: WDR 2016 team, based on World Bank (2015b) e-Government Core Systems database and the Doing Business database for 2014 data.

Data at http://bit.do/WDR2016-Fig3_9.


Note: Shaded area shows the 95 percent conﬁ dence interval for 75 countries.5075100125Time required to prepare and pay taxes(year of e-filing introduction = 100)−10−50510Years before and after introduction of e-filingInformationalTransactional–20–1001020BelarusSlovak RepublicGeorgiaKazakhstanTajikistanBosnia and Herzegovinaa.

Change in the number of firmsbidding for government contractsb.
Change in the number of firmsbeing solicited for bribesCroatiaAverage (7 countries)Average (12 countries)Kyrgyz RepublicUzbekistanArmeniaSloveniaRussian FederationEstoniaUkraineMacedonia, FYRMongoliaMoldovaTurkeyAzerbaijanPercent changePercent changeKyrgyz RepublicBelarusArmeniaRussian FederationInformationalTransactionalTajikistan–100–50050GeorgiaKazakhstanBosnia and HerzegovinaCroatiaAverage (6 countries)Average (11 countries)UzbekistanSloveniaEstoniaUkraineMacedonia, FYRMongoliaMoldovaAzerbaijanStatistically not significantStatistically significantStatistically not significantStatistically significantFigure 3.10 e-procurement has no eff ect on ﬁ rms’ likelihood of bidding for a government contract or of being solicited for a bribe in select European and Central Asian countriesSource: Kochanova, Hasnain, and Larson, forthcoming, for the WDR 2016.
Data at http://bit.do/WDR2016-Fig3_10.Note: The ﬁ gures show the impact of introducing informational and transactional e-procurement systems, after controlling for ﬁ rm-speciﬁ c characteristics and ﬁ xed eff ects.

Informational systems provide only information on government contracts online; transactional systems also enable ﬁ rms to submit bids online.

The bars stand for the average eff ects in each country.
Based on a sample of 25,961 ﬁ rms (panel a) and 4,343 ﬁ rms (panel b), from the World Bank Enterprise Survey.

164 WORLD DEVELOPMENT REPORT 2016 The varied impact of e-ﬁ ling, e-procurement, and one-stop centers reveals a broader, sobering trend: Many government digital technology projects are unsuccessful.

They are either abandoned before completion or underused, wasting substantial public funds (box 3.5).
A widely accepted explanation for this poor record is the big gap between the techno- logical capability and the institutional capacity of the government, as measured by processes, objectives, values, stafﬁ ng numbers, skills, and management systems and structures.27 Receiving user feedback One potential catalyst for service improvements is user feedback on service quality.
More than a decade ago, the private sector discovered customer relation- ship management—the use of digital technologies to integrate all aspects of a ﬁ rm’s interaction with a customer to improve personalized communication and provide real-time information so that customers can track the status of their service requests.

Gov- ernments have only recently discovered this man- agement approach, with most innovation in cities in the developed countries.
Mobile phone apps like SeeClickFix and FixMyStreet, active in many munici- palities in the United States and the United Kingdom, and internet call centers allow users to report service issues and enable governments to report back to citizens on ﬁ x requests through integrated back-end systems.

They are now standard in Barcelona, Boston, Chicago, London, New York, Seoul, and Singapore.

Developing countries are following suit.


Given the considerable inefﬁ ciencies in public sector delivery systems, the gains from embedding digitally enabled citizen feedback in management are potentially greater than in developed countries.

These feedback channels come in many varieties.

They can be for a limited set of services tied to particular agencies or for multiple services and issues, usually housed in a center-of-government entity, either local or national.
They can be complaint portals that invite citizens to report service issues, or government-initiated (“proactive”) feedback mechanisms through which government ofﬁ cials contact citizens to inquire about their service experience.

Complaint portals and call centers for citizen feedback are spreading rapidly across developing countries, particularly in cities— Buenos Aires, Muscat, Rio de Janeiro, and Ulaanbaa- tar, to name a few.
Proactive feedback mechanisms are more recent and thus limited in number—those in Albania and Pakistan are examples.

Two conditions are required for user feedback to have impact: Citizens must have an incentive to provide feedback, and the service provider must have the incentive and capacity to respond and resolve the complaint.
Citizens are more likely to complain if they use the service frequently, if it is a private good (so there are no problems of free-riding), and if it is easy to identify the service failure.
Governments are more likely to respond if the information provided by citi- zens on the service failure is speciﬁ c and actionable, if it is clear who in government needs to resolve the complaint, and if the complaint also integrates with document management systems within the agency so that both the complaint and the response can be prioritized and tracked.

Government responsiveness can further incentivize citizens to complain, creating a virtuous circle of feedback and responsiveness.
For example, users of FixMyStreet—the platform in the United Kingdom that citizens use to report local road problems, which are then routed to the relevant local authorities—are 54 percent more likely to submit a second report if their ﬁ rst complaint was resolved.28 Household water supply and electricity are exam- ples of private goods that citizens use daily and have an incentive to monitor.
The responsibility for deliver- ing these services lies clearly with a particular utility, and it is easy for citizens to know when the service is failing.

MajiVoice is a complaint mechanism in the water and sewerage company in Nairobi, and there is a similar one in use in EDE Este, the electricity supply company for the eastern Dominican Republic.
Given the limited internet use in the country, consumers initiate complaints mostly in person at the service desk in the utility or through phone calls, generating a ticket number as a tracking tool for both the customer and the utility.

The customer receives an SMS message from the utility when the complaint is entered and another when the complaint is resolved.
This tracking is possible because each complaint is registered on a dashboard that enables management to categorize the complaint, delegate the issue to a speciﬁ c staff member on duty, and track resolution.

The dashboard enables the utility regulator to track performance, and customers of EDE Este are also randomly contacted after the complaint is resolved to gauge their satisfac- tion with the service.

Initial results are impressive.


Before MajiVoice was initiated, the Nairobi water company received on average 400 complaints a month.
Since 2013, when MajiVoice was launched, the utility has been getting about 3,000 complaints a month, resolution rates climbed from 46 percent to 94 percent, and time to resolution dropped by 90 percent (ﬁ gure 3.11).29 Since its implementation in 2011, the feedback channel in EDE Este has also recorded rising resolution rates for DELIVERING SERVICES 165 Box 3.5 The high failure rate of e-government projects Despite spending more than $600 billion on IT over the past decade, the federal government has achieved little of the productivity improvements that private industry has realized from IT.
Too often, federal IT projects run over budget, run behind schedule, or fail to deliver promised functionality.

technology projects fail.

Many public sector digital Although the evidence is limited, various estimates from surveys of government offi cials, audit reports, and coun- try cases suggest that about 30 percent of these projects are total failures, with the project abandoned before completion.
Another 50 to 60 percent are partial failures, with signiﬁ cant budget and time overruns and only a limited number of the project objectives achieved.
Fewer than 20 percent are successes.a In some cases, even if e-govern- ment projects are successfully implemented they may actually worsen outcomes as, without proper regulatory safeguards in place, automation makes it easier to perpetrate fraud and cor- rupt practices, and to erase records or avoid capturing them altogether, thereby eroding transparency mechanisms.b Risky for the private sector, these projects do worse in governments.
One survey of U.S. information technology projects found success rates of 59 percent in retail, 27 percent in manufacturing, and 18 percent in government.c Larger projects are more likely to fail than smaller ones, with success rates of only 13 percent on average (ﬁ gure B3.5.1) and a skewed distribution, with a small proportion of projects accounting for a major chunk of budget and Figure B3.5.1 Success rate of large public sector ICT projects 13% 29% 58% Failed Partially failed Succeeded Sources: WDR 2016 team, based on Standish Group 2014 and World Bank (2015a) Digital Governance Projects Database.
Data at http://bit.do /WDR2016-FigB3_5_1.

Note: “Large” is above US$6 million.

Data are for 2010 to 2014.

ICT = information and communication technology.

—U.S.
—U.S.

Offi ce of Management and Budget 2010 Figure B3.5.2 Performance of World Bank–funded ICT projects t n e c r e P 100 80 60 40 20 0 ICT projects All projects Highly satisfactory Satisfactory Moderately satisfactory Moderately unsatisfactory Unsatisfactory Highly unsatisfactory Sources: WDR 2016 team, based on Standish Group 2014 and World Bank (2015a) Digital Governance Projects Database.

Data at http://bit.do /WDR2016-FigB3_5_2.

Note: Data are for 1995 to 2015.


ICT = information and communication technology.

time overruns.
time overruns.

One comprehensive review of more than 1,400 public sector information and communication tech- nology (ICT) projects found that a sixth went over budget by 200 percent, posing “systemic” ﬁ scal risks.d World Bank–funded projects have not fared much bet- ter: 27 percent of the roughly 530 information technology projects from 1995 to 2015 were self-evaluated by the World Bank as moderately unsatisfactory or worse, in line with all projects (ﬁ gure B3.5.2).
But far fewer were rated “satisfactory” or above, with 35 percent for ICT projects and 56 percent for all projects.

e-government scholars provide numerous explanations for these stark numbers.
A widely quoted study blames a large gap between the regulatory, political, management, process, and skill realities in government and the ambitions (Box continues next page) 166 WORLD DEVELOPMENT REPORT 2016 Box 3.5 The high failure rate of e-government projects (continued) of e-government projects.e Another points to the “danger- ous enthusiasms” of technological infatuation and faddism in large IT projects.f Many studies also point to the rigidi- ties in government procurement rules, IT vendors’ lack of understanding of government processes, and a failure to understand the country context.g In the private sector, exec- utives can choose vendors based on personal experience and jointly determined guidelines that are deliberately kept vague to allow ﬂ exibility during implementation.
Ministers and senior offi cials, by contrast, are explicitly forbidden by government rules to exercise this level of discretion and instead must purchase on the basis of detailed speciﬁ ca- tions.

Surveys of technology professionals and executives in both the public and private sectors underline user involvement, leadership support, and a clear statement of project requirements as critical factors for success.h a.
These estimates are based on the various reports issued by the Standish Group and Heeks 2008. b. Lemieux 2015. c. Standish Group 2014. d. Budzier and Flyvbjerg 2012. e. Heeks 2008. f. Gauld and Goldﬁ nch 2006. g. Dunleavy and Carrera 2013; Fountain 2001; Heeks 2006; Bhatnagar 2009. h. Standish Group 2014.
Figure 3.11 More complaints were resolved more quickly in the Nairobi water utility after the introduction of digital customer feedback e v l o s e r o t s y a D 120 100 80 60 40 20 0 MajiVoice introduced June 2013 December 2013 June 2014 Resolution time Complaints submitted Complaints resolved 60,000 50,000 40,000 30,000 20,000 10,000 0 December 2014 l i s t n a p m o c e v i t l a u m u c f o r e b m u N Source: World Bank 2015d.

Data at http://bit.do/WDR2016-Fig3_11.


Note: Days to resolve represents the three-month trailing average; numbers of complaints are cumulative.

reported problems, improvements in customer satis- faction, and a reduction in reported corruption.30 This improved tracking is also triggering improvements in human resource management.

In EDE Este, the feed- back is systematically used to inform sanctions (such as administrative procedures) and rewards (such as salary increases) based on worker performance.
In the Nairobi utility, data from monthly management reports are also used as a basis for performance incen- tives for staff.

Property registrations, welfare payments, and licensing services are also private goods that are easy to monitor, and citizens have an incentive to give feedback on them.
With multiple agencies usually delivering these services, citizen-initiated feedback is more likely to have impact if the services are consol- idated in one-stop service centers that make it easier for citizens to provide feedback and for governments to integrate the feedback in administrative systems and to monitor the responsiveness of agencies.
One- stop centers in Azerbaijan, in Brazil’s Minas Gerais state, and in Moldova show how automating the service delivery chain with citizen feedback can drive service improvements.31 By contrast, it is much more difﬁ cult for citizens to determine the quality of education or curative health care and to attribute poor outcomes to the pre- cise cause—whether, for example, their child’s poor learning (to the extent that it is assessed through standardized tests) or their poor health is due to poor service providers, their own negligence, or environ- mental factors.
Beyond issues like provider absentee- ism, complaints are less likely to be actionable.

And citizens have fewer incentives to complain about the weak provision of public goods like roads and munic- ipal services because of free-riding.

Figure 3.12 Citizens using Indonesia’s national feedback portal (LAPOR) have few actionable complaints, and these are mostly for private goods, 2015 a.

Percentage of actionable complaints b.


Distribution of actionable complaints by service DELIVERING SERVICES 167 Actionable 10% Not actionable 90% Other Social welfare Fuel subsidies Education Transportation Public works Roads Source: WDR 2016 team, based on 2015 LAPOR data.

Data at http://bit.do/WDR2016-Fig3_12.

0 Percent These problems are evident in general citizen feedback portals recently introduced in Botswana, Indonesia, and the Philippines.
The government of Indonesia’s complaint-handling system (LAPOR) allows citizens to submit reports on many issues, ranging from delays in welfare payments to damaged roads.

It has received about 800 complaints a day on average from all over Indonesia since the portal’s launch in 2012.

Of these complaints, only 10 percent are speciﬁ c and actionable (ﬁ gure 3.12, panel a) and are forwarded to the relevant agency for resolution.
Of these actionable complaints, 28 percent and 18 per- cent, respectively, are for private beneﬁ ts like welfare payments or fuel subsidies; less than 5 percent are for public goods like roads and public works (ﬁ gure 3.12, panel b).32 The complaint portals of the governments of Botswana and the Philippines have similarly pro- vided limited actionable information to the govern- ment, particularly on public goods.33 Citizen feedback portals are also likely to be dispro- portionately used by better-off, more educated, and more digitally savvy individuals, potentially biasing government responses.
For example, most users of FixMyStreet in the United Kingdom are male, older, more educated, and less likely to be from an ethnic minority than the general population.34 Similarly, the users of LAPOR are disproportionately from Jakarta, the largest city and the capital, than from the poorer and more remote regions in eastern Indonesia.

Government-initiated feedback can overcome these biases in citizen reporting and be more focused on acquiring actionable information.
In Pakistan, under the Punjab Citizen Feedback Model, service providers record citizens’ mobile numbers.

A gov- ernment call center sends SMS messages and voice calls to public service users to make targeted inqui- ries about satisfaction with 16 services, ranging from property registration to primary health care and potential incidents of corruption.
The data are logged and tracked on dashboards.35 This system has been deployed at a very large scale, with more than 7 mil- lion citizens contacted since 2012—250,000 a month on average—and about 1 million having provided feedback from across the province.36 But the impact of the feedback on service delivery is unclear.
Many ofﬁ - cials have tried to subvert the initiative, as reﬂ ected in the high and steady proportion of invalid phone numbers recorded by service providers—40 percent for citizens registering property, a service particularly prone to petty corruption.

The government has taken more than 6,000 administrative actions against ofﬁ - cials based on the feedback.
But given the protections afforded staff under civil service rules, the actions have been mostly warnings and formal apologies from the concerned ofﬁ cial to the citizen, and only a handful have been suspensions or dismissals.

Governments in high-income countries are moving beyond user feedback to engage citizens in collaborative policy making.
The northern European countries are on the vanguard in these moves to more direct democracy, as exempliﬁ ed by Iceland’s crowd- sourced constitution, Estonia’s e-legislation portal, 168 WORLD DEVELOPMENT REPORT 2016 and Reykjavik’s digital participatory budgeting.37 But even in these digitally and socioeconomically advanced countries, e-participatory policy making has engaged only a small, nonrepresentative subset of the population, has elicited limited government responsiveness, and is difﬁ cult to sustain.
In Estonia, a global leader in e-services and e-voting, with high citizen use across all socioeconomic groups, only 8 percent of people polled had heard of http://www .osale.ee, the government’s e-legislation and policy making portal.

Improving service provider management Technology can improve systems that are already working .

.

.

but it doesn’t ﬁ x systems that are broken.

There is no knowledge management without management.
—Kentaro Toyama, University of Michigan School of Information User feedback is effective when providers and man- agers have the incentive and the ability to respond to citizens, which depends on strong relationships of accountability between policy makers and providers.
By better monitoring of workers and facilities and through better organization and performance man- agement in bureaucracies, digital technologies can strengthen accountability within the government by reducing information asymmetries between policy makers and service providers.
The absenteeism of teachers, doctors, nurses, and agricultural extension workers is pervasive in Africa and South Asia.38 Estimates suggest that in India roughly one-quarter of government teachers and over one-third of government doctors in primary health centers are absent without a legitimate reason on any given day, with similarly alarming numbers in several African countries.39 Physical monitoring of providers is costly, particularly in rural areas, and the monitors are just as likely to shirk as the providers or to collude with providers.
Using mobile phones to record atten- dance—either with the photographs or thumbprints of the providers as evidence—and transmit data to a central database to generate monitoring reports can be a cost-effective solution to this seemingly intrac- table problem.
Evidence from impact evaluations in Haiti, India, Niger, Pakistan, and Uganda shows that digital mon- itoring can reduce absenteeism in general, but that technology on its own is not sufﬁ cient for curbing absenteeism among government providers, who are difﬁ cult to dismiss and discipline.40 Technology must be accompanied by good management.
In India, the monitoring of health workers did improve attendance, but many local governments did not use the data to sanction absent workers because of cumbersome civil service rules or for political reasons.

In Uganda, absenteeism was reduced only by combining teacher incentive pay with monitoring technology.
In Paki- stan, smartphone-based monitoring of district health supervisors in rural clinics doubled inspections of health facilities and reduced medical worker absen- teeism, but the results were highly contingent on the severity of patronage politics in a locality.

In Haiti, the experiment failed because government teachers had not been paid for months and resented the additional unfairness imposed on them by digital monitoring.
In Niger, by contrast, the experiment was conducted with contract teachers hired by a nongovernmental organization, and mobile phone–based monitoring by itself was sufﬁ cient to improve teacher effort and motivation as well as student learning outcomes.

Reducing absenteeism, while necessary, is not suf- ﬁ cient to ensure that doctors, teachers, and managers, once they show up to work, actually are motivated to perform well and to serve the public.
Recent innova- tions in the private sector have extended these teacher monitoring technologies to the actual practice of teaching, through standard lesson plans and system- atic monitoring of teacher activities by management.

The initial results are promising, again conditional on the strong relationships of accountability that can exist in private schools (box 3.6).

But applying these lessons to a government bureaucracy will be chal- lenging.
The typical developing country government bureaucracy is unable to recruit the best and brightest workers because of low pay and excessive inﬂ uence by politicians.

It promotes staff on the basis of senior- ity and not performance—in part because measuring performance is difﬁ cult and seniority is the only cred- ible standard—and is unable to motivate workers to work hard and serve the public.
For many providers, the reason for joining the public sector is job security, not promoting student learning or public health.

These weaknesses are evident from perception surveys of government workers in Indonesia and the Philippines.
Many staff believe that the best univer- sity graduates prefer working in the private sector, that their coworkers are often not productive, that promotions are based on politics rather than merit, and that their coworkers in other government agen- cies cannot be trusted (ﬁ gure 3.13).
Anecdotal evidence DELIVERING SERVICES 169 Box 3.6 Digitally enabled teacher management in private schools Private schools targeted to the world’s poorest have become a new model for education in developing countries with low-quality public education.

Bridge International Academies (BIA) is an innovative for-proﬁ t private model operating in Kenya and Uganda that leverages standardization and technology to educate more than 118,000 children.
in underserved communities The BIA business and educational model is driven by a standardized set of curricular and managerial materials to keep classes consistent, students on task, and schools is an running smoothly.

The core of these materials internet-enabled tablet computer, which downloads more than 3,400 lesson plans and teacher scripts at the beginning of each term.

These plans include step-by-step instructions on how to prepare and present each lesson, homework assignments, and tests.
BIA management tracks class- room progress—such as the speed of lessons and teacher attendance—with the tablet through automatic syncing.

If a teacher falls behind in lessons, BIA managers in Nairobi and BIA’s U.S. headquarters know immediately and can follow up with the teacher hundreds or thousands of miles away.

In addition to teacher monitoring, student progress is tracked by teacher-inputted student test scores and progress measures.
This automation gives BIA headquarters instant access to school data and helps BIA manage their academies.

In addition to classroom management, standardization and technology are leveraged to improve school adminis- tration.

Each “academy manager”—akin to a head teacher or principal—receives a smartphone to use for communi- cation and monitoring, and as a modem for the tablets.
Academy managers follow standardized instructions on managing ﬁ nances, personnel, and student and parent relationships, as well as on how to use a central payroll system, expense-processing system, standardized assess- ments, and evaluation tools.

Even paying school fees is standardized and technology-enabled; tuition payments are made electronically with M-Pesa or through Equity Bank Kenya.
The standardized instruction, school man- agement, and assessment ensure that each student in a Bridge Academy receives the same education, regardless of location or instructor.

Initial evaluations show that this educational style may be eff ective.

In 2013, a self-evaluation found that BIA students scored 0.32 standard deviations higher than peer students in public schools in reading ﬂ uency and comprehension, translating into an additional 16 words per minute and 252 additional learning days.
In math skills, BIA students scored 0.51 standard deviations higher, equivalent to an additional 288 learning days.

These ﬁ ndings need to be viewed cautiously, however, as the diff erences in out- comes may be entirely explained by diff erences in students between BIA and public schools.

This type of private education is not unequivocally embraced.
The scripted lesson plans are particularly con- troversial, with questions about the eff ectiveness of a script to create a dynamic learning environment for children to develop higher-order thinking skills.

In addition, Bridge Academies rely on large class sizes and teachers with only a secondary education to keep costs low.

Low-cost private education is also criticized because of the potential to undermine public education systems.
Countries that rely on private education may not invest as heavily in their public systems, and private schools often attract the best students, further diminishing the public education system.

Even so, in contexts where public schools are failing, a stan- dardized private sector model may be a viable option for improving learning outcomes.
Sources: WDR 2016 team, based on Bridge Academies 2013; Heyneman and Stern 2014; Rangan and Lee 2010; Ross 2014. suggests that these problems are even more severe in low-income countries.
Studies of teacher and health worker management in South Asia and Africa reveal a fundamentally broken system, with pervasive prob- lems of politicization, weak school management, low provider motivation, and shirking.41 A recent survey of public schools in Tanzania revealed that 67 percent of the teachers who were present in the school did not show up in classrooms to teach.
Nor did school princi- pals hold them accountable: Three-quarters of teach- ers reported that they had never had a meeting with the head teacher to discuss their performance, and two-thirds of the head teachers had themselves been absent from school at least once in the last ﬁ ve days.42 The low productivity of some government bureau- cracies reﬂ ects fundamental structural constraints that cannot easily be substituted for by technology.
Where digital technologies can help is in monitoring goals and performance targets for organizational units and workers.
For the private sector, ﬁ rms that adopt 170 WORLD DEVELOPMENT REPORT 2016 Figure 3.13 Government offi cials in Indonesia and the Philippines have generally low opinions of human resource management practices a. Indonesia b. Philippines Your ministry easily recruits high-quality staff Your coworkers are not productive at work Promotions are based on merit Underperformers are routinely disciplined Most people in other departments can be trusted The best and brightest join the private sector You recommend jobs in your department to friends and family Your coworkers are not productive at work Promotions are based on politics rather than merit Underperformers are routinely disciplined Most people in other departments can be trusted 0 25 50 75 100 Percent of respondents 0 25 50 75 100 Percent of respondents Disagree or strongly disagree Neither Agree or strongly agree Sources: World Bank surveys of government offi cials, 2011 and 2013.
Data at http://bit.do/WDR2016-Fig3_13.

Note: The survey in Indonesia was conducted in 2011 and covered about 3,000 government offi cials; the survey in the Philippines was done in 2013 and covered 2,500 offi cials.

more structured performance management practices are more proﬁ table, and digital technologies com- plement performance monitoring and performance incentives.43 Goal-setting and performance incentives are difﬁ cult—but not impossible—in government bureaucracies.
The multiple demands on a public orga- nization, and the multiple interests it needs to serve, make it difﬁ cult to deﬁ ne goals, and performance incentives can trigger a host of perverse incentives.
The key variable is the extent to which the tasks and outputs of agencies can be routinized and monitored.44 As MajiVoice and the EDE Este feedback systems show, eliciting citizen feedback on service quality, tracking complaint resolution, producing audit trails of worker effort, and offering performance incentives for staff can be a powerful combination for trans- forming government bureaucracies.

This combina- tion is also being used in one-stop service centers in many countries.
Digitally enabled performance monitoring is much more difﬁ cult for services that are highly discretion- ary and hard to monitor, such as teaching and curative health care, and for policy and regulatory functions.

Assessing performance is necessarily more subjective and therefore conditional on the quality of manage- ment and level of trust in an organization—which can take years to build.
There is little evidence, even in the OECD (Organisation for Economic Co-operation and Development) countries, that digital technologies have made any fundamental differences in the way government bureaucracies are managed, particularly for the better integration of policy making and service delivery across government.
Even in New Zealand, known for its highly competent and innovative public administration, two-thirds of public ofﬁ cials surveyed were skeptical that digital technologies would induce greater collaboration and integration across govern- ment departments because the notion of a “joined-up government” conﬂ icted with the annual agency-based budget appropriation process.45 In sum, these digitally enabled management improvements are isolated examples.
Either they are pilots and experiments limited to a subset of activities, such as addressing absenteeism, that form the basic minimum required to improve teaching or health care, or they are limited to a few locales, sectors, or agencies and not taken to scale in the government as a whole.

Developing country government bureaucracies now have a digital veneer over a largely unchanged struc- ture, culture, and performance orientation.
DELIVERING SERVICES 171 Digital technologies too often fail to empower citizens As discussed, digital technologies can be effective even in weak government bureaucracies in some areas— notably through digital identiﬁ cation, streamlining routine tasks, and citizen feedback for certain services that citizens have the incentive and capacity to moni- tor.
But in general, to have an impact, e-government requires effective leadership by politicians and policy makers—to make the necessary changes to govern- ment rules and management practices, to overcome resistance from vested interests, and to respond to cit- izen feedback on service quality.

Strengthening gov- ernment capability requires a willing government.
The question, then, is whether digital technologies can encourage good leadership by empowering citizens to hold policy makers and providers accountable.
Mechanisms for empowering citizens include • Free and fair elections in government systems in which leaders are chosen in elections—ensuring that all legitimate votes can be cast and counted so that the poor in particular are not excluded from participating • More informed voting—informing voters to increase electoral participation and reducing information asymmetries so that votes can be more accurately based on the performance of politicians • Citizen voice and collective action—empowering citizens to individually and collectively mobilize to pressure policy makers and providers to improve services.
Emerging evidence suggests that digital technolo- gies have made elections freer and fairer by improv- ing voter registration and reducing errors in voting, and by better monitoring them to curb electoral fraud and violence.

These technologies have also helped cit- izens vote out corrupt politicians, if the information comes from a credible source.
But signiﬁ cant barriers to more informed voting remain, and digital tech- nologies, by giving elites new ways of manipulating information to their advantage in election campaigns, can also disempower the poor.

These disparities can be countered if traditional media bridge the digital divide, but such a role may be limited to providing information that is more salient and newsworthy, such as corruption scandals, rather than service deliv- ery failures.
Digital technologies, particularly social media, have galvanized citizen protests, but except where governments are willing and able, they have not sustained collective action and citizen voice to improve service delivery (table 3.2).
Freer and fairer elections Is the growth of digital technologies spreading demo- cratic ideals around the world, as many believe?46 Democracy has indeed spread across the world, but so have election irregularities.47 As the number of developing country democracies more than doubled from 1990 to 2012, the proportion of elections that were “free and fair” halved from almost 80 percent to under 40 percent over the same period (ﬁ gure 3.14, panel a).
In a free election, the electoral rules and their implementation leading up to an election enable all adult citizens to be registered, to exercise their right to vote, and to join political parties and to campaign Table 3.2 The impact of digital technology on citizen empowerment: A scorecard Channel Free and fair elections More informed voting Greater citizen voice Impact of technology Main problem to address Do digital technologies solve the problem?
H M L Lack of information; high transaction costs • Yes, monitoring reduces errors and fraud in voting Information asymmetries • Yes, for blatant abuses of office; no, for less newsworthy public service failures • Increase ability of elites to manipulate information Collective action failures • Effective only when governments are already willing to listen to citizens • Must be complemented by offline mobilization by civil society groups Source: WDR 2016 team.
Note: Channels are arranged by degree of technology impact.

L = low; M = medium; H = high.

172 WORLD DEVELOPMENT REPORT 2016 Figure 3.14 Democracy has spread, but so have election irregularities—digital technologies can help make elections freer and fairer a.
Democracies and elections, 1985–2012 b. Internet use and perceptions of electoral integrity, 2015 t n e c r e p d n a r e b m u N 80 70 60 50 40 30 20 10 10 TON GRD CRI MUS BRARR UUNN T VVLL SLVLL ZAF OO EEOOG MGGEN GEO COL CCOO CC SRB IND NPIIDDDD BTN IDNBB PRBBYBBOORBB BOL RMM WRR APP NAMAA PHL PAK PAN ULL KPPAARAA ECU IIIRRNNNNMII DRRNNNVVNNNN MAABBDLLBBBBLLLLBBBBAABBHHHHBBBB BBBB BBBBHHGGGG LLIIBBBB ALBBB BBBB BBGGRR B JJOORR ROU TTUUR STP BWA SLB CCMMRR MIINNLI GIN MWI MDG TGO FJI HUN SWZ MRTRR IRQ HHNN HND HH N KE MM MM D K M EEEGGAGG THEEGG GGGG EGY YY YY G MNE MMOOZ ZWE KDDZZHZZAAZZ MAA DZAZZ BBGG BGD BB K TJ DJI TKMAAKK AFG VEN AZE AARRMMRR MYS 1985 1990 1995 2000 2005 2010 2015 0 0.2 0.4 0.6 0.8 Percentage of elections that are free and fair Number of electoral democracies Digital Adoption Index Sources: WDR 2016 team, based on Polity IV 2015; Bishop and Hoeffl er 2014; Perceptions of Electoral Integrity 2015.
Data at http://bit.do/WDR2016-Fig3_14.

Note: The ﬁ gures are limited to low-income, lower-middle-income, and upper-middle-income countries, for which election data are available.

Election percentages are the ﬁ ve-year trailing average.

freely.

In a fair election, all voters and all votes are treated equally on the day of the election.48 Electoral irregularities can affect poor voters disproportion- ately.
They may not be able to cast their votes because they lack proper identifying documents, or their votes may not be counted because of error or manipulation.

Digital technologies are helping make elections freer and fairer.

Across nations, perceptions of the integrity of elections in developing countries are posi- tively correlated with internet use (ﬁ gure 3.14, panel b).
Rigorous studies reinforce this cross-national correla- tion and demonstrate the powerful impact of digital technology in increasing electoral participation, par- ticularly for the poor.
In Brazil, pre-internet electronic voting machines signiﬁ cantly reduced voting errors in the 1990s, leading to the de facto enfranchisement of poor and less educated citizens, which in turn led to more pro-poor spending.49 In Afghanistan, the moni- toring of votes cast through cellphone photographs of vote totals in polling stations reduced electoral fraud in the vote aggregation process.50 In Mozambique, SMS messages allowing citizens to report electoral irregularities increased voter turnout by 5 percentage points.51 And although not evaluated, the use of crowd- sourcing by Ushahidi and its successor Uchaguzi, combined with civil society monitoring, advocacy, and partnerships with government, has helped curtail election violence in Kenya (box 3.7).52 More informed voting Improving the mechanical aspects of voting is a min- imum requirement for electoral accountability.
The more fundamental problem is that citizens are often uninterested and unengaged in politics, face signiﬁ - cant informational barriers in assessing politician performance, or base their votes on tribal, ethnic, or clientelist factors and not the ability and performance of politicians.53 This lack of engagement is under- standable.
Acquiring political information is costly, the sources of the information, like political parties, are often not credible, and the impact of an individual citizen’s more informed vote is negligible to the out- come of an election.

The question, then, is whether digital technologies change this calculus to result in a more engaged and informed citizenry—and more effective elections.
There is no shortage of popular opinion that the internet—by exponentially increasing transparency and forging connections among voters, particularly through social media—will strengthen accountability through greater voter engagement and participation.54 These sentiments echo those of earlier generations about television, which was also viewed as nothing short of revolutionary for enhancing accountability.

But television’s impact has turned out to be much more mixed.
In Sweden, the rollout of commercial television indeed improved citizen knowledge of DELIVERING SERVICES 173 Box 3.7 Improving the integrity of elections through crowdsourcing and collaboration integrity requires eff ective media, Improving electoral nongovernmental organizations, and partnerships between technologists, advocacy groups, and government watch- dogs to gather, analyze, disseminate, and act upon rele- vant information.
Consider the contrasting experiences of Ushahidi and Uchaguzi, two digital election-monitoring initiatives in Kenya.

Ushahidi, one of the best-known digital platforms in the world, was launched in the aftermath of Kenya’s tumultuous 2007 election and used “citizen report- ers” to crowdsource and map incidents of violence after the election.
While the platform galvanized considerable interest initially—with more 45,000 users in its ﬁ rst few months—many of the reports were not actionable, and there was limited response from the authorities.

Learning from this experience, Ushahidi and a group of journalists and civil society organizations launched its successor, Uchaguzi, to monitor Kenya’s 2010 consti- tutional referendum.
But this time, the eff ort combined citizen crowdsourcing with analysis by specialized civil society organizations with experience monitoring elections to provide actionable information to local and national government offi cials, in particular the Interim Independent Electoral Commission.

This partnership was a success, with the government responding to a majority of the reports.

Ushahidi’s implicit belief was that the platform would by itself be the agent of change.
Uchaguzi—or “Ushahidi 2.0”—recognizes that the platform can work only if it ampliﬁ es existing institutions.

The main lesson is that governments may be dysfunctional, but can only rarely be bypassed.

As one of the founders of the initiative commented after the local police—infamous in Kenya for their venality and brutality—successfully responded to an online citizen report of a machete-armed mob gathering outside a local polling station, “We can’t compel organi- zations to act.
We can support institutions, but we can’t replace them.” Sources: WDR 2016 team, based on interviews with Ushahidi management; Fung, Russon Gilman, and Shkabatur 2013; Wrong 2013. politics and government policy and increased voter turnout.55 In the United States, however, it reduced voter turnout and knowledge of policy issues by crowding out local radio and newspapers, previously the main source of political information.56 Digital technologies can certainly provide a vari- ety of tools to improve the informational content of voting.
For example, Voting Advice Applications are websites that enable citizens in several European countries to compare the platforms of competing political parties with their own preferences on salient issues; these increased voter turnout among youth in the Netherlands.57 But the internet also offers a variety of other entertainment options that compete for people’s time and can disengage them from poli- tics.
In Germany and Italy, the internet reduced voter turnout by crowding out television, a greater source of political information.58 The internet also provides political parties, blog- gers, and opinion leaders with resources to shape public opinion.
For example, a simple “I Voted” message on individuals’ Facebook pages increased voter turnout by more than 300,000 in the 2010 U.S. midterm elections.59 The “winner take all” feature of the internet economy is also replicated in the online news media landscape, as internet political opinion is dominated by a small group of bloggers and outlets that receive the bulk of search engine hits.60 Finally, the internet can give voice to extreme opinions by enabling highly partisan media outlets to get suf- ﬁ cient readership and encouraging clustering of extreme views, particularly among the more polit- ically organized and aware, potentially increasing polarization in politics.61 Given that the internet is the main source of news for less than 2 percent of the population in South Asia and Sub-Saharan Africa,62 the informational effects of digital technologies are likely to be mediated through traditional media in those regions, as well as else- where in the developing world.
A growing number of advocacy organizations in developing countries partner with media to provide voters with easy-to- understand information about politicians.

For exam- ple, Mumbai Votes tracks legislators from Mumbai at all levels of government in India, reporting on their legislative activity and any court cases ﬁ led against them.
The Fair Play Alliance of the Slovak Republic tracks campaign ﬁ nance and procurement contracts to uncover corrupt relationships between businesses and politicians.63 174 WORLD DEVELOPMENT REPORT 2016 For this digitally enabled political information to have impact, it must be easy to understand, be clearly attributable to a particular politician, and be credi- ble.
A good example is the uncovering of corruption by public ofﬁ cials if the information comes from a trusted source, such as an independent anticorrup- tion commission or reliable media outlet.
In 2003, the federal government of Brazil launched a national anticorruption program based on random audits of municipal governments by the national audit author- ity (the municipalities to be audited in a given month were chosen by lottery), with results publicly dissem- inated over radio, television, and print media.

Voters punished incumbents who were found to be corrupt by not reelecting them.
The effects were stronger in municipalities with local radio stations, pointing to the role of local media in informing voters.64 These ﬁ ndings have been replicated in studies of municipal audits in Mexico, again pointing to the importance of a credible source for information on corruption (a national audit by an independent and competent institution) and local television and radio to dissem- inate that information for electoral accountability.65 By contrast, provision of information about fail- ures in service delivery such as poor education or health care, or weak performance of legislatures— which is more complex and difﬁ cult to attribute to particular politicians—has been less effective.66 Information campaigns over local radio on public health and primary education in rural Benin had no effect on the incentives of politicians to provide better health and education services or on provider respon- siveness.67 Informing Indian voters about the perfor- mance of their legislators in legislative activity had no effect on voting behavior; but informing them on spending by parliamentarians on physical infrastruc- ture from funds allotted to them to spend on their constituencies did affect voting behavior, since this information was more salient to voters.68 Similarly, providing information on legislator performance to voters in Uganda had no effect on parliamentarians’ reelection rates.69 The experience of Open Data Ini- tiatives is also quite sobering.
The mainstream media in Kenya, the Philippines, and Uganda have not been deeply engaged with the Open Data Initiatives, either in using data as a source of evidence in their report- ing or in reporting on efforts surrounding open data.

Journalists interviewed said there was no “scoop” in the open data story.70 Digital technologies can also reinforce socioeco- nomic disparities in voter participation and knowl- edge, particularly in developing countries.
Internet voting has increased participation in some European countries by lowering the cost of voting, since votes can be cast from the convenience of one’s home.

In Estonia, where about one-third of voting is online, the share of internet voters has increased by more than 4 percentage points in almost every election since 2005, contributing to an overall increase in voter turnout (ﬁ gure 3.15, panel a).
Studies show no differences in the demographic characteristics of internet versus ofﬂ ine voters.71 In Brazil, by contrast, internet voting on municipal budget proposals in the state of Rio Grande do Sul increased voter turnout by 8 percent (and these were new voters), but the online voters were more likely to be male, university educated, and higher-income (ﬁ gure 3.15, panel b).72 These changes in the demographic proﬁ le of voters have not yet changed policy preferences, perhaps because the ofﬂ ine participatory mechanisms to determine the budget proposals that are then voted on limit the range of options subject to the vote.
But they show how the internet can be biased against certain groups.

Overall, then, the evidence suggests that digital technologies have helped curtail blatant abuses of political ofﬁ ce, conditional on supportive institutions of accountability (such as independent audit or anti- corruption bodies) and free media (to generate and help disseminate the relevant information to voters).
Service delivery failures have not been salient enough to command the attention of even digitally enabled media to inﬂ uence voting decisions by the poor.

Citizen voice and collective action “Home run” cases in which a technological intervention almost by itself produces dramatic increases in accountability .

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.

are exceedingly rare .

.

.

The greatest opportunities [for technology are in] amplifying NGO and governmental strategies of accountability.
—Archon Fung, Kennedy School of Government, and colleagues One of the more widely held beliefs about the trans- formative power of digital technologies, particularly social media, is its ability to catalyze citizen voice and collective action to hold governments accountable.

The internet promotes transparency by increasing the richness and customizability of the information for citizens.
Less obvious—and unique to these tech- nologies—is that they also enable citizens to generate their own information (user-generated content), which can be aggregated at low cost to provide col- DELIVERING SERVICES 175 Figure 3.15 Internet voting can increase voter participation but can be biased toward more privileged groups a.

Increase in internet voting in various elections in Estonia, 2005–15 b.
Profile of online and offline voters in a participatory budgeting vote in Rio Grande do Sul, Brazil, 2011–12 f o t e g a n e c r e p a s a s r e t o v - e s r e t o v g n i t a p i c i t r a p 30 20 10 0 European Parliament National National European Parliament Municipal Municipal t n e c r e P 60 50 40 30 20 10 0 National Municipal Fe m ale Ele m entary Secondary Higher < 7 5 0 7 5 0–1,5 0 0 1,5 0 0–6,0 0 0 > 6,0 0 0 2005 2010 2015 Gender Education level Income level (BRL/month) Source: WDR team, based on Vassil 2015, for the WDR 2016.
Data at http://bit.do /WDR2016-Fig3_15a.

Offline voters Online voters Source: WDR team, based on Spada and others 2015.

Data at http://bit.do /WDR2016-Fig3_15b.

Note: BRL = Brazilian real.

lective voice through crowdsourcing or community mapping.
Social media can facilitate collective action by generating peer pressure as individuals observe the behavior and actions of others, improving within- group monitoring, reducing free-riding, and enabling groups to better coordinate their actions around speciﬁ c events such as protests.73 These technologies also provide new platforms for citizens to engage with the government, lowering the costs to citizens of providing information, and enabling policy makers and service providers to seek information and track the feedback loop.
As a growing empirical literature shows, cell- phones and the use of Twitter and Facebook aided protests during the Arab Spring in the Arab Republic of Egypt,74 widespread demonstrations on social issues in Chile in 2011,75 antiwar demonstrations in the United States,76 and citizen mobilization across Africa, with the effect more pronounced in nondemo- cratic political systems where traditional channels for articulating interest were limited.77 The same mecha- nisms also imply that digital technologies can trigger harmful collective action, like ethnic conﬂ ict.78 Social media have the unique ability to make scandals and highly emotive government abuses of authority “go viral” and trigger parallel physical citizen mobilization.
But it is less clear that similar technology-enabled effects hold for collective action around the more mundane service delivery failures.

Identifying the precise government failure is much more difﬁ cult for services—these after all are hidden from the public eye in classrooms, rural health cen- ters, and in the substandard materials used to con- struct roads—just as is clearly attributing the failure itself to the actions of a particular individual or group of individuals.
These failures only rarely become salient in ﬂ ashpoint events like scandals or egregious abuses of public authority, such as the excessive use of force by the police or a patient dying because of poor care.

And they cannot be addressed by the sim- ple “stroke of the pen” actions that protests tend to mobilize around, such as jailing a corrupt politician.

Instead, they require sustained reforms to improve government capability, which in turn requires sus- tained citizen voice and collective action.
Given these difﬁ culties in monitoring service failures, it is not surprising that the large academic empirical literature on nondigital instruments of col- lective action—citizen and community report cards, complaint mechanisms, community monitoring of service providers—presents frustratingly mixed evi- dence of impact.79 The main lesson is that the success of citizen collective action around service delivery failures depends on contextual factors, and each of 176 WORLD DEVELOPMENT REPORT 2016 the links in the causal chain between transparency, citizen action, and state action can break down if these factors are not aligned.
How credible, salient, and comprehensible is the information to citizens?80 How willing and able are citizens to act on the information individually or collectively?

How effective are inter- mediary organizations—civil society, media, interest groups—to organize citizens or to lobby governments on their behalf?

And most important, do state actors have the incentive and capacity for action, thereby “closing the loop”?
Action and impact are more likely if the social accountability initiative is embedded in a citizen-state interface and synchronized with top- down government accountability initiatives.81 Digital citizen voice initiatives for improving ser- vice delivery have multiplied rapidly, but no rigorous studies have evaluated their impact.
An organizing framework is needed to classify these examples and draw the necessarily tentative conclusions about what is likely to work and under what conditions.82 The focus here is on digital channels that are initiated by civil society organizations (CSOs) and donors to pressure governments, and that publicize the inputs provided by citizens so as to expose the behavior of service providers to public scrutiny.
This analysis excludes government-initiated portals, which are more accurately characterized as user feedback mechanisms to improve service quality, and not as citizen empowerment or accountability initiatives, and which were discussed earlier.
The analysis distinguishes 17 cases in 12 countries by whether the mechanism for expressing citizen preferences and views is individual or collective; whether the CSO or donor that led the initiative also had explicit partnerships with the concerned gov- ernment; and whether there was also parallel ofﬂ ine mobilization accompanying the digital voice channel (table 3.3).
Impact is measured in two ways: citizen Table 3.3 Classifying the digital citizen engagement cases Case Location Por Mi Barrio Uruguay I Change My City India Lungisa Pressure Pan Rappler Change.org U-report Huduma South Africa Brazil Philippines World Uganda Kenya Daraja Maji Matone Tanzania FixMyStreet Georgia Check My School Philippines Barrios Digital e-Chautari I Paid a Bribe Bolivia Nepal India Mejora Tu Escuela Mexico Karnataka BVS India Sauti Za Wananchi Tanzania Additional offline mobilization CSO partners with government Impact Collective feedback Citizen uptake Government response Source: WDR 2016 team, based on Peixoto and Fox 2015, for the WDR 2016.
Note: Examples are arranged by degree of government response.

CSO = civil society organization; L = low; M = medium; H = high.

DELIVERING SERVICES 177 uptake, given that uptake can be considered a neces- sary condition for government responsiveness; and government action to resolve the service issue, which is the ultimate objective of the citizen voice initiative.

The criterion for selecting the cases is simple avail- ability of information.
The examples have received media and donor attention, and some data are avail- able on citizen use of the channel and on government response.

Of the 17 cases, 3 had high impact in terms of government responsiveness, 3 had medium impact, and 11 had low impact.
All the high-impact examples involve partnerships between CSOs and government, suggesting that platforms that both channel citizen voice and link them to the government’s internal work order systems to efﬁ ciently address the complaints are more likely to succeed.

For example, Por Mi Barrio in Uruguay and I Change My City in India, two suc- cessful CSO platforms, are connected to existing gov- ernment complaint systems.
That enables urban resi- dents to report problems using both the CSO and the government channel, with the complaints and gov- ernment responses displayed on a map, thus inform- ing and validating the citizen action and naming and shaming the nonperforming government units.

But not all initiatives involving government-CSO partner- ships led to high responsiveness.

For instance, I Paid a Bribe (India) and Check My School (Philippines) both had low impact.
Seen together, these ﬁ ndings seem to suggest that while collaboration with government is not a sufﬁ cient condition for success, it may well be a necessary one.
Another ingredient for success is effective ofﬂ ine mobilization, particularly because citizen uptake of the digital channels was low in most of the cases.83 Online petitions on Change.org are more likely to be successful when sponsored by an organization, and citizen campaigns through Pressure Pan (Brazil) are three times more likely to succeed when supported by Pressure Pan staff.84 Lungisa, a platform for Cape Town residents to report service delivery problems, involves signiﬁ cant follow-up by the CSO staff to ensure that the responsible government agency acts on the complaints.
Rappler, a media and advocacy organization in the Philippines, combines media, technology, and the power of crowdsourcing to iden- tify and amplify governance issues, with traditional citizen mobilization strategies using investigative journalists and social mobilizers.

Rappler orga- nizes community protests, the most dramatic one being the Philippines’s ﬁ rst protests organized with social media against a corruption scandal involving congressional discretionary funds.
The eventual result: The Supreme Court declared these funds unconstitutional.85 What stands out, though, is the high proportion of cases that have both low citizen uptake and low gov- ernment response.

Most of the cases that lacked part- nerships between CSOs and governments were unsuc- cessful.

Maji Matone (Tanzania), for example, received only 53 SMS messages during its ﬁ rst six months of operation, against an initial target of 3,000, and the mobile platform was abandoned.
Other disappoint- ments are Huduma (Kenya),86 I Paid a Bribe (India), and Check My School (the Philippines).

Despite high expec- tations, they have not generated much citizen uptake or government resolution of the reported problem—in some cases, despite government collaboration.
Uganda’s U-report, perhaps the highest proﬁ le initiative, is an SMS-based platform that runs weekly polls with registered users (U-reporters) on issues ranging from child marriage to access to education, which are then both broadly disseminated and tar- geted to members of parliament for action.

The plat- form has had considerable citizen uptake, but mostly by the more privileged groups.
Of close to 300,000 U-reporters, nearly half have some university edu- cation, and one-quarter are government employees, raising questions about whose voices are being pro- jected.87 This high uptake has not led to any noticeable government action.
Surveys of online political partic- ipation in the United States also ﬁ nd that better-off and more-educated citizens are more likely to partic- ipate in both online and ofﬂ ine political activities.88 In sum, the success of digital citizen voice is con- ditional on willing and able policy makers, a collab- orative approach with government, and signiﬁ cant ofﬂ ine activism by strong civil society organizations so that the collective voice of citizens can pressure governments.
However, digital platforms can also enhance unaccountable governments’ capacity for surveillance and control (box 3.8).

The gap between technology and institutions The internet largely, but not entirely, reinforces rather than replaces preexisting relationships of accountability between governments and citizens, and it complements rather than substitutes for exist- ing government capabilities.
The main explanation for the varying impact of digital technologies lies in the mismatch—or gap—between rapidly chang- ing technology and slowly changing political and administrative institutions.

Political institutions can 178 WORLD DEVELOPMENT REPORT 2016 Box 3.8 Digital technologies can strengthen control The internet presents a “dictator’s dilemma” for autocra- cies.
Restricting the internet can hurt economic develop- ment, but leaving it unfettered can threaten the govern- ment by increasing citizens’ access to political information and facilitating collective action.

Autocratic governments have responded to this dilemma in sophisticated ways, taking advantage of the tools that the internet itself off ers to improve services while strengthening control.

Autocracies have invested in e-government, particularly in e-services.
The relationship between online services and government type is U-shaped, with both more democratic and more autocratic governments scoring high on the United Nations’ online service index compared to the ones in the middle (ﬁ gure B3.8.1).
This pattern suggests that improvements in basic service delivery can be independent of a country’s political system.a Autocracies are, however, becoming more adept at monitoring the internet to censor criticism entirely or circumvent protests, to spread pro- paganda, or to learn about public grievances to improve government responsiveness while also intervening to pre- vent speciﬁ c instances of collective action that challenge the government’s power.b Digital technologies therefore provide opportunities for autocracies to improve service delivery while maintaining control.
F igure B3.8.1 Autocratic governments have promoted e-government while censoring the internet a. e-government provision, by government type b. Internet filtering, by government type x e d n i e c i v r e s e n i l n O 1.0 0.8 0.6 0.4 0.2 0 –10 Autocracy –5 0 5 10 Democracy Substantial l e v e l g n i r e t l i F Selective Suspected None Autocracy Democracy Type of content filtered Political Social Conflict and security Sources: WDR 2016 team, based on Polity IV 2015; UN 2014; Open Net Initiative 2013 data.
Data at http://bit.do/WDR2016-FigB3_8_1.

Note: The Polity IV project deﬁ nes government type based on characteristics such as competitiveness and openness of executive recruitment, constraints on the chief executive, and regulation and competitiveness of participation in the political process.

The combined score varies from –10 for a pure autocracy to +10 for a pure democracy.

a. Corrales and Westhoff 2006; Rød and Weidmann 2015. b.
King, Pan, and Roberts 2013; Morozov 2012; Pierskalla and Hollenbach 2013; Shapiro and Weidmann 2013; Rød and Weidmann 2015.
See also HRW 2015. be distinguished by whether they are clientelist or pro- poor, and bureaucracies can be classiﬁ ed by whether they are patronage-based or performance-oriented.89 These institutions, and their characteristics, matter because effective adoption of technology in organi- zations requires signiﬁ cant investments in skills and changes in working arrangements, and politicians and policy makers need to have the incentives to make these investments.
Bureaucracies can have a disincentive to reor- ganize their work to take full advantage of digital technologies.

In the private sector, market competi- tion forces ﬁ rms to change and rewards them with higher proﬁ ts for their investments.
In contrast, in government, efﬁ ciency improvements can reduce an agency’s budget and staff.90 Adopting new technolo- gies also requires learning new skills and changing processes, which can add to the workload, at least ini- tially, with unclear career rewards in patronage-based civil service systems, particularly given the difﬁ culties in measuring the productivity of government agen- cies.
Ministries and departments compete against one another for scarce budgetary resources, leading to a silo mentality and resistance to horizontal collabora- tion.

Most important, the automation of business pro- cesses and improved monitoring reduce bureaucratic discretion and opportunities for petty corruption in patronage-based systems.

In the absence of market competition, overcom- ing bureaucratic resistance to digital technologies requires strong political leadership.
But political incentives may also not be aligned with digital tech- nologies.

Many e-government projects take a long time to implement and thus elicit little interest from political leaders whose preferences are governed by short election cycles.

In clientelist political institu- tions, politicians are accountable largely to a narrow group of elites.
Digital technologies, by promoting transparency and enhanced tracking and monitoring of resources, can curtail avenues for rent-seeking— “grand corruption,” in contrast to the petty corruption of service providers—that underpin these informal political institutions.

And citizens continue to face signiﬁ cant barriers to voice and collective action that digital technologies have not signiﬁ cantly ame- liorated.
Lifting these barriers depends more on the strength of an independent media, supreme audit and anticorruption agencies, and civil CSOs as sources of credible information and as intermediaries between the citizen and the state.

E-government projects funded by the World Bank are more successful in countries with stronger insti- tutions (ﬁ gure 3.16).
While project performance var- ies considerably within countries, project outcomes across countries, as self-evaluated by the World Bank, are strongly positively linked to the quality of gov- ernment institutions, as measured by the Worldwide Governance Indicators.
There is considerable evidence of the comple- mentarity between technology and the organization of work in attaining productivity improvements in the private sector.91 The few empirical studies that investigate these complementarities for government have similar ﬁ ndings.
For example, investments in information technology by police departments in the United States lowered crime rates only when accompanied by signiﬁ cant organizational changes.92 The mixed record of automation also underlines the DELIVERING SERVICES 179 Figure 3.16 Digital technology projects funded by the World Bank are more successful in countries with higher-quality institutions e m o c t u o j t c e o r P 2 1 0 –1 –2 –3 −2 −1 0 1 2 Quality of institutions Sources: WDR 2016 team, based on World Bank (2015a) Digital Governance Projects Database; Worldwide Governance Index 2014; Denizer, Kaufmann, and Kraay 2013.
Data at http://bit.do/WDR2016-Fig3_16.

Note: Each observation represents an e-government project, for a total of 530 projects.

Quality of institutions is measured by the combined Worldwide Governance Index.

Project outcomes are measured on a six-point scale based on assessments by the World Bank’s internal evaluation unit.

The graph controls for economic growth, project duration, and project size.
importance of these complementarities of skills, orga- nizational changes, and issues speciﬁ c to the public sector, such as procurement rules, as conditioning the impact of e-government.
The extent of the institutional dependence of dig- ital technologies in achieving impacts varies by the type of service and activity, based on three factors: the degree to which citizens have an incentive to monitor the service and provide feedback; the extent to which the processes for the production and delivery of the service or activity are based on tasks that can be made routine and standardized; and the measurability and extent to which the outputs and outcomes from the task can be attributed to particular public actors or actions (ﬁ gure 3.17).
Services and activities that citizens have an incentive to monitor, and that are measurable and attributable to the efforts of speciﬁ c government ofﬁ cials, are compatible with political incentives.

Improving them yields immediate politi- cal beneﬁ ts, as citizens care about these services, can assess the service improvement, and can attribute this improvement to actions by policy makers and providers.
If their delivery is based on repeatable, rou- tine tasks, these are more amenable to automation or digitally enabled monitoring.

These services are less 180 WORLD DEVELOPMENT REPORT 2016 Figure 3.17 Classifying public services and activities as to their amenability to improvement through digital technology 1 2 3 Do citizens have the incentive to monitor?

Is the delivery based on routine tasks?

Can outcomes be easily measured and attributed?
YES NO YES NO YES NO YES NO YES NO YES NO YES NO Examples Cash transfers, registration, filing taxes MORE amenable to improvement through digital technology Family-oriented health services and self-care Utility services (electricity, water) Curative health care Constructing roads Preventive health care, financial management Procurement of complex goods Teaching, policing, management LESS amenable to improvement through digital technology Sources: WDR 2016 team, based on Batley and Mcloughlin 2015; Pritchett and Woolcock 2002; Wilson 1989; World Bank 2003. conditional on the strength of the initial institutions and relatively amenable to improvements through digital technology.
By contrast, services that citizens do not have an incentive to monitor and that are less measurable and attributable do not yield political beneﬁ ts to politicians.

If the delivery of these services is based on tasks that are highly discretionary, policy makers have less inﬂ uence over the providers responsible for these services.
These services and activities are much more dependent on the quality of existing institutions; improvements through the application of digital technologies are only incremental.
This variation helps explain the differential impact of dig- ital technologies across the elements of government capability and citizen empowerment summarized in the table 3.1 and 3.2 scorecards, and why digital technologies can substitute for poor institutions for certain activities and can only complement existing institutions for others.

Citizens and businesses have an incentive to monitor private goods or services that they use very frequently.
These include the variety of registration and licensing services offered in one-stop centers; ﬁ ling taxes; welfare payments; family-oriented health services and self-care such as neonatal health and patients’ adherence to treatment schedules; and utility services like household water and electricity.
The tasks to deliver some of these services, like cash transfers or ﬁ ling taxes, are largely rule-based and clerical, or follow a standardized set of procedures, and ensuring the timely processing of work orders is enough to deliver the service.

These features help explain the successful uses of digital technologies for welfare payments, water provision, property and busi- ness registration discussed earlier, including through citizen feedback on service quality.
It also explains the success of various m-health initiatives.

Automating these tasks does require breaking down departmental silos and changing administrative processes, but the quick, easily visible, and easily attributable service improvements to citizens can yield political beneﬁ ts that even clientelist politicians might have an interest in supporting, though the political economy consid- erations vary by activity.
The mixed impact of e-ﬁ ling systems for example, reﬂ ects how these reforms can often conﬂ ict with elite interests and are likely more dependent on institutional complements.
By contrast, teaching, policing, and management are tasks for which no “user manual” can be written, since providers are confronted daily with unique circumstances and must exercise signiﬁ cant judg- ment on how to respond.93 As a result, these tasks are particularly susceptible to problems of asymmetric DELIVERING SERVICES 181 information.

As discussed, it is difﬁ cult for digital technologies to make a difference beyond addressing basic problems of provider absenteeism.
Citizens also often lack the incentive or capacity to monitor these services, either because they are public goods (for example, security), or are less visible (classroom teach- ing or government administration).

These difﬁ culties in measurability, and therefore “attributability,” also make it hard for citizens to hold providers and pol- iticians accountable for performance through elec- tions—beyond deterring electoral fraud and voting out corrupt politicians.
They also make it difﬁ cult for citizen collective action to be effective in the absence of a strong civil society or willing governments to partner with.

These are services and activities where institutions matter much more for outcomes.

Digital technologies cannot replace weak institutions.

Between these two extremes are the mixed cases where digital technologies can improve some aspects of the service or activity.
Roads and other public infra- structure, ﬁ nancial management, and government procurement are activities with low incentives for cit- izens to monitor because the service is a public good, or not visible to citizens; however, the measurability and attributability of outcomes may be high, and the delivery process may have some elements that can be automated (such as construction).
E-procurement of complex goods, such as e-government systems, cannot entirely remove discretion in the evaluation of different bids, but it does establish audit trails and performance indicators.

Curative and preventive health care are private and public goods, respectively, and so differ in the citizens’ incentive to monitor (although vaccinating children is a preventive mea- sure that parents are likely to have an incentive to monitor).
But the highly discretionary nature of clinical services and the difﬁ culties in measuring the outcomes of treatment render curative health care more difﬁ cult to improve through the application of technology than preventive health campaigns that follow more relatively standardized procedures (such as control of communicable diseases).
The future of public services This varying interaction between institutions and digital technology provides entry points for reform in different country contexts to improve public ser- vice delivery.

This institutional perspective does not imply that digitally enabled reforms must wait for a country’s institutions to improve to have impact.

Digital technologies can also strengthen institutions.
In countries with clientelist and patronage-based institutions, technology can substitute for weak ini- tial institutions for certain services, and in the process also help improve those institutions.

That has been evident in the example of MajiVoice in Kenya, where automation quickly transformed a patronage-based water utility to a performance-oriented one, and in the examples of institutional transformation trig- gered by digital identiﬁ cation.
Moreover, the consid- erable heterogeneity of institutions within countries, varying by sector and locale, creates many openings for innovations that are speciﬁ c to a given context.94 How should this institutional heterogeneity be classiﬁ ed to help guide policies?

Under clientelism, policies are more likely to be adopted if they generate immediate and highly visible service improvements to citizens without reducing the rents of vested inter- ests.
In patronage-based bureaucracies, reforms are more likely to succeed if they do not require signiﬁ - cant changes in administrative processes or much collaboration across agencies, or threaten the bureau- cracy with stafﬁ ng and budgetary reductions.

Under pro-poor political institutions, there can be greater political ownership in reforming bureaucracies to strengthen government capability, and in transpar- ency and accountability initiatives.
Performance- oriented bureaucracies have the incentive to engage with ambitious long- duration and less visible administrative automation that often elicits little enthusiasm from politicians.

including the initiatives, More generally, the variation in institutional dependency by the nature of the service and activ- ity opens reform possibilities and can be a guide for policies in different country contexts, as discussed in chapter 5.

Notes 1.
Notes 1.

The 2004 World Development Report, Making Ser- vices Work for Poor People, underlined that service delivery failures are largely about failures of account- implementation ability and weak government capacity, not about poor policies or lack of resources.

It showed how relationships of accountability— between citizens and policy makers, between policy makers and service providers, and between citizens and providers—determine outcomes.
Unaccount- able politicians target policies and public spending to a narrow set of elites rather than providing public goods to beneﬁ t the general population.

Managers and providers are unresponsive to policy makers and to citizens, often using their positions to extract rents.

And poor citizens are unable to organize col- lectively to pressure policy makers and providers to address service delivery failures.

See also Pritchett, Woolcock, and Andrews 2010.

182 WORLD DEVELOPMENT REPORT 2016 2.


Based on the Online Service Index (OSI), published by the United Nations Department of Economic and Social Affairs.

The OSI assesses the range and functionality of government-to-citizen (G2C) and government-to-business (G2B) services offered on the national website of each of the UN’s 193 member states, from simple one-way provision of information, to two-way interaction, to integrated “one-stop” portals.
This functionality is based on the standard three-stage classiﬁ cation of e-services in the literature.

Informational services are basic web- sites where citizens can obtain information on gov- ernment ministries and agencies, access archives, and download forms to apply for public services.
Transactional services are chieﬂ y two-way online communications for governments to share informa- tion and solicit feedback, and often on government websites that process ﬁ nancial transactions, such as electronic tax ﬁ ling.

Connected services are citizen- centric, whole-of-government services.

Institutional reform and advanced technologies enable citizens to automatically receive beneﬁ ts based on life-cycle or economic characteristics.
They also allow agencies to easily share data to facilitate service delivery.

And they encourage accountability through monitor- ing and feedback mechanisms.

Depending on the intended beneﬁ ciary, these services can be classiﬁ ed as government-to-government (G2G), G2C, or G2B (UN 2014).

3.

For this Report, the World Bank has developed two indexes to measure e-government.
The Core Systems index measures the automation and inte- gration of core G2G ﬁ nancial and human resource management systems, as well as revenue-related G2B and G2C systems, in 198 countries, drawing on a global dataset of e-government systems devel- oped by the World Bank.
The Digital Identiﬁ cation Systems index measures the presence and scope of digital identiﬁ cation systems in government that can serve as a foundational platform technology for myriad G2G, G2C, and G2B services, also drawing on a global dataset of these systems developed by the World Bank.

These datasets were prepared by a World Bank team comprising Cem Dener, Sophiko Skhirtladze, Irene H. Zhang, and Doruk Yarin Kiroglu.

12.

Ayres, Raseman, and Shih 2009.

13.

World Bank 2015c.

14.

World Bank 2015c.


15.

Muralidharan, Niehaus, and Sukhtankar 2014.

16.

See http://global.census.okfn.org/.

17.

Chopra 2014; Sunstein 2013; Goldstein and Dyson 2013.

18.

Bayern 2015.

19.

These perceptions are based on the World Bank Enterprise Survey panel dataset (2008/09 and 2012/13) from the European and Central Asian countries.

20.

Kochanova, Hasnain, and Larson, forthcoming.

21.

World Bank 2015b; WDI.

22.

Deloitte 2012; Yilmaz and Coolidge 2013.

23.


World Bank 2014a.

24.

Doing Business (World Bank).

25.

Lewis-Faupel and others 2014.

26.

Krishna 2015.

27.

Heeks 2003.

28.

Sjoberg, Mellon, and Peixoto 2014.

29.

World Bank 2015d.

30.

Peixoto and Fox 2015.

31.

Presentation given at the World Bank on ASAN Xidmet centers by the government of Azerbaijan; Majeed 2014.

32.

Based on data received from LAPOR.

33.

Based on discussions with government ofﬁ cials.

34.
34.

Cantijoch, Galandini, and Gobson 2014.

35.

Bhatti, Kusek, and Verheijen 2015.

36.

WDR 2016 team based on data received from the government of Punjab.

37.

Astrom and others 2013.

38.

Chaudhury and others 2006.

39.

Dhaliwal and Hanna 2014; Muralidharan and others 2014.

40.

Duﬂ o, Hanna, and Ryan 2012; Cilliers and others 2013; Callen and others 2014; Aker and Ksoll 2015; Dhaliwal and Hanna 2014; Adelman and others 2015.

41.

WDR 2016 team based on data from the government of Punjab.

42.
42.

Oxford Policy Management 2015.

43.

Bloom and others 2013; Aral, Brynjolfsson, and Wu 2012.

44.

World Bank 2014b.

45.

Kraemer and King 2006; Baldwin, Gauld, and Gold- 4.

Reddick and Turner 2012; Gauld, Goldﬁ nch, and ﬁ nch 2012.

Horsburgh 2010.

5.

UN 2014.

6.

Tomlinson and others 2013.

7.

Agarwal and Labrique 2014.

8.

World Bank 2012.

9.

Kradt-Todd and others 2015.

10.

Corbacho, Cibils, and Lora 2013.

11.

Perez-Truglia and Troiano 2015; Bø, Slemrod, and Thoresen 2014.
For a review of the literature, see Luttmer and Singhal 2014.

46.

For example, Bill Clinton, former president of the United States, reportedly said that “in the new century, liberty will spread by cell phone and cable modem” (see http://www.techlawjournal.com /trade/20000309.htm).

47.

Effective service delivery requires sound mecha- nisms for holding policy makers and bureaucracies accountable.
Democracy is one, but not the only, political system for establishing strong relation- ships of accountability.

DELIVERING SERVICES 183 48.

Based on data from Bishop and Hoefﬂ er 2014.

Six indicators relate to the freeness of the electoral process before election day: the legal framework, electoral management bodies, electoral rights, voter register, ballot access, and campaign process.
Four indicators relate to the fairness of voting and events on or immediately after election day: media access, voting process, role of ofﬁ cials, and counting of votes.

Each indicator has several criteria that must be met for it to be coded as “1” for the given election.
If there is a sufﬁ cient body of data to conclude that the conditions are not met, the indicator is coded as “0.” An election is considered free when at least four of the six relevant indicators are coded as “1.” An election is considered “fair” when at least two of the four relevant indicators are coded as “1.” 49.

Fujiwara 2015.

50.

Callen and Long 2015.

51.

Aker, Collier, and Vicente 2013.

52.

Fung, Russon Gilman, and Shkabatur 2010.

53.

For a review of the literature, see Anderson 2007.

54.
54.

This “liberation technology” literature is consider- able.

See, for example, Diamond and Plattner 2012.

55.

Prat and Stromberg 2005.

56.

Gentzkow 2006.

57.

Gemenis and Rosema 2014.

58.

Falck, Gold, and Heblich 2014.

59.

Bond and others 2012.

60.

Hindman 2008.

61.

Farrell 2012; Sunstein 2009.

62.

Gallup World Poll, http://www.gallup.com/services /170945/world-poll.aspx.

63.

Fung, Russon Gilman, and Shkabatur 2013.

64.

Ferraz and Finan 2008.

65.


Larreguy, Marshall, and Snyder Jr. 2014.

66.

Keefer and Khemani 2003.

67.

Keefer and Khemani 2011.

68.

Banerjee and others 2011.

69.

Humphreys and Weinstein 2012.

70.

Bayern 2015.

71.

Alvarez, Hall, and Trechsel 2009.

72.

Spada and others 2015.

73.

Diamond and Plattner 2012; Little 2015; Shirky 2008.

74.

Acemoglu, Hasan, and Tahoun 2014.

75.

Valenzuela 2013.

76.

Bennett and Segerberg 2011.

77.

Hollenbach and Pierskalla 2014.

78.


Pierskalla and Hollenbach 2013.

79.

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190 WORLD DEVELOPMENT REPORT 2016 SECTOR FOCUS 3 e-health Providing rural health care is a major challenge in countries with large rural populations.
For example, in Ethiopia, more than 80 percent of the population lives outside of urban areas and more than 30 per- cent of the rural population is poor.

Since 2003, the Ethiopian government has trained and deployed over 40,000 Health Extension Workers (HEWs) to serve rural and other hard-to-reach populations.

However, HEWs are often isolated and lack the capacity to pri- oritize urgent but unpredictable antenatal and post- natal care.
To improve information ﬂ ows, the World Bank, the African Development Bank, and Addis Ababa Univer- sity developed the FrontlineSMS platform.1 HEWs can register pregnant women and newborns and receive automated short message service (SMS) reminders to notify them of key appointments and to track the stock of essential medicines.
An evaluation showed that by using existing mobile networks and low-cost feature phones, the system improved the ability of health workers to deliver services and improve health outcomes.

More women had skilled assistance with their delivery, more women delivered in health centers, and more women received antenatal care.
The system improved HEWs’ capacity to respond in a timely manner and shows that in a context where internet coverage is low, mobile phones can be an effective way to improve health system performance.2 The internet and associated technologies have the potential to expand health services in developing countries, increase health system efﬁ ciency, and lead to better patient outcomes.

E-health encompasses the This sector focus was contributed by Dominic S. Haazen, Zlatan Sabic, and Adis Balota.
full range of uses of information and communication technologies (ICTs)—from traditional administrative reporting systems to broader Health Management Information Systems (HMIS) to telemedicine, elec- tronic medical records, clinical decision support, and patient portals—and a full range of technologies, including internet and mobile applications.3 Public health and clinical care cannot be delivered safely, with high quality and in a cost-effective man- ner, without seamless, sustainable, and secure data and information exchange at all levels of the health system.
By 2011, 93 of 112 health systems in countries surveyed by the World Health Organization (WHO) had already adopted some form of an e-health or m-health (mobile phone–based) approach, mostly for information programs, emergencies, and telemedi- cine.

Yet overall, deployment has been slow.

Too often data are captured in a way that cannot be shared as needed because of interoperability issues or a lack of standards regarding the exchange of health informa- tion.
Sometimes data are captured multiple times in multiple ways, leading to duplication, inaccuracies, and delays.

Often they are not captured at all.

Low- and middle-income countries can do better.

First, they can build on the emerging experience of developed countries and adapt systems to local con- ditions to beneﬁ t from e-health without repeating others’ mistakes.

For example, Montenegro chose “strategic interoperability” as a leading principle in developing its e-health system (ﬁ gure F3.1).
This investment includes planning and phased implementation; central devel- opment for common resources such as shared code- books and key registries of insured persons, drugs, health professionals, and health institutions; shared integrative and long-term Figure F3.1 Sequencing of e-health development in Montenegro e-HEALTH 191 191 4 After that, integration becomes almost trivial Screening programs Transfusiology Institute IS Public Health Institute IS 3 Use savings as an incentive and source of further investments in complex systems 2 Push for efficiency Drug agency IS Hospitals IS—phase II Hospitals IS—phase I Emergency care IS Private dentists IS Primary Health Care IS—full implementation Primary Health Care IS support to PHC reform—pilot in 3 locations Health Insurance Fund Information System—migration to online mode 1 “Start where the money is” Control of drug distribution and use—Montefarm IS Health Insurance Fund—infrastructure investments, introduction of new ID cards and forms Health Insurance Fund Information System Note: IS = information system; PHC = primary health care.
information system infrastructure; and central devel- opment of key applications, including electronic health records, e-prescriptions, and e-referrals.

Imple- mentation sequencing “starts where the money is” (the Health Insurance Fund Information System) and progresses along the elements of e-health develop- ment, taking efﬁ ciency and monetary incentives into account.
Most business processes are now computer- ized, serving 340 locations and 4,600 users, including general practitioners and nurses in primary and emergency care, hospitals, pharmacies, and private dentists.

Systems are integrated and optimized by use of shared resources.

Routine reporting systems pro- vide complete and reliable data.
Information is used to make policy-making and management decisions, and efﬁ ciency has improved throughout the system.4 Second, the absence of “legacy systems” can be an advantage.

Countries can now make use of cloud computing to lower system costs and mobile tech- nology to expand services to even the poorest and most remote locations.
The potential value of e-health can arguably be greater in poorer countries, since it expands the reach and impact of the often very small number of highly trained physicians, assists clinical staff in rural and remote areas in making better diag- noses and treatment decisions, and helps make the best use of limited health care funding.

There is early evidence to suggest that e-health solu- tions, while costly to implement, can bring signiﬁ cant cost savings.
This is because the implementation of human resources information systems, logistics man- agement information systems, clinical decision sup- port tools, digital payments, ﬁ nancial management information systems, and SMS reminder systems can address a variety of health system problems, including system inefﬁ ciencies, overuse of procedures, inappro- priate hospital admissions, corruption and fraud, and missed appointments.
Effective country ownership, good governance, and strong institutional and human capacity are core to e-health planning and implementation.

This includes a strong legal basis for managing health- related data with appropriate safeguards.5 In addition to ensuring that health workers are able to effectively 192 WORLD DEVELOPMENT REPORT 2016 use such systems, this also implies the need for strong health informatics training programs in order to develop a qualiﬁ ed e-health workforce.
National plan- ning, enterprise architecture, standardization, and interoperability are essential for successful e-health implementation.

User-centered health care systems should leverage the unique capacity of citizens to contribute infor- mation and feedback.

This enables health systems to connect with clients when and where needed, but clients can also access information and care, at their convenience.
Replacing paper-based patient registers with electronic registers should help improve local health care quality and inform management decision mak- ing.

Similarly, increasing the use of e-health and m-health approaches and tools can support improved decision making by frontline providers, including GPS-enabled tools and harnessing the revolution that smartphone access to broadband content will bring about in developing countries.
In this regard, more emphasis is needed to expand and improve the use and functionality of open-source software platforms (for example, OpenMRS, OpenLMIS, and iHRIS); develop new open-source platforms (for example, for health insurance and training); and support open- source frameworks (for example, OpenHIE).6 Information and communication technology platforms (web, social media, SMS campaigns, direct access to personal data in electronic health records) can be leveraged to enhance accountability, trans- parency, and empowerment of citizens to be active contributors to governance in health and central to health care delivery.
Notes 1.

Otto and others 2014.

2.

Bilal and others 2011.

3. WHO and ITU 2012.

4.

Case study of the Montenegro Health System Improvement Programme (MHIP) by Adis Balota; Montenegro Republican Health Insurance Fund; University of Montenegro, Podgorica; and Zlatan Sabic.

5.

EU 2012.

6.

See, for example, http://openmrs.org, http://www .village reach.org/impact/openlmis, https://open source.com/health.

References Bilal, N. K., C. H. Herbst, F. Zhao, A. Soucat, and C. Lemiere.

2011.
2011.

“Health Extension Workers in Ethiopia: Improved Access and Coverage for the Rural Poor.” In Yes Africa Can: Success Stories from a Dynamic Continent, edited by P. Chuhan-Pole and M. Angwafo, 433–43.

Washington, DC: World Bank.

EU (European Union).

2012. eHealth Task Force Report: Rede- signing Health in Europe for 2020.

Brussels: European Union.

Otto K., M. Shekar, H. C. Herbst, and R. Mohammed.

2014.
2014.

Information and Communication Technologies for Health Systems Strengthening Opportunities—Criteria for Success, and Innovation for Africa and Beyond.

Washing- ton, DC: International Bank for Reconstruction and Development/World Bank.

WHO (World Health Organization) and ITU (Interna- tional Telecommunication Union).

2012.

National eHealth Strategy Toolkit Overview.

Geneva: WHO and ITU.


194 WORLD DEVELOPMENT REPORT 2016 ENABLING DIGITAL DEVELOPMENT Digital identity 4 T H G I L T O P S Individuals need mechanisms to identify one another and to identify themselves to their communities and governments.

While this point may be obvious, it is profoundly important for people’s welfare.

Sim- ple mechanisms—familiarity, appearance, perhaps vouching by an elder—are sufﬁ cient in small, intimate communities.
Wider societies and economies require more formal systems—traditionally physical tokens, such as a paper-based identiﬁ cation (ID) card that includes the signatures or representations of their holders, and is veriﬁ ed against documents stored in a central registry.

But these formal systems are fail- ing in the developing world.

Nearly 2.4 billion people are not registered.


They are usually the poorest and most marginalized members of society; about one- quarter are children.1 They are excluded from a range of rights and services, such as health care, enrollment in school, social welfare, and ﬁ nancial services.

Identity should be a public good.
Its importance is now recognized in the post-2015 development agenda, speciﬁ cally as a Sustainable Development Goal (SDG) target to “promote peaceful and inclusive societies for sustainable development, provide access to justice for all, and build effective, accountable, and inclusive institutions at all levels.” 2 One of the indicators is to “provide legal identity for all, including birth regis- tration, by 2030.” The best way to achieve this goal is through digital identity (digital ID) systems, central registries storing personal data in digital form and credentials that rely on digital, rather than physical, mechanisms to authenticate the identity of their holder.
India’s massive Aadhaar program, which has enrolled over 950 million people, has dispensed with the physical ID card altogether.

Estonia has created Contributed by Joseph Atick, Mariana Dahan, Alan Gelb, and Mia Harbitz.

an electronic legal representation of an individual.
Through the use of personal identiﬁ cation numbers (PINs) to authenticate the holder against a digital card credential, people can access public services remotely and even sign legal documents and contracts with the same legal validity as if they were signed in person.
Country-speciﬁ c use of digital identity Most developing countries have some form of digital ID scheme tied to speciﬁ c functions and serving a subset of the population, but only a few have a multi- purpose scheme that covers the entire population.
Eighteen percent of developing countries have a scheme that is used for identiﬁ cation purposes only; 55 percent have digital IDs that are used for speciﬁ c functions and services like voting, cash transfers, or health; and only 3 percent have foundational ID schemes that can be used to access an array of online and ofﬂ ine services (ﬁ gure S4.1).

Twenty-four percent of developing countries have no digital ID system.
Although the concept of digital ID is universal, it plays somewhat different roles depending on the country context.

In high-income countries, digital ID represents an upgrade from well-established, robust legacy physical ID systems that have worked reason- ably well in the past.
Belgium, Estonia, Finland, France, the Republic of Korea, and Singapore are some of the countries leveraging existing physical identity infra- structure to create digital ID ecosystems, enabling them to deliver public services more efﬁ ciently.
Low-income countries, by contrast, often lack robust civil registration systems and physical IDs and are building their ID systems on a digital basis, leapfrogging the more traditional physically based DIGITAL IDENTITY 195 195 Figure S4.1 Diff erent types of digital ID schemes across countries None Identification purposes only Identification and access to limited services Multipurpose digital ID, with access to a large number of online services 0 20 40 60 Percentage of countries High-income countries Developing countries Source: World Bank ID4D database (various years).
Data at http://bit.do /WDR2016-FigS4_1.

system.

Identiﬁ cation, rather than e-services, is the main immediate goal.

Such systems are being devel- oped in Bangladesh, Guinea, and Kenya.

One potential risk associated with leapfrogging to civil identiﬁ ca- tion systems without a solid civil registration system is that in many cases the 0–18 population is excluded, and continues to be unregistered.
In middle-income countries, digital ID is strength- ening and progressively replacing physical identity services while supporting the emergence of some e-services.

Successful examples are found in Albania, India, Moldova, and Pakistan.
Evidence of impact Evidence of the impact of digital ID is still largely anecdotal, but there is a growing body of research in at least three key areas—efﬁ cient management of social welfare programs, removing ghost workers from the government payroll, and improving the sanctity of elections.

Effi cient management of social programs and welfare distribution Digital IDs enable targeted cash transfers to bank accounts linked to a unique identiﬁ er.
This ensures that those who are entitled to receive subsidies or beneﬁ ts are actually getting them.
For example, in India’s fuel subsidy program, implementing cash transfers to Aadhaar-linked bank accounts to buy liq- ueﬁ ed petroleum gas cylinders saved about US$1 bil- lion per year when applied throughout the country.3 This is just one of many subsidy programs in India that are being converted to direct transfers using digi- tal ID, potentially saving over US$11 billion per year in government expenditures through reduced leakage and efﬁ ciency gains.4 Other examples of the beneﬁ ts of digital ID in reducing leakages for social protection or security programs, health insurance, and pension schemes due to duplicates, “ghost” beneﬁ ciaries, and corruption are occurring in Chile, the Arab Republic of Egypt, Ghana, Indonesia, Pakistan, South Africa, and Turkey.
Removing ghost employees from the government payroll The budgets of many developing countries suffer from bloated civil service wages that leave little room for capital investments.
For example, the public payroll occupies the bulk of the national budgets of Ghana, Uganda, and Zimbabwe, but weak systems imply that many individuals paid from the payroll do not actually work for the government, and may not even be alive.5 Nigeria recently implemented a digital ID system for civil servants that enabled it to remove about 62,000 such ghost workers, saving US$1 billion annually, and providing a return on investment of nearly 20,000 percent in one year.6 The impact of ghost workers is even worse in many other countries, ranging from 10 percent to as high as an estimated 40 percent in Zimbabwe, pointing to the substantial ﬁ scal savings and efﬁ ciency gains from digital ID.7 Improving electoral integrity Nigeria used digital IDs to prevent vote rigging in its 2015 elections.8 The system enrolled about 68 million voters using biometrics (issuing voter cards that encoded the ﬁ ngerprints of the rightful holder on a chip) and used card readers to authenticate voters, thus preventing 4 million duplicate votes.
Although there were some operational challenges at the polls, the election was conducted successfully: all votes were cast, and it was difﬁ cult to rig or contest the results in the face of the transparency brought about by digital identity.

However, other countries, such as Kenya and Somalia, have not reaped the same beneﬁ ts from the biometric voter IDs.9 Therefore, this remains an area of further research.
Developing eff ective digital ID schemes Digital ID schemes rely on a backbone of connected systems, databases, and civil or population registries.

These in turn have been established through a thor- ough enrollment process of the targeted population.
4 4 T T H H G G I I L L T T O O P P S S 196 WORLD DEVELOPMENT REPORT 2016 4 4 T T H H G G I I L L T T O O P P S S Many programs now include the use of both biomet- ric data and traditional biographical data, as well as programs to eliminate duplicate enrollments to help ensure that each individual has only one registered identity and one unique identifying number.
The digital record is the basis for issuance of credentials, which may be cards equipped with bar codes or more advanced chip-based smart cards; they can also be single-function (and provide evidence only of identity) or multifunctional, with the card able to act as a bank card, driving license, and so on.
India’s Aadhaar program dispenses with the card altogether, providing remote authentication based on the holder’s ﬁ ngerprints or iris scan.10 Online and mobile environments require enhanced authentica- tion features—such as electronic trust services, which include e-signatures, e-seals, and time stamps—to add conﬁ dence in electronic transactions.

Mobile devices offer a compelling proposition for governments seeking to provide identity credentials and widespread access to digital services.
In Sub- Saharan Africa, for example, more than half of the population in some countries is without ofﬁ cial ID, but more than two-thirds of the residents in the region have a mobile phone subscription.

The devel- oping world is home to more than 6 billion of the world’s 7 billion mobile subscriptions, making this a technology with considerable potential for registra- tion, storage, and management of digital identity.
For a digital ID system to be effective, it must be rooted in an upgraded legal framework that consid- ers the accessibility and protective measures of the system; clear deﬁ nitions for the interconnectivity and interoperability with other (administrative or functional) registries; and coordinated investments throughout the country in information and commu- nication technology (ICT) to develop a reliable and secure platform.
Digital identiﬁ cation systems may be developed in response to a speciﬁ c application (elections, tax, social protection or security, pensions, health insurance, and the like), referred to as functional schemes.11 Or they may be developed as universal multipurpose systems capable of supporting the entire range of needs for legal identity across all applications, known as founda- tional identity schemes.
This distinction between func- tional and foundational systems is not immutable over time; often functional ones evolve to become foundational (in Bangladesh, Haiti, and Mexico, voter ID has become de facto national ID).

No matter what the country context is, the priority should be to confer identity for all, either through a universal founda- tional scheme or through harmonization of the mul- titude of existing functional systems, so that in their totality they achieve full coverage.
Risks and mitigation Digital ID schemes tend to be complex, are often politicized, and are subject to failure to deliver on high expectations.
Risks associated with unsuccess- ful implementation can be mitigated by adopting guidelines that have emerged from the collective experience of digital ID schemes’ rollouts around the world.12 In this respect, several areas of focus emerge as critical: • Legal and regulatory concerns about how to best deter- mine the types, extent, and use of information col- lected under digital ID schemes; how to safeguard the privacy of personal data; and how to craft new primary legislation or rules to avoid unintended consequences such as inadvertent exclusions, onerous mandates that could deter individuals from accessing services, or increased rent-seeking involving registration or certiﬁ cates.
• Institutional and administrative concerns about the institutional location of the civil and identiﬁ cation registries, and their interaction with functional registries or line ministries that need to verify or authenticate identities of beneﬁ ciaries or clients.
The legal or foundational registries are traditionally located in the ministry of interior, justice, or home affairs; and more recently in special-purpose agen- cies independent of any line ministry (or loosely afﬁ liated with one), and reporting to the center of government.

Without effective coordination, there is a risk of a patchwork of competing schemes that would lack interoperability and consistency.
The risk of exclusion would also be higher, as partic- ipation in functional IDs is a matter of program eligibility and not a birthright, as in foundational schemes.13 • Technological concerns about working with the pri- vate sector to develop a sustainable digital infra- structure that can reach remote areas and prevent interoperability and trusted exclusion; ensure authentication protocols for data exchange among different services and solution providers; and ensure data security, particularly in the use of bio- metrics, as well as the long-term accessibility and security of identity records.
• Business models and procurement concerns engendered by technology solutions that are tied to speciﬁ c ven- dors; lack of open architecture anchored on modu- larity and open standards; lack of costing guidance DIGITAL IDENTITY 197 of various IT components; and absence of viable business models and digital ID–enabled services’ uptake.

• Country-speciﬁ c and cross-border concerns about what constitutes acceptable unique identifying creden- tials.
This can differ across countries and applica- tions, even as the world has taken steps to deﬁ ne standards for the mutual recognition of foreign citizens’ credentials.

Uses of digital ID schemes for tracking of ethnic groups and other nefarious purposes may be enabled by the recent advances in “big data” analytics that allow information to be collected and analyzed on an unprecedented scale.
Overcoming these challenges and barriers requires strong leadership, a supportive legal framework, interagency cooperation, mobilization of ﬁ nancial and human resources, and, critically, the trust of users.

Incentives, technology, foreign assistance, and reforms will all be critical in achieving tangible results.

Equally important is donor coordination at the global, regional, and national levels to ensure inclusive oversight and concerted global action.

Notes 1.
Notes 1.

World Bank ID4D global data set (April 2015).

This number includes approximately 600 million unreg- istered children.

2.

Dahan and Gelb 2015.

3.

Barnwal 2015.

4.

Banerjee 2015.

5.

Public disclosures in media by ﬁ nance ministers of several countries, monitored by Identity Counsel International and ID4Africa.

6.

Gelb and Clark 2013.

7.

Proceedings of Parliament of Zimbabwe, February 28, 2012.

8.

Based on various reports in the Nigerian media.

9.

Gelb and Clark 2013.

10.


Dunning, Gelb, and Raghavan 2014.

11.

This terminology was ﬁ rst adopted by Gelb and Clark (2013).

12.

Gelb and Clark 2013.

13.

For example, children are not eligible to register in voter rosters, while middle-income families are not included in poverty programs.

References Banerjee, Shweta S. 2015.

“From Cash to Digital Transfers in India: The Story So Far.” CGAP Brief, Consultative Group to Assist the Poor (CGAP), Washington, DC.
http://www.cgap.org/sites/default/files/Brief-From -Cash-to-Digital-Transfers-in-India-Feb-2015_0.pdf.

Barnwal, Prabhat.

2015.

“Curbing Leakage in Public Programs with Biometric Identiﬁ cation Systems: Evidence from India’s Fuel Subsidies.” Columbia University School of International and Public Affairs, New York.

http://www.columbia.edu/~pb2442 /subsidyLeakageUID.pdf.

Dahan, Mariana, and Alan Gelb.

2015.


“Role of Identiﬁ ca- tion in the Post-2015 Development Agenda.” Essays, World Bank and Center for Global Development, Washington, DC.

http://www.cgdev.org/publication /role-identiﬁ cation-post-2015-development-agenda.

Dunning, Casey, Alan Gelb, and Sneha Raghavan.

2014.

“Birth Registration, Legal Identity, and the Post-2015 Agenda.” Policy Paper 46, Center for Global Develop- ment, Washington, DC.

Gelb, Alan, and Julia Clark.

2013.


“Identiﬁ cation for Devel- opment: The Biometrics Revolution.” Working Paper 315, Center for Global Development, Washington, DC.

World Bank.

Various years.

ID4D (Identiﬁ cation for Development database).

World Bank, Washington, DC.

http://data.worldbank.org/data-catalog/id4d -dataset.

4 4 T T H H G G I I L L T T O O P P S S 4.

Sectoral policies 5.

National priorities 6.


Global cooperation CHAPTER 4 Sectoral policies Making the internet universal, aff ordable, open, and safe Access to mobile phones is close to universal, and prices are falling in most countries, thanks to policies based on market competition, private participation, and light-touch regulation.

But today’s digital econ- omy also requires universal access to the internet—at broadband speeds.
First-generation policies for the information and communication technology (ICT) sector, aimed at universal access and affordability, have proved successful for phone service, and sup- ply-side policies should also work well for the internet.

But with more than half the world still ofﬂ ine, the ben- eﬁ ts of the internet are unevenly distributed.
Next- generation policies must also focus on demand-side issues of digital literacy, as well as privacy, cybersecu- rity, and internet governance, where a global consen- sus has yet to emerge.

In the last decade, all countries have beneﬁ ted from the rapid spread of mobile communication networks.

But only 15 percent of the world’s citizens have access to affordable high-speed internet,1 and the prices for service vary enormously.
This reﬂ ects policy failures in some countries, such as regulatory capture, troubled privatizations, inefﬁ cient spec- trum management, excessive taxation of the sector, or monopoly control of international gateways.

To achieve better development outcomes, governments need to address these failures through open consulta- tive policy-making processes involving the industry and users.

Developing countries are following a different route from developed ones.
Most member-countries of the Organisation for Economic Co-operation and Development (OECD) beneﬁ ted from initial state-led investment in their ﬁ xed telephone infrastructure, followed by private participation, and added mobile and internet networks later.

But developing countries are jumping straight to mobile networks, built by the private sector.
This may leave gaps in the backbone infrastructure, especially in rural areas, possibly requiring investment through public-private part- nerships (PPPs) for the full beneﬁ ts of high-speed networks to be enjoyed by all.

While availability, accessibility, and affordability remain concerns, the challenges facing internet stake- holders today are as much about how networks are used (demand) as how they are built (supply).
Global interconnectedness introduces new vulnerabilities in areas where coordination mechanisms are weak, still evolving, or based on nongovernment models.

Threats to cybersecurity are undermining conﬁ dence in the internet and increasing the costs to businesses and governments, resulting in economic losses as well as higher security spending.

For privacy and data protection, different countries are taking quite different approaches, making it harder to develop global services.
Ensuring safe and secure access will require greater international collaboration based on a multistakeholder model.

Converting connectivity into digital dividends will work best where an open access internet ecosys- tem allows content creation and applications devel- opment to thrive.

ICT clusters tend to form naturally, and governments do not need to intervene to create them.

But they can help clusters along and avoid sti- ﬂ ing growth unintentionally through high tariffs or restrictions on openness.
Most countries have found it useful to develop national ICT sector strategies for broadband, for e-government, and for local content.

The process of developing these strategies, through multistakeholder consultations, can be just as useful as the strategies themselves—and ensures that tar- gets are realistic and actionable.

Policy challenges are summarized in box 4.1.


SECTORAL POLICIES 201 Box 4.1 Policy challenges for digital development Offl ine, and missing out Only around 15 percent of the world’s population currently has aff ordable high-speed access to the internet (ﬁ gure B4.1.1).

Use of mobile phones, reaching almost three- quarters of the world’s population, provides the main form of internet access in developing countries.
But the lives of 2 billion people remain largely untouched by information and communication technologies (ICTs), and half a billion live outside areas with a mobile signal.

The world’s offl ine popu- lation is mainly in India and China, but more than 100 million people are also offl ine in North America, mainly in Mexico.

Figure B4.1.1 Global ICT access a. ICT access by population b.
A closer look at the world’s offline population Total global population ~7.4 billion Within mobile coverage 7 billion Mobile phones 5.2 billion Total internet users 3.2 billion High-speed internet 1.1 billion Ethiopia 95 million Brazil 98 million Nigeria 111 million Bangladesh 148 million Pakistan 165 million Indonesia 213 million China 755 million Congo, Dem.
Rep. Mexico 70 million 68 million Philippines 63 million Russian Federation 55 million Iran, Islamic Rep. 54 million Myanmar 53 million Vietnam 52 million United States 51 million Tanzania 49 million Thailand 48 million Egypt, Arab Rep. 42 million Turkey 41 million India 1.063 billion Total internet users 3.2 billion Countries outside of the top 20 High-speed internet 1.1 billion Sources: World Bank 2015; Meeker 2015; ITU 2015; http://GSMAintelligence.com; UN Population Division 2014.
Data at http://bit.do /WDR2016-FigB4_1_1.

Note: High-speed internet (broadband) includes the total number of ﬁ xed-line broadband subscriptions (such as DSL, cable modems, ﬁ ber optics), and the total number of 4G/LTE mobile subscriptions, minus a correcting factor to allow for those who have both types of access.

4G = fourth-generation; DSL = digital subscriber line; ICT = information and communication technology; LTE = Long Term Evolution.
Connected, but in the slow lane Developed and developing countries are following dif- ferent routes to the information society (ﬁ gure B4.1.2).

In the OECD (Organisation for Economic Co-operation and Development) countries, ﬁ xed-line networks came ﬁ rst, and now form the backbone for internet access.

But most developing countries jumped straight to mobile networks without investing ﬁ rst in connectivity.
The consequence for many users in developing countries is a second-class inter- net: slow, expensive, and rarely “always on.” Megabucks for megabytes ICT prices are falling globally, but large diff erences remain (map B4.1.1).

Although Europe has some of the highest prices in the world for mobile calls and texts, prices are generally cheaper for data.

North, South, and Central America have high prices for mobile data, in part due to bundling, but cheaper prices for ﬁ xed data.
Northern Asia is generally cheaper than southern Asia.

In Africa, prices are generally cheaper for mobile than for ﬁ xed-line data.

Price diff erences reﬂ ect policy failures as much as market failures.

Governments need to go further in liberalizing market entry, making available more spectrum, and encouraging invest- ment to achieve more aff ordable prices.
(Box continues next page) 202WORLD DEVELOPMENT REPORT 2016Box 4.1 Policy challenges for digital development (continued)0204060801001201402012201420102008200620042002200019981996199419921990Subscriptions per 100 populationMobileFixedOECD, fixedOECD, mobileLow- and middle-income, fixedLow- and middle-income, mobileOECD countries,2014Low- and middle-income countries2014Mobile75.2%Fixed24.8%Fixed9.5%Mobile90.5%Figure B4.1.2 Network buildout (subscriptions per 100 population) in OECD and low- and middle-income countries, 1990–2014Source: Adapted from ITU World Telecommunication/ICT Indicators database.
Data at http://bit.do/WDR2016-FigB4_1_2.Note: OECD = Organisation for Economic Co-operation and Development.

(Box continues next page)Map B4.1.1 Price of mobile and ﬁ xed broadband servicesUS$, purchasing power parity, 2015a.
Mobile broadband services, price per gigabyte a month2.00–10.9911.00–16.4916.50–22.9923.00–31.99Above 32.00No data/no service availableEurope insetCaribbean insetPrice of 1 GB of data per month, in US$ PPP(based on nearest offer to 1 GB data usage per month,commercially available from the largest operator in thelocal market, in US$ PPP, implied 2014 rates)IBRD 41652 203SECTORAL POLICIESowner and operator.
That role is now pared back to policy maker and regulator, establishing an enabling environment for the private sector to do most of the work.

For mobile networks and the internet, govern-ments have been less directly involved, but many of them are seeking a more active role in shaping the digital economy.
Broadband internet, in particular, is seen as a general-purpose technology,2 essential for the competitiveness of nations,3 and governments have invested more than US$50 billion in broadband networks since 2009 as part of stimulus packages.4 Most also have national broadband plans.5 The internet has transformed telecommunication networks.
In the same way that containerization rev-olutionized physical trade,6 so the “packetization” of data has commoditized digital trade.7 Networks have shifted from primarily carrying voice tele phony to Shaping the digital economyGovernment policies and regulation of the internet help shape the digital economy.
Particularly through their policies for the ICT sector, governments and regulatory agencies create an enabling environment for the private sector to build networks, develop ser-vices, and provide content and applications for users.

Increasingly, governments seek to cooperate across borders on issues such as cybersecurity, privacy, and cross-border data ﬂ ows.
Internet-enabling policies have evolved over time, especially those for the ICT sector (chapter 5 looks at complementary policies such as those for skills, regulations, and institutions).

In the past, the government’s main role was in building the ﬁ xed-line telecommunication network and acting as both Box 4.1 Policy challenges for digital development (continued)Map B4.1.1 Price of mobile and ﬁ xed broadband services (continued)US$, purchasing power parity, 2015b.
Fixed broadband services, residential, price per 1 Mbit/sSources: WDR 2016 team, with additional data from Oxford Internet Institute, Google, http://blogs.oii.ox.ac.uk/roughconsensus/2014/02/could-you-aff ord-facebook-messenger-in-cameroon-a-global-map-of-mobile-broadband-prices/ and Plot and Scatter.
Data and an interactive map of mobile broadband prices, as well as aff ordability measures, at http://bit.do/WDR2016-MapB4_1_1a and ﬁ xed broadband prices at http://bit.do/WDR2016-MapB4_1_1b.Note: DSL = digital subscriber line; GB = gigabyte; Mbit/s = megabits per second; PPP = purchasing power parity.0–5.996.00–22.9923.00–49.9950.00–109.99110.00 and aboveNo data/no service availablePrices for ﬁxed, residential monthlybroadband service, in US$ PPP(based on lowest price of nearest offer to 1 Mbit/susage per month, 10 GB data usage cap, residential DSL,in US$ PPP, implied 2014 rates)Europe insetCaribbean insetIBRD 41653 204 WORLD DEVELOPMENT REPORT 2016 Box 4.2 Is the internet a public good?
In considering what policies to apply to the internet, a key question is whether it is a public good.

If it is, government intervention would be easier to justify.

The internet does not have all the characteristics that economists conventionally associate with a public good—such as being nonexcludable (people can be prevented from using it) or nonrivalrous (a user who hogs bandwidth may impair the quality of ser- vice for other users).
Even so, the internet provides public access to a vast library of useful information, it uses shared resources such as the spectrum, and it relies on network security; all of which may be considered public goods.

Moreover, government intervention in promoting the inter- net may be justiﬁ ed because it has the characteristics of a general-purpose technology, like electricity.
A more accurate way of expressing the characteristics of the internet is that it is a private good with positive externalities (a club good).

While the private sector can and should take the lead in providing internet networks and services, achieving universal and accessible internet is a legitimate public policy goal.
The bulk of the investment required to achieve such a goal can come from the private sector, though many countries have invested public money to improve internet access by poor households and those living in remote areas.
In a recent global survey, some 83 percent of users said they believe that aff ordable inter- net access should be a basic human right.a Several govern- ments have followed Finland’s lead in deﬁ ning access to the internet at broadband speeds as a legal right and a goal of universal access policy.b High-speed, aff ordable broadband has been described as a foundation stone of modern soci- ety.c But it is something that more than ﬁ ve-sixths of the global population still lacks.d a.
The Global Survey on Internet Security and Trust (2014), conducted by the Centre for International Governance Innovation and Ipsos, a market research company, polled over 23,000 internet users in 24 countries; see https://www.cigionline.org/internet-survey.

b.

World Bank/ITU, ICT Regulation Toolkit at http://www.ictregulationtoolkit.org/en/toolkit/notes/PracticeNote/3270.
c. UN Broadband Commission 2014, 8. d. ITU 2014. now providing a wide array of multimedia applica- tions, with internet protocol (IP) as the shared lan- guage.8 Fixed-line networks continue to be important in the developed countries, but in the developing world, especially in Africa, mobile networks are now the main means of delivering services.
As the uptake of ICTs grows around the world, the policy focus is shifting from solving supply-side challenges (basic access and affordability) to addressing demand-side dilemmas (how to ensure that networks are open and safe).9 Policy decisions intended to facilitate the take-up and safe use of ICT products and services will shape the digital economy and wider developmental outcomes.
In broad terms, services in sectors regulated by governments account for just under half of the US$4.2 trillion in revenues generated by the global ICT sector (telecom services, TV services, and internet), with the rest (hardware, software, and computer services) largely unregulated.
Services delivered directly over the internet account only for just over 7.5 percent, but they are the fastest growing segment, having more than doubled since 2010 to reach an estimated US$309 billion in 2014.10 Separate regulations have been traditionally applied to telecom and TV services, with the former focused on carriage (transmission) and the latter on content.

Internet regulation has some characteristics of both, but with generally a much lighter touch than either telecom or TV regula- tion.
Indeed, some would argue that internet regula- tion by government is neither helpful nor necessary, particularly if older models of regulation are applied.11 But the trend is toward greater government control, not less—even in the United States, where the regu- latory body recently proposed to regulate the internet as a common carrier telecommunication service—to preserve the concept of net neutrality, or treating all “bits” of information alike, irrespective of their con- tent or value.12 As this chapter shows, all governments have been obliged to consider which policies are most appropriate for the internet, and their answers vary widely (box 4.2).
Supply-side policies: Availability, accessibility, and aff ordability The supply side of the internet is conditioned by rules on market competition, shaped by the respec- tive roles of the public and private sector, and medi- ated by the degree to which regulation of the sector SECTORAL POLICIES 205 is independent of government and the operators.
A useful framework for analyzing supply-side policies is to consider the value chain that stretches from the point where the internet enters a country (the ﬁ rst mile), and passes through that country (middle mile), to reach the end user (last mile).

As a general rule, the market works best closest to the end user (last mile).

Public-private partnership is more likely to be needed in the ﬁ rst and middle miles, or where cus- tomers live in areas that are difﬁ cult to serve.
In addi- tion to the visible elements of the network, certain hidden elements are vital to ensuring the integrity of the value chain—call them the “invisible mile” (table 4.1).

(This framework is used a bit later in this chap- ter.)

The goals of supply-side policies differ between countries, but the general objective is to ensure that the internet is universally available, accessible, and affordable.

Market competition Today’s internet runs on yesterday’s legacy networks.
In the OECD countries, and some others, the same copper networks built in the 1960s and 1970s to carry voice telephone calls and cable TV (the last mile) have now been upgraded and repurposed to stream movies and social media, carried over IP-based net- works.

Farther away from the user (the middle mile), the networks are more likely to be newer, and based on ﬁ ber, but the wired access networks that connect users were largely built in an era of government-run monopolies.
All but a handful of countries had state- owned public telephone and telegraph companies (known as PTTs) when they were building out their networks.13 Outside the United States, which followed a different path of private investment, market com- petition in telecommunications began in the 1980s, with new market entrants arriving in the United Kingdom (1981),14 the Republic of Korea (1982),15 and Japan (1985).16 In the European Union (EU), a coordi- nated process was set in motion by a Green Paper on telecommunications liberalization in 1987 and a Full Competition Directive in 1996, setting a timetable for full liberalization of the telecommunications sector by January 1, 1998.17 The EU is now committed to achieving a single digital market by 2020.18 Globally, some 69 countries19 made commitments to liberalize telecommunication markets and allow foreign invest- ment in their telecommunication sectors as part of the World Trade Organization (WTO) Basic Telecom- munications Agreement in February 1997, when these countries accounted for some 93 percent of global telecommunications revenue.20 From these different market opening moves, a policy consensus emerged around three basic ingre- dients—market competition, private participation, and independent regulation of the ICT sector.21 In developing countries, the main push toward market growth came in the 1990s with the arrival of digital (second-generation, or 2G) mobile communication services, which allowed for competition, often for the ﬁ rst time.
Worldwide, only a handful of countries, including Djibouti, Eritrea, and Ethiopia in the Horn of Africa region, still maintain state-run monopolies in the provision of mobile services and the internet, and they have generally not fared as well as their neighbors.

Mobile penetration is only half the level in the coun- tries that have retained monopolies than in Kenya, which has had mobile competition since 2000, or in Sudan, since 2005.
The cover photo of this report shows migrants in Djibouti straining to receive cellphone sig- nals from Somalia, where competition in the telecom sector is ﬁ erce and prices are much lower (box 4.3).22 A study of Sub-Saharan Africa showed that telecom rev- enue averaged 5.6 percent of GDP in liberalized econo- mies, but only 3.5 percent in nonliberalized ones, and was growing twice as fast in liberalized economies.23 The recipe of competition, private participation, and independent regulation worked so well for mobile telephony that, as of June 2015, there were more than 7.5 billion subscriptions worldwide—more than the human population.24 The same recipe should also largely work well for internet services, to extend access to the 4 billion or so people now without affordable service.
But there is a wrinkle.

For network operators, extending internet access may cannibalize revenues from existing voice and text services, at least in the short term.
This is one outcome of mar- ket entry by third-party content and service provid- ers that ride “over-the-top” (OTT) of the operator’s IP-based networks: • For telephony, voice over internet protocol services, such as Skype and Viber, substitute paid voice calls with calls made “free of charge” over the internet.25 • For text (short message service, or SMS), which had been highly proﬁ table for mobile operators,26 instant messaging OTT services such as WhatsApp and WeChat provide a more attractive substitute for a fraction of the price.
• For video (such as cable or satellite TV), streaming services like Netﬂ ix and YouTube—which together account for almost half the trafﬁ c delivered to users in the United States27—offer low-priced content and give more freedom to consumers to watch content when and where they like, on multiple devices.
206 WORLD DEVELOPMENT REPORT 2016 Table 4.1 A policy framework for the supply of internet service The ﬁ rst mile (the point at which the internet enters a country) The middle mile (the national, intercity internet backbone of a country) International internet access, including submarine cable landing stations, satellite dishes, domain name registration National backbone and intercity network, including ﬁ ber backbone, microwave, IXPs, local hosting of content The last mile (the connection between users and their nearest internet point of presence) The invisible mile (other, less visible network components and potential bottlenecks) Local access network, including local loop, central ofﬁ ce exchanges, wireless masts Network components Market competition • Authorization of satellite dishes • Designation of domain name registry and registrars • Licensing of competing international service providers and orbital slots • Authorizations for landing stations, and access (co-location) to international gateway facilities • Licensing/authorization of nationwide facilities- based operators and service providers • Interconnection arrangements • Infrastructure sharing arrangements • Cross-sectoral participation (such as cable TV and alternative infrastructures) • Licensing/authorization of local facilities-based operators and service providers • Authorization of mobile virtual network operators • Authorization of value- added network service providers, including for mobile money • Unbundling the local • Licensing mobile virtual loop network operators Public-private partnership • Privatization/ liberalization of international gateway • Development of • Privatization of the incumbent operator • Industry consultation on a network master plan government data centers • Establishment of • Participation in international cable and satellite consortia • Regulation of legal intercept national and local IXPs • Local hosting of content, including government data center Effective regulation • Open access to international facilities • Open
 to foreign ownership and investment • Avoiding excessive import and excise taxes • National representation at relevant national and regional bodies, such as ITU, ICANN, and WTO • Coordinating rights-of-way for linear infrastructures • Safeguards on signiﬁ cant market power • Open access rules for national backbone • Promotion of local content and hosting • Dominantly private operation and ownership, with PPP approach where market fails (as in rural areas) • Stakeholder consultation on a national broadband plan • Universal service obligations (as for emergency services and accessibility for disabled) • Open access rules for local loop and central ofﬁ ce exchanges • Coordination of planning permission for public works among operators and utilities, and authorizations for construction of wireless masts • e-waste recycling guidelines Nonvisible network components, including spectrum, border crossings, databases, SIM cards, cybersecurity • Market mechanisms (such as auctions and resale) for spectrum assignments, especially for 3G and 4G bands • Arrangements for access to essential network facilities, including national numbers, address database • Negotiation of transit and access to virtual landing stations (for landlocked countries) • CSIRTs at national and institutional levels • Open access to short code numbers, as for SMS • Spectrum management, including arrangements for allocation of bands and refarming • SIM card registration arrangements • Data protection and privacy guidelines Source: WDR 2016 team.
Note: Policy examples are indicative, not exhaustive.

Policy actions shaded in red are particularly suitable for emerging economies, in green for transitioning economies, and in blue for transforming economies, but all are good options to pursue at any stage (see chapter 5 for classiﬁ cation of economies).
3G = third-generation; 4G = fourth-generation; CSIRTs = Computer Security Incident Response Teams; ICANN = Internet Corporation for Assigned Names and Numbers; IP = internet protocol; ITU = International Telecommunication Union; IXP = internet exchange point; PPP = public-private partnership; SIM = subscriber identiﬁ cation module; SMS = short message service; WTO = World Trade Organization.
SECTORAL POLICIES 207 Box 4.3 Fragile states, resilient digital economies Somalia is emerging from 20 years of civil war, during which time its ﬁ xed telecom infrastructure was destroyed.

Yet infor- mation and communication technologies (ICTs) are one of the bright spots in its economy.
With seven mobile operators and multiple internet service providers (ISPs), Somalia has a higher rate of penetration than its monopolistic neighbors, despite the fact that it has the lowest gross domestic product per capita in the East Africa region (ﬁ gure B4.3.1, panel a).
Telecommunications can play an important role in post- conﬂ ict reconstruction.a Not only does the sector generate jobs, entrepreneurship opportunities, and foreign currency from incoming phone calls, but using mobile phones to make payments or trade airtime also provides an attractive alternative to the local currency.

In Somalia, few citizens have faith in the Somali shilling, and prefer U.S. dollars, but dollars are frequently in short supply.
The World Bank’s 2014 Findex survey showed that some 38 percent of wage-earning Somalis were paid via a mobile phone, compared with just 25 percent of Kenyans (ﬁ gure B4.3.1, panel b), despite the popularity of M-Pesa, Safaricom’s mobile money service, there.b Some 55 percent of Somalis used mobile phones to receive remittances; this has become indispensable recently as other ﬁ nancial channels, such as Hawalas, have been blacklisted as part of a crackdown on their suspected links with terror.
Furthermore, telecom operators contribute to the national treasury, unlike the banking sector, which con- tributed nothing in 2014.

Somalia has beneﬁ ted since early 2014 from a fast connection to the global internet, following the completion of the EASSy undersea cable to Mogadishu, in which the International Finance Corporation is a stake- holder.
The Shabaab terrorist organization has succeeded in blocking the use of mobile broadband in much of the country, because of traceability, but it still uses social media for recruitment and spreading its message.

Figure B4.3.1 Somalia’s rising mobile economy a.

Mobile cellular subscriptions in the Horn of Africa, per 100 population, 2003–14 b.
Mobile payments use, 2014 80 70 60 50 40 30 20 10 Kenya (4) Sudan (3) Somalia (7) Djibouti (1) Ethiopia (1) Eritrea (1) t n e c r e P 60 50 40 30 20 10 0 n.a.
Paid school fees using a mobile phone Paid utility bills using a mobile phone Received wages through a mobile phone Somalia Kenya Ethiopia Sudan Sources: Adapted from ITU World Telecommunication/ICT Indicators and World Bank World Development Indicators, and World Bank Findex survey.

Data at http://bit.do/WDR2016-FigB4_3_1.

Note: Figures in parentheses in panel a indicate the number of facilities-based mobile operators.

n.a.

= not available.


a. Kelly and Souter 2014. b. http://go.worldbank.org/1F2V9ZK8C0.

Although network operators may be losing revenue from traditional voice, text, and video services, they beneﬁ t from the demand for data trafﬁ c generated by OTT services.

But they face a heightened invest- ment challenge to keep up with the service-quality demands of users, especially on mobile networks, where spectrum may be scarce.
Cisco estimates that mobile data trafﬁ c grew 69 percent in 2014 and will continue to grow at 61 percent a year between 2014 and 2019.28 Mobile operators in Africa, for instance, 208 WORLD DEVELOPMENT REPORT 2016 are having to spend on average one-quarter of their annual revenue on capital expenditure as they build out their networks, while in North America, where network buildout took place much earlier, the capital expenditure burden is just 15 percent of revenue.29 But network operators in developing countries may ﬁ nd it a challenge to persuade users with low incomes to pay for higher data use, which has a lower perceived value than voice calls.
Their users may employ OTT services primarily for reducing, rather than increas- ing, their monthly phone credit use.
According to reports from the Global System for Mobile commu- nications Association (GSMA), while average revenue per user in North America has remained steady at above US$65 per month since 2010, it has fallen in Africa from US$14 to below US$10.30 So, African net- work operators are caught in a triple bind of rising user expectations (due to higher data usage) requir- ing higher capital expenditures, but declining user spending (due to OTT services).
For developing countries, the threat of diluting traditional revenue streams is particularly worrying because they are following a trajectory in their net- work buildout different from the one most developed countries follow.

Figure B4.1.2 shows network build- out in developed (OECD) and developing countries (low- and middle-income).
Both sets of countries show a similar pattern of mobile networks growing to overtake ﬁ xed-line networks in subscriber numbers, since 2001 and 2003, respectively, and ﬁ xed-line sub- scriptions declining thereafter.

But the big difference is that OECD countries had already achieved univer- sal ﬁ xed-line access (roughly, more than 90 percent household penetration) before 2001.
In developing countries, the decline in ﬁ xed-line access occurred before it had reached even one- quarter of the universal service level, and is now well below that.

This is signiﬁ cant because wireless net- works (using spectrum) are not fully substitutable for ﬁ xed networks (using copper or ﬁ ber), either in usage (which rarely offers ﬂ at-rate pricing, without data limits) or in performance (where speeds are generally lower).
So, despite procompetitive policies that have encouraged infrastructure competition and allowed for the development of OTT services, many developing countries are stuck with a second-class internet that may fail to deliver the expected beneﬁ ts, especially for business users.
Indeed, most developing countries are unlikely ever to attract, or generate, sufﬁ cient investment to extend a nationwide backbone (the middle mile) or create ﬁ xed-line networks in rural areas without some kind of public-private partnership.

Some developing countries, such as the Democratic Republic of Congo or South Sudan, may never get a ﬁ xed-line access net- work, even in urban areas.
An optimistic assessment is that developing countries are leapfrogging a whole stage of network development, but more realistically they may be missing an essential stage.
Available evi- dence suggests that access to the internet from big- screen devices (PCs), with always-on ﬂ at-rate access, provides a bigger boost to economic activities than access from small-screen devices (mobile phones), which generally have use-based pricing.31 As long as mobile operators dominate the provision of voice and internet services in developing countries, compa- nies whose business models are based on long-term investment in ﬁ xed assets, without revenues from mobile services, will ﬁ nd it difﬁ cult to survive.
That is why some degree of government intervention, through public-private investment, may be necessary in smaller developing countries to build up resilient international connectivity, and an open access back- bone network, in order to retroﬁ t the missing stages of network development.

Public-private partnership After market competition, the next essential ingre- dient in the ICT policy recipe is private investment.
Private companies have driven network investment throughout the world, especially in mobile networks.

The biggest network operator of them all, China Mobile, which had over 800 million subscriptions at the end of 2014, is still majority state-owned.32 But it is the partial exception, and its public shareholding is listed on the stock exchanges of Hong Kong SAR, China and New York.

Network operators dominate the ICT sector in revenues and customer connections.
But stock markets appear to prize internet companies that sell content and OTT services more highly than tele- com operators that build networks.
Alibaba, a Chinese e-commerce company that went public in September 2014, is valued at more than US$200 billion—a level similar to China Mobile, although it has only one- tenth the network operator’s revenue.33 Low market valuations for network operators, and the cannibaliza- tion of their voice and text revenues, make it harder for them to invest in network capacity, particularly in ﬁ ber backbone networks or fourth-generation (4G) mobile networks.
Private investment in telecommuni- cation networks in 2013 had fallen by almost one-third since its peak in 2008, suggesting that operators are ﬁ nding it harder to justify capital expenditure at a time when future revenues are uncertain.34 One response is to revive public investment in the internet backbone.
In the United States, the internet SECTORAL POLICIES 209 beneﬁ ted from public funding from the 1960s until 1993, when the government began “privatizing” the internet by transitioning the role of the National Science Foundation to the private sector, including responsibility for registering domain names and managing network access points.35 This process is due to be completed in September 2016, when the Depart- ment of Commerce is expected to transfer its oversight role for the Internet Corporation for Assigned Names and Numbers (ICANN) to the global multistakeholder community.36 In other countries, too, the government took an early role in building out the national back- bone infrastructure for the internet, as in the Republic of Korea (box 4.4).
This role continues, for instance, in National Research and Education Networks (NRENs), where many governments subsidize the higher edu- Box 4.4 How public-private partnership helped build the internet backbone in the Republic of Korea Until other developed countries caught up around mid- 2006, the Republic of Korea’s ﬁ xed broadband penetration was well ahead of its competitors (ﬁ gure B4.4.1 and table B4.4.1).

In ﬁ ber-based ultrafast broadband, it is still ahead of the game.
It has the highest percentage of ﬁ ber among ﬁ xed broadband connections (66 percent) of any country except Japan.

Korea also leads in the “internet of things” and sensor technology (see spotlight 6).

One secret to Korea’s success was a public-private partnership (PPP) that combined government funding and policy direction with private infrastructure investment and management.
The Korea Information Infrastructure program, which ran from 1995 to 2005, and the Broadband Convergence Network that followed it from 2005 to 2014 saw government investment of just under US$1 billion in each phase.

Private investment dominated in the initial phase, as the backbone network was established and larger cities were served.

During this phase, government money was used mainly to purchase bandwidth for government’s own needs.
Since 2005, government spending has been proportionately greater, as network investment reached out to rural areas, where there was less incentive for the private sector to take the lead.

The government of Korea has followed up with a program to upgrade network performance, through the Ultra Broadband Convergence Network, with around one-third of total investment coming from the government.
Figure B4.4.1 Broadband in the Republic of Korea and other selected economies Broadband per 100 inhabitants, 2002 Q4 through 2014 Q2 t n e c r e P 45 40 35 30 25 20 15 10 5 0 Republic of Korea’s early lead in broadband Year and quarter Korea, Rep. Netherlands Norway Japan OECD average Source: OECD Broadband Portal, http://www.oecd.org/sti/broadband/oecdbroadbandportal.htm.
Data at http://bit.do/WDR2016-FigB4_4_1.

Note: The gap between the Republic of Korea and the two nearest countries of the Netherlands and Japan in 2002–04 indicates Korea’s early lead in broadband.

OECD = Organisation for Economic Co-operation and Development.
(Box continues next page) 210 WORLD DEVELOPMENT REPORT 2016 Box 4.4 How public-private partnership helped build the internet backbone in the Republic of Korea (continued) Table B4.4.1 Broadband investment program, Republic of Korea US$ million and percent of total Investment Government Private Information infrastructure, 1995−2005 Broadband convergence network, 2005−14 Total, 1995−2014 806 (2.4%) 981 (38.0%) 1,787 (5.1%) 31,721 (97.5%) 1,599 (62.0%) 33,320 (94.9%) Total (US$ million) 32,527 2,580 35,107 Sources: Kim, Kelly, and Raja 2010; World Bank and Korean Development Institute 2015. cation community, such as Internet2 in the United States, SURFNet in the Netherlands, and KENET in Kenya.37 Governments can also aggregate demand to negotiate lower bandwidth rates for universities and government departments, for example.
Eff ective regulation After market competition and private participation, the third key policy ingredient is independent regu- lation: establishing ICT regulatory agencies that are independent of leading operators and of government departments.
The International Telecommunica- tion Union (ITU) records that some 159 of its 194 member-states (82 percent) had separate ICT regu- latory agencies by the end of 2013, a doubling since 1998.38 Effective regulation creates a level playing ﬁ eld for operators and helps promote market entry.

Governance structures and mandates for regulators differ, but most have responsibility for spectrum management and for issuing and overseeing licenses for network operators.
Most regulators are run on a cost-recovery basis, and some generate a signiﬁ cant surplus from license fees and spectrum auctions.39 Telecom sector regulation should work primarily in favor of the consumer—addressing market failure, fostering effective competition, protecting consumer interests, and increasing access to technology and services.40 In particular, the regulator should seek to ensure that the beneﬁ ts from technological change, greater efﬁ ciency and reduced costs, are passed on to consumers rather than appropriated in higher proﬁ ts for private ﬁ rms or extortionate taxes to governments.
But even in the best of circumstances, regulatory agencies may lack sufﬁ cient high-caliber staff, or they may be captured by commercial or gov- ernmental interests.

In the many countries where governments still hold a stake in the incumbent oper- ator, true regulatory independence is rare.
The worst case is where commercial and governmental interests coincide, in what is sometimes called “crony capi- talism.” In Tunisia during the Ben Ali regime, three telecom companies with ownership related directly to the Ben Ali family generated revenues of US$86.8 mil- lion, or 8.8 percent of total turnover from the sector in 2010, but they accounted for some 42.7 percent of total gross proﬁ t generated by the sector.41 High demand for scarce spectrum also creates incentives for cor- ruption.
In India, the sale of 2G cellular licenses in 2007–08 was rigged to create an artiﬁ cial scarcity that favored some companies over others, ending up in a scandal and a jailed minister.42 Regulators bear a responsibility to protect consumers against such vested interests.

They must also work closely with competition authorities to ensure that consolidation in the number of operators does not reduce true com- petition in the sector.
Where markets fail By almost every measure, the policy recipe for pro- moting the supply side of the ICT industry, based on market competition, private investment, and independent regulation, has been tremendously effective in extending coverage, at least for mobile communications.
The estimated 7.5 billion mobile SECTORAL POLICIES 211 subscriptions in use worldwide generate revenues of US$1.13 trillion a year, as of May 2015.43 And some 95 percent of the world’s inhabitants live within range of a mobile signal,44 with two-thirds of them served by a 3G signal with theoretical access to the internet if they have a suitably equipped device.45 Even in Africa, the region where mobile coverage is lowest, at just 88 percent in 2012, more-efﬁ cient markets could close all but 4.4 percent of the remaining gap, without needing a cross-subsidy.46 But that is not the whole story.
Markets fail where the private sector underinvests—for instance, because the private return may be less than the social return.

This appears to be happening in the ICT sector in at least three areas.

• Remote areas.

Although only less than 5 percent of the global population remains unserved with cellu- lar mobile coverage, that still represents almost half a billion people worldwide.

Even where it is techni- cally viable to serve these people, there may be little commercial incentive to do so.
The costs of reaching them are high in relation to the commercial return, as they live mainly in rural locations with low pop- ulation density, or in geographically remote areas (box 4.5).

But the social costs of remaining unserved are high and growing, so universal service policies may be required.

• Unattractive markets.


Competitive market entry may not take place even in markets that are nominally open to competition, especially in fragile or con- ﬂ ict-afﬂ icted states, or in small island developing states.47 A lack of scale and the failure to use com- petitive tendering for infrastructure investment, for instance, may also result in prices that are unaf- fordable for users.

• Uneconomic services.


More worrying, even if basic services can be delivered, delivering more advanced networks suitable for carrying data services, such as high-speed internet, may not be economic.

On mobile broadband networks, this requires third- (3G) or preferably fourth-generation (Long Term Evolution, LTE) networks, which need higher levels of investment and generally a denser network of base stations and masts.48 Some developing coun- tries have yet to launch mobile broadband.
Even where services are launched, coverage can be low, reaching just 1 percent of the rural population in Zambia or 11 percent in Namibia, for example.49 To extend affordable access, governments have tried price controls, regulated prices, public facili- ties (such as telecenters), and mandated public pay phones.

Public telecom operators use geographical averaging of tariffs to offer the same price to users in both urban and rural areas.
Historically, they have also used proﬁ ts from lucrative international and long-distance services to cross-subsidize loss-making local services.

But with privatization and the shift to more competitive markets and IP-based networks, this became unsustainable.50 An alternative, followed by more than 70 countries, is a Universal Service Fund (USF) to channel payments by operators to fund infrastructure in rural areas or to provide access to libraries, schools, and hospitals.
Some USFs have performed well, notably those that use competitive mechanisms to distribute funds, such as least-cost subsidies in Pakistan or reverse auctions in rural Chile.51 But USFs generate funds that often remain unspent or go for unintended purposes.

Unspent USFs amounted to more than US$11 billion in 2012, and in Côte d’Ivoire and Paraguay more than 0.6 percent of GDP.
In several countries, USFs continue to fund basic ﬁ xed-line telephony long after user demand had shifted to mobile and broadband internet.52 By far the most successful measure to extend access is to license competing mobile service provid- ers and internet service providers.

Governments often include speciﬁ c network rollout obligations in the license conditions of mobile operators, and these are frequently exceeded thanks to strong demand, at least for basic mobile telephony.
But for advanced mobile networks, suitable for carrying data services such as high-speed internet, rollout into areas of sparse popu- lation density has been slower.

For voice services, pro- vision of coverage to rural areas by private investors could sometimes be justiﬁ ed by the volume of incom- ing calls.
But for data services, although the direction of trafﬁ c might be similarly asymmetric, only the ability of the local population to pay for service justi- ﬁ es investment in network upgrading, as there is no payment for incoming trafﬁ c. Given the increasing importance of broadband for modern life, better provision in rural areas could help revitalize the local economy in secondary towns and rural areas.53 Here are some possible solutions for rural broadband: 54 • USFs can be repurposed to focus on broadband.
In the United States, since a 2011 decision by the regula- tory body, the Federal Communications Commis- sion (FCC), universal service subsidies have been channeled to the Connect America Fund, to the tune of around US$4.5 billion a year.55 A similar initiative in Europe, using regional development funds, is the Connecting Europe Facility.56 Already, 212WORLD DEVELOPMENT REPORT 2016Box 4.5 The last (1,000) mile(s) The “last mile” problem is a term commonly used in com-munications and transport economics to describe the rela-tively high cost of building the infrastructure to link to end users: the access network.
Technological change, particu-larly the development of cellular mobile communications and data compression techniques, has greatly reduced infrastructure investment costs and is helping to solve the last mile problem, at least in urban areas.

But a diff erent problem, perhaps better described as the “last 1,000 miles,” plagues remote rural communities.
Speciﬁ cally, what is the best way to bring the internet to areas “land-locked,” far from the cable landing stations on the coast, or “sealocked,” small islands with small populations that cannot justify an investment in undersea cable?Where undersea ﬁ ber-optic cable is available, it will generally trump all other solutions in speed, performance, and cost.
But for low-density, dispersed populations or remote islands, satellite off ers a quick and easy alternative.Map B4.5.1 The eff ect of geography on internet prices, AfricaSource: WDR 2016 team.

Data at http://bit.do/WDR2016-MapB4_5_1.Note: Price per Mbit/s in US$ PPP a month in 2014 Q4/2015 Q1 for ﬁ xed, residential broadband service.

Mbit/s = megabits per second; PPP = purchasing power parity.

a.

Indicates landlocked country; the gradient indicates greater cost.
(Box continues next page)MAURITIUSGASCAAAGAMADAGASCAAADAGACOMOROSLESOTSOUTAFRICAOTSWANAAMIBIAZIMBABWEQZEMOZAMLAAMAZAMBIAANGOLATANZANIAYALSALIAAAMAETHIOPIAGABCAMEROQUATORIAL GUINEASUDAOUTJIBCHADGMALURKINA FASGERIATOGGAAGHANACÔTEDIVOIREGUINEAGUINEA-BISSMAURITANIAALSMAURITIUSMADAGASCARCOMOROSLESOTHOSOUTHAFRICABOTSWANANAMIBIAZIMBABWEMOZAMBIQUEMALAWIZAMBIAANGOLATANZANIAKENYASOMALIAETHIOPIAGABONCAMEROONSUDANDJIBOUTICHADNIGERMALIBURKINA FASOBENINNIGERIATOGOGHANACÔTED’IVOIREGUINEA-BISSAUMAURITANIASENEGALEQUATORIAL GUINEASÃO TOMÉ AND PRÍNCIPESEYCHELLESNot available3,0002,0001,00060050040030020010001002003004005006001,0002,000Price (per Mbit/s in US$ PPP)ChadaCameroonMaliaEquatorial GuineaNigeraLesothoaGuinea-BissauBurkina FasoaBeninComorosTogoTanzaniaMadagascarNamibiaAngolaEthiopiaaDjiboutiNigeriaBotswanaaZambiaaSenegalCôte d’IvoireSomaliaMauritaniaKenyaSeychellesMozambiqueSudanSão Tomé and PríncipeSouth AfricaGabonMauritiusGhana03,000MalawiaZimbabweaCoastal averageLandlocked average438.82206.61IBRD 42012 SECTORAL POLICIES 213 Box 4.5 The last (1,000) mile(s) (continued) Usage costs have come down, with the entry of new players, such as Avanti Communicationsa and O3B.b The Cook Islands, with fewer than 14,000 people spread over 15 inhabited islands across 2.2 million square kilometers of ocean, recently opted for a satellite network from O3B.c But satellite has the disadvantage of being more expensive than ﬁ ber-optic cable per unit of data, and, with older generations of satellite, suff ers from higher latency (delay), which makes them unsuitable for real-time uses like video gaming.
Even the Cook Islands are now considering an undersea cable.

Although satellite off ers distributional advantages, it makes it hard to aggregate demand and therefore to nego- tiate lower bandwidth costs.

South Sudan, for instance, has an estimated 3,000 very small aperture terminals (VSATs) serving its population of just over 10 million, who pay expensive retail rather than wholesale rates for the limited capacity provided.

Geography matters.
Geography matters.

Landlocked countries generally pay higher prices for bandwidth than coastal countries.

In Africa, for instance, being landlocked adds an average of US$232 to the monthly price for ﬁ xed broadband access (map B4.5.1).

But history matters, too.

In the Paciﬁ c, countries ﬁ rst reached by cable, such as Fiji, tend to have lower internet prices than those reached more recently (ﬁ gure B4.5.1).
Once served with ﬁ ber, small island states may ﬁ nd that they use only a tiny amount of the capacity available; Tonga, for instance, barely uses 10 percent.
Moving to ﬂ at-rate pricing (“all you can eat”) for bandwidth may be the best way to recoup the initial investment.d Figure B4.5.1 The eff ect of history on internet prices, Paciﬁ c Price per 1 GB of mobile data (US$) Vanuatu Digicel Solomon Islands Our Telekom Vanuatu Telekom Solomon Islands beMobile Samoa Blue Sky Samoa Digicel Tonga Digicel Tonga TTC Fiji Digicel Fiji Vodafone 22 17 13 13 6 4 14.8 14.8 69 64 58 79 5 5 0.9 0.9 a 0 a 0 1.5 1.5 Years since arrival of undersea cable Source: See http://www.theprif.org/index.php/news/53-media-releases/169-prif-ict-study.
Data at http://bit.do /WDR2016-FigB4_5_1.

Note: Price, per gigabyte (GB) of data in US$ a month in 2014, for prepaid mobile broadband.

a.

Cable to Solomon Islands under consideration.

a. http://www.avantiplc.com/.

b. http://www.o3bnetworks.com/.

c. http://www.islandsbusiness.com/2014/4/business-intelligence/cooks-opt-for-satellite-telecom-network/.
d. PRIF 2015. from 2007 to 2014, some €14.7 billion (US$16.5 bil- lion) had been committed to broadband networks under PPP funding, using EU structural funds, in more than 100 different projects in the European Union.57 But few developing countries have this level of resources to commit.

• Infrastructure sharing and mutualization58 can also reduce costs for operators.
Infrastructure sharing refers to the operators sharing one another’s net- work infrastructure, or at least some elements of it, such as wireless masts or cable ducts.

They may also share infrastructure from other sectors, such as electricity or transport.

Mutualization is slightly different, with a wholesale operator created to sell only to other operators and not directly to users.
Increasingly, specialist wireless mast companies, like Indus or Reliance Infratel, two Indian com- panies, are emerging for wireless infrastructure, while cable backbone companies include Botswana’s BoFiNet and the Burundi Backbone System.

Sharing assets can improve management efﬁ ciency, though it may also lead to disputes.

214 WORLD DEVELOPMENT REPORT 2016 • Technological solutions are emerging that promise a fresh approach to rural broadband.
From drones to balloons to nanosats, there is no shortage of inventive solu- tions to providing wide area coverage.

But these new technologies will need to leverage the physical and market infrastructure that the cellular mobile industry has built in order to become commercially viable and achieve scale.
And efforts to bring new technology will have to be complemented by more efﬁ cient use of spectrum, such as spread spectrum and digital dividend spectrum, which releases for cellular commercial use the highly valuable spec- trum (for instance, in the 700 MHz band previously used for terrestrial TV broadcasts), and in the “white spaces” between digital channels.

These spectrum bands have wider coverage and are therefore ideal for rural areas.
Managing spectrum and other scarce resources Managing scarce resources—such as numbers, rights- of-way, and especially spectrum—presents regulatory challenges.

Policy makers are turning to market mechanisms, such as auctions, to deliver the best out- comes, and this can result in lower prices and higher growth, as in Guatemala (see box 4.6).

More ﬂ exible approaches to spectrum sharing between services, use of spectrum-hopping technologies, and refarming of spectrum will also help.
But demand for bandwidth, and thus also for spectrum, continues to grow rapidly, especially as video entertainment shifts from tele- vision sets to mobile devices.
By 2020, around 2 GHz of total spectrum will be needed in major markets for cellular services.59 Today, most developing coun- tries have only around 500 MHz allocated, and some have less than 300 MHz.60 Spectrum availability and allocation is one of the factors determining the future wealth of nations, and governments will have a vital role in maximizing the beneﬁ ts from this resource.
The internet brings new challenges for allocating scarce resources, including domain names and the transition to longer (IPv6) addresses.

While spectrum and numbers are regulated primarily by the public sector—internationally by the ITU and nationally by government ministries or regulators—domain names and IP addresses are controlled almost entirely by the Internet Corporation for Assigned Names and Num- bers (ICANN), a California not-for-proﬁ t corporation, and the entities to which it subcontracts.
The man- agement of top-level domain names, such as .org and .com, IP addresses, and even country code domains, such as .za (South Africa), generally is not the prov- enance of government regulation.

Their regulation is a complex matter, involving contract rights with private parties and not administrative ﬁ at.

But the natural shortage of attractive, or easy to remember, domain names creates opportunities for proﬁ teering.

ICT prices are falling .

.

.


The trend toward declining prices in the ICT sec- tor has been a long-term and predictable driver of growth.
For hardware, it is encapsulated in the pre- diction made by Gordon Moore, the cofounder of Intel, in a 1965 paper that the number of transistors in an integrated circuit would double about every two years, with consequent improvement in price and performance.61 For memory storage, this means that, in 2014, a typical price to store a gigabyte of data was just 3 U.S. cents, whereas 20 years earlier it was more than US$500.62 Similar rates of progress are observ- able in the unit price of computer processing power and in the availability and price of bandwidth63 (ﬁ gure 4.1).
Manufacturers have, to some extent, compen- sated for this by building greater functionality into devices for the same price.

But as they have started to chase mass markets, device prices have also started to fall—since 2011 for smartphones, and earlier for older technologies such as laptops and televisions.
Smart- phones, with more computing power than NASA had at the time of the moonshots, can now be purchased for less than US$40 (although the typical cost is much higher), and it is forecast that, by 2020, 80 percent of adults around the world will own one.64 Predictable, rapid price declines create an interest- ing dynamic: it is possible to foresee, with reasonable accuracy, at what point services and devices will ﬂ ip from narrow to mass markets, as the price of owner- ship and use falls.
But there is a tendency to overesti- mate the effect of a technology in the short term and to underestimate its effects in the long.65 This may in part explain why the initial impact of the internet caused a catastrophic swing in the markets, starting around 1997 and peaking in March 2000, since known as the dot-com bubble.
The aspirations of many of the startups of the time—like Broadcast.com, an internet radio company, or Pets.com, an e-commerce supplier— simply could not be met by the slow-speed dial-up internet access available, and their business models were often unrealistic.
The value of stock markets worldwide fell by some US$5 trillion in the 18 months that followed.66 But that period of creative destruction also saw the birth of many of the giants that dominate the internet today, including Google and Tencent (both founded in 1998) and Alibaba (in 1999).
Perhaps the most sustained example of how falling prices drive market expansion comes with 215SECTORAL POLICIESBox 4.6 Guatemala: An early pioneer of spectrum auctionsIn most countries, the management of the civil radio fre-quency spectrum was carried out on a “ﬁ rst come, ﬁ rst served” basis, with incumbent operators taking the lead.

As countries separated the functions of operator and regulator, starting in the 1980s, spectrum management moved toward newly created regulatory agencies.
But growing demand for using the airwaves for providing mobile communication services meant that supply soon exceeded demand.

Guatemala was one of the ﬁ rst countries to respond to the changing dynamics of the marketplace, and in its 1996 Source: Adapted from GSMA (unpublished spectrum database).
Data at http://bit.do/WDR2016-MapB4_6_1.Map B4.6.1 Spectrum assignment in Latin America, in MHz blocks(Box continues next page)MEXICOCUBABRAZILURUGUAYBELIZEBAHAMAS, THEDOMINICAN REPUBLICGUYANATRINIDAD AND TOBAGOBARBADOSST.

VINCENT AND THE GRENADINESDOMINICAANTIGUA AND BARBUDASURINAMEHONDURASNICARAGUACHILEECUADORGUATEMALAHAITIST.

KITTS AND NEVISST.
LUCIAGRENADAJAMAICAEL SALVADORCOSTA RICAPANAMAPERUCOLOMBIAVENEZUELA, RBBOLIVIAARGENTINAPARAGUAY200–214226–255260–288295–320Above 330No dataSpectrum assignment, in block MHzIBRD 41705 216 WORLD DEVELOPMENT REPORT 2016 Box 4.6 Guatemala: An early pioneer of spectrum auctions (continued) Figure B4.6.1 How greater spectrum availability led to lower prices in Latin America, 2003–09 Costa Rica 2003 ) $ S U ( e t u n m i r e p e c i r p e g a r e v A 0.80 0.60 0.40 0.20 0 Panama Nicaragua El Salvador 2009 Guatemala 50 100 150 200 Available spectrum (MHz) Source: Adapted from Marino García 2015b.
Data at http://bit.do /WDR2016-FigB4_6_1.

Note: The start of each arrow is a 2003 data point, and the end of each arrow is a 2009 data point.

General Telecommunications Law, recognized the economic value of the spectrum.a The law gave opera- tors the right to request that any unallocated portions of spectrum be off ered for sale, through auctions, and once awarded, it gave operators the right to use, lease, and resell the spectrum, creating a tradable market.
Guatemala beneﬁ ted from a faster reduction in prices for mobile services than the rest of the region (see ﬁ g- ure B4.6.1).

Other countries adopted similar policies, following Guatemala’s early lead,b and indeed have now overtaken Guatemala in the spectrum allocated to mobile communications (see map B4.6.1).

a. Ibarguen 2003. b. IDRC 2010. mobile phone services.
When the dot-com bubble burst in March 2000, there were fewer than 700 mil- lion mobile phone subscriptions (SIM cards)—but now, there are more than 7 billion, with over three- quarters in developing countries.

That success story has come about, in part, because of the falling price of ownership and usage of mobile phones, particularly in South Asia, where it has been labelled the “budget telecom model,”67 based on prepaid billing, very low entry costs, and extensive use of discounts.
Six of the ten cheapest countries to use a mobile phone are in South Asia, where the cost of ownership is typically below US$5 a month (ﬁ gure 4.2).

Seven of the top ten most expensive countries are in Western Europe.

On affordability, measured by the monthly price of a bas- ket of services as a percentage of income, developed countries still do better, as might be expected, though the gap is narrowing.

.

.

.
.

.

.

but ICT prices still vary widely Why do prices for ICT services vary so widely, by a factor of more than 40 for mobile cellular prices?

Economies of scale seem to matter, with both India and China having prices below US$5 a month, while small island states, such as Vanuatu or the Marshall Islands, are generally more expensive than the global average, although there are many exceptions.
But geography and population density appear to matter less than might be expected, with mountainous Bhutan and Nepal among the cheapest countries for mobile service, and the ﬂ at and densely populated Netherlands one of the more expensive.

The practice of geographical averaging of pricing, applying the same price throughout a country, is still the norm— suggesting that, once basic coverage is established, rural areas are not necessarily more expensive to serve than urban ones.
Mobile prices appear to be demand-driven rather than cost-based, with some of the cheapest prices in countries where the ability to pay is lowest.

Instead, to understand differences in ICT prices, it is necessary to look at policy and regulatory explana- tions.

For mobile cellular services in Western Europe, larger operators found it proﬁ table to set high rates for terminating each other’s calls, and especially those from ﬁ xed-line operators.
Higher prices for off-net calls locked in users, while high roaming charges drove proﬁ ts.
Regulatory interventions, to oblige operators to reduce termination and roaming rates, were only partially effective because operators simply absorbed lower interconnection payments by raising prices for outgoing calls in a “waterbed” effect.68 In Canada and the United States, the unusual system of “both parties pay” pricing, where users pay both to receive and make calls with their mobile phones, should in theory obviate the problem of high mobile termination rates, in that “sender keeps all” is used (there are no payments between operators), which means there are no interconnection payments.69 But in practice, both appear among the most expensive countries for mobile calls, based on the SECTORAL POLICIES 217 Figure 4.1 Prices are falling for computer processing, storage, bandwidth, and smartphones a.
Global storage cost trend, 1992–2012 b.
Global bandwidth cost trend, 1999–2013 1,000 US$569 e t y b a g g i r e p $ S U 100 10 1 0.10 0.01 Storage cost, –38% per year US$0.02 10,000 1,000 100 10 1 e t y b a g g i r e p $ S U US$1,245 Bandwidth cost, –27% per year US$16.32 1999 2001 2003 2005 2007 2009 2011 2013 c. Global computing cost trend, 1992–2012 d. Global smartphone cost trend, 2008–2013 s r o t s i s n a r t n o i l l i m 1 r e p $ S U 1,000 US$222 100 10 1 0.10 0.01 Computing cost, –33% per year US$0.05 e n o h p t r a m s l a c i p y t r e p $ S U 450 400 350 300 US$430 Smartphone cost, –5% per year US$335 2008 2009 2010 2011 2012 2013 Source: Deloitte Shift Index 2013; see http://www2.deloitte.com/us/en/pages/center-for-the-edge/topics/deloitte-shift-index-series.html.
Data at http://bit.do/WDR2016-Fig4_1.

OECD low-user basket.

Excessive bundling of dif- ferent services, notably in North, South, and Central America, keeps prices for individual services high, and “locked” SIM (subscriber identiﬁ cation module) cards limit consumers’ ability to choose among oper- ators.

Again, it is hard to escape the conclusion that operators are using demand-based, rather than cost- based, pricing, as operators in these countries have largely saturated markets.
One more positive devel- opment is the dropping of mobile roaming charges in East Africa in October 2014, which led, for instance, to a 950-percent increase in trafﬁ c from Rwanda to Kenya compared with the previous month.70 Price differences between countries are even more evident for the internet.
The range between countries for ﬁ xed-line broadband is almost 200-fold between Vietnam ($2.93 a month, for an entry-level price with a minimum speed of 256 kbit/s and monthly use of 1 gigabyte, GB) and the Central African Republic (US$584.97).
For mobile broadband too, the range is more than 100-fold between Pakistan (US$1.48 for a GB of data a month, downloaded to a mobile handset) and São Tomé and Príncipe (US$169.38).71 In contrast to mobile voice services, European countries, particu- larly in Scandinavia and Eastern Europe, are generally among the cheapest in the world, thanks to vibrant competition (see map B4.1.1).

Mobile broadband in Europe does not suffer from the termination rates that keep prices high for voice calls and SMS.
What policy and regulatory options are available?

What can regulators do to address the shortfalls in availability and the wide price differences for internet 218 WORLD DEVELOPMENT REPORT 2016 Figure 4.2 If you want to make a mobile phone call, go to Sri Lanka a.

Monthly price for a mobile cellular basket, US$, 2013 b.
Monthly price for a mobile cellular basket, as a % of GNI per capita, 2008–13 Brazil Ireland United Kingdom Netherlands Greece France Spain United States Israel Italy Average Pakistan Vietnam Ethiopia India Uzbekistan Bhutan Nepal Iran, Islamic Rep. Bangladesh Sri Lanka 14 12 10 8 6 4 2 a t i p a c r e p I N G f o % 0 2008 2009 2010 2011 2012 2013 Developing countries World Developed countries 0 10 20 30 40 50 U.S. dollars Source: ITU 2014.

Data at http://bit.do/WDR2016-Fig4_2.


Note: The basket of services used is based on the OECD low-user basket, which includes 30 outgoing calls a month (on and off -net, peak and off -peak), plus 100 SMS messages.

Prices were sampled in the fourth quarter of 2013.

Panel a is based on 167 economies, and panel b on a simple unweighted average for 140 countries with a complete data set.

GNI = gross national income; OECD = Organisation for Economic Co-operation and Development; SMS = short message service.
prices worldwide?

Table 4.1 offers some suggestions, based on applying the principles of market compe- tition, public-private partnership, and independent regulation to the different phases of the internet supply value chain.

The ﬁ rst step is benchmarking, to gather up-to-date price data to allow for compari- sons, both within the country (between operators and over time) and between countries, using appropriate comparators.
Price comparisons are tricky and gen- erally require using a predeﬁ ned basket of services and methodology, such as those used by the OECD72 or ITU.73 Operators often resist price comparisons, so it is essential to give the ICT regulatory agency a legal mandate for collecting, and publishing, relevant pricing and quality of service data (box 4.7).

Armed with data, the next step is to work out in which part of the value chain for the supply of inter- net the market may be failing.
Table 4.1 suggests sev- eral distinct submarkets: The ﬁ rst mile.

This refers to the point at which the internet enters a country.

• International connectivity.

The connection between a country and the global internet can be measured in bits per second per internet user.
The global range is very wide—between 6.4 Mbit/s in Luxembourg to just 146 bit/s in the Central African Republic.74 Governments can encourage a higher availability of international bandwidth, for instance, by liberal- izing the market for satellite dishes, including very small aperture terminals, and allowing open access to submarine cables, satellite consortia, and landing stations.
Government procurement can also lead in bringing down prices by aggregating demand among different services—all the universities in a region, for example—to negotiate better prices for bandwidth with international providers.

• The international gateway is the point at which a country connects to the global internet, and this can often become a bottleneck.
Although the Arab Republic of Egypt liberalized its market for internet service providers in 1996, the incumbent, Telecom Egypt through its subsidiary TE Data, still has a legal monopoly over the international gateway and cable landing station, in Alexandria, at least until June 2016.
Competitors pay as much for interconnection in Alexandria and backhaul to Cairo as they pay for international connectivity, resulting in some of the highest prices for internet in the region.75 In such cases, regulating wholesale prices for connectivity, SECTORAL POLICIES 219 Box 4.7 How better ICT data can lead to cheaper services Better data on how information and communication tech- nologies (ICTs) are used in developing countries can spur policy changes that beneﬁ t the poor and increase their dig- ital access.
In some parts of the world, one of the best ways to spur policy reform is to shame governments into action by comparing them to countries with better records.
When a report from Research ICT Africa revealed that prepaid mobile prices were higher in South Africa than in 34 other African countries, pressure from the Parliament obliged the regulator to cut mobile termination rates, resulting in a wave of price cuts by mobile operators.a But such examples are rare, and there is an alarming lack of accurate and timely data on ICT use in the developing world.
This makes it hard to understand the mechanisms by which greater informa- tion access among the poor drives economic opportunity.

It also leaves important policy questions unanswered, such as whether new “free” internet services (or “zero-rated” ser- vices like “Facebook zero”) drive the take-up of broadband or whether they deny access to the “free and open” internet.
In general, supply-side indicators (such as subscriptions, or domain name registrations) are better reported than demand-side use and applications data.

The International Telecommunication Union has collected such data from its membership since the 19th century.

But gaps in its database are increasing, as operators in more competitive environ- ments have become more wary of releasing commercially sensitive data.
National Statistical Offi ces could collect data on ICT use, but in developing countries they often lack the resources to carry out household surveys or do not have the know-how to collect policy-relevant data.
A few donor agencies provide support, such as the funding of Research ICT Africa’s household surveys by Canada’s International Development Research Centre (IDRC)b or the funding of LIRNEasia’s research on mobile phone usage at the base of the pyramid by the United Kingdom’s Department for International Development (DFID).c The latter helped to persuade the government of Sri Lanka to forgo new mobile taxation policy.d But more should be done.
Key areas for future action include: • At the national level, ensuring that service licenses require operators to report data to regulators, and encouraging National Statistical Offi ces to include questions in their household surveys regarding ICT access and use • At the global level, reigniting global coordination bodies, such as the Partnership for Measuring ICT for Development,e to compile, coordinate, and improve ICT data gathering • Exploring the use of new data sources such as “big data,” crowdsourced data, and social media to complement ICT access and usage statistics • Creating mechanisms for telecommunications compa- nies to share data, such as anonymized call records, for public research, policy, and planning purposes.
a. http://www.researchictafrica.net/docs/Fair_Mobile_Prices%20Q2-v04.pdf and http://www.researchictafrica.net/home_archive_reader .php?aid=118.

b. http://www.researchictafrica.net/home_archive_reader.php?aid=128.

c. http://lirneasia.net/projects/2010-12-research-program/teleusebop4/.

d. http://lirneasia.net/2007/10/lirneasias-policy-inﬂ uence-on-mobile-tax -issue-in-sri-lanka/.

e. http://lirneasia.net/2007/10/lirneasias-policy-inﬂ uence-on-mobile-tax -issue-in-sri-lanka/.

Contributed by Laurent Elder.


or structurally separating the supply of wholesale from retail services, could help.

The middle mile.

This refers to the national, intercity internet backbone of a country.

• The national backbone network.

The internet back- bone network in a country provides backhaul from cable stations or satellite stations to major cities and towns.

Ideally, it should include ﬁ ber-optic cables, but microwave and even copper links can also be used.
The simplest step a government can take is to liberalize the market for building and operating backbone networks, and to encourage open access to the incumbent’s network at the wholesale level.

The risk is that the most popular routes—say, between the two main cities—are “superserved,” while the rest of the country is underserved.

So, many governments favor public-private partner ships to “direct” private investment, as in the Republic of Korea (see box 4.4).
Governments can also help by making rights-of-way available to investors—and by requiring that all major infrastructure programs (such as roads, railways, pipelines, and energy 220 WORLD DEVELOPMENT REPORT 2016 distribution) include provision for an optical ﬁ ber link,76 and follow the principle of “dig once, dig smart,” by obliging contractors to anticipate future demand for ﬁ ber when digging trenches.77 • The internet exchange point (IXP).

The IXP is where IP-based trafﬁ c is exchanged within a country.
As of May 2015, there were some 446 IXPs around the world, but 87 countries still lacked a single one.78 Average trafﬁ c handled by each exchange ranges from some 4.47 terabits a second on the Amsterdam Internet Exchange, founded in 1997, to just 21 kbit/s on the BurundiX IXP, founded in 2014.

Setting up an IXP is one of the most cost-effective steps a country can take to enhance local connectivity.
Research by the Internet Society shows that the Kenya IXP (KIXP), operating since November 2001 despite being initially declared illegal by the regu- lator, saves local internet service providers (ISPs) some US$1.5 million a year in reduced costs for international connectivity.

And it reduces latency from 200–600 milliseconds to 2–10 milliseconds, on average, by exchanging trafﬁ c locally.79 • Local hosting of content.
Promoting local hosting of content and creating a local cache for frequently used content from elsewhere can also enhance the efﬁ ciency of the network and reduce latency, increasing usage as users experienced shorter wait- ing times for websites to load.

In Rwanda, 14 of the top 20 sites with Rwandese content were commer- cial sites, and all were hosted outside the country so that a typical website could save around US$100 a year and enjoyed a more reliable service.
But this imposed additional costs of US$13,500 a year for local ISPs that had to bring the content back in over expensive international links—costs which are then passed on to users.

Promoting local hosting, already required for government sites in Rwanda, could avoid this, and help improve service quality.80 The last mile.

This refers to the connection between the user and their nearest internet point of presence (POP).

• The local access network.


The most costly part of the network, and the hardest to duplicate, is the local access network, which connects the user to the nearest internet POP.

In the early days, this was typically achieved through dial-up, using a modem, over ordinary copper telephone lines.
Starting in the late 1990s, a technology called digital subscriber line (DSL) allowed that same telephone network to be used for always-on broadband connections, while cable modems offered the same facility for cable TV networks.

In developing countries, where copper-based local access networks serve only a few areas, wireless-based access networks offer the most popular alternatives.
Just over half the world’s inhabitants live within coverage of advanced, third- (3G) or fourth-generation (4G) networks, but even second-generation (2G) networks can be adapted for slow-speed internet use.
• Government policies to encourage the spread of ﬁ xed-line broadband networks include permitting competing facilities, especially for intermodal competition (between cable, DSL, and wireless), and local loop unbundling (LLU), or mandating the incumbent to make local access lines available to competitors at wholesale prices.

The widespread enforcement of LLU in Europe since 2000, following EU direc- tives,81 is one reason its average broadband prices are among the lowest in the world.
LLU is most effective once a minimum level of penetration has been achieved; below that, it can act as a deterrent for investment.82 LLU also offers a foothold for new entrants that can quickly offer nationwide service and then later develop their own infrastructure, as has been the case for free.fr, a new entrant in France.

The invisible mile.

This refers to the other, less vis- ible network components and potential bottlenecks.

• Effi cient spectrum management.


Critical at all stages of the internet supply chain but especially in the local access network, efﬁ cient management of the civil radio frequency spectrum includes increasing the amount of spectrum available, ensuring com- petitive access, encouraging sharing of essential facilities such as radio masts, and liberalizing the market for spectrum resale and leasing to allow the creation of mobile virtual network operators.
In this sense, spectrum resale in the wireless world is the equivalent of LLU in the ﬁ xed-line world.

Policy makers can also help by making more unlicensed spectrum available, especially for innovative uses such as cognitive radio (which hops between frequency bands to avoid interference), and by opening up underused government spectrum for commercial applications.

• Over-the-top services.


Policies to encourage a wide range and diversity of OTT services can provide a wider choice to consumers at lower cost.

Poli- cies to encourage OTT growth include removing regulatory barriers to providing voice over IP and SECTORAL POLICIES 221 mandating that operators provide access to essen- tial facilities such as billing and app stores.
Of course, OTT services introduce many regulatory issues of their own, not least the concept of “net neutrality.” A recent consultation on net neutrality83 by the Federal Communications Commission, the U.S. regulatory agency, attracted a record number of comments, around 4 million.84 Ultimately, with support for net neutrality from the U.S. president, the FCC ruled in February 2015 in favor of regulat- ing broadband internet as a public utility, although legal challenges could continue for years.85 • Mobile money.
For developing countries, one of the most signiﬁ cant OTT services is mobile money, which is also fraught with regulatory challenges (see spotlight 2, “Digital ﬁ nance”).

Demand-side policies: Open and safe internet use The internet is at once unique, complex, and one of the most used global communications media.

It has different layers of infrastructure and applications, and different stakeholders are involved in its opera- tion, use, and governance.
What features affect the stability and security of the global internet to engen- der trust and therefore encourage use of the internet?

What is the best way to balance stakeholder interests in these areas?

This section addresses the creation of an enabling environment of “trust” for the internet to achieve its full potential.
Censorship and content ﬁ ltering threaten the internet’s utility as an engine of growth The internet thrives on open information exchange and freedom of expression.86 One global view shows the range of internet ﬁ ltering of political speech, from none to pervasive ﬁ ltering (map 4.1).87 Another shows, perhaps paradoxically, that concerns over freedom of expression are actually greater among users in coun- tries that have more recently come online than among users from countries with a longer history of internet access.88 One account of ﬁ ltering blames ﬁ ltering policies and software for poor internet performance (slow access speeds).89 This is an example of a direct cost associated with ﬁ ltering, but such ﬁ ltering also leads to indirect costs from the drag on innovation that comes from self-censorship, and the resulting loss of freedom.
In this discussion, “ﬁ ltering” (or cen- sorship of public content) does not include “surveil- lance” (or monitoring of private content).

Innovation also depends on the ability to protect and monetize intellectual property.

Avoiding piracy will rely on striking the right balance between provid- ing access to information and protecting intellectual property rights.
Generally, the illegal distribution of copyright material tends to lessen when legitimate ways exist to access that material, for a fair price.
Thus, contrary to expectations, peer-to-peer ﬁ le shar- ing systems that blossomed in the early 2000s for free sharing of music, such as Napster and Kazaa, started to decline once legal alternatives, such as iTunes or Google Play, became available, without any noticeable impact on the quantity or quality of artistic output.90 The action has now shifted to ﬁ lm and TV ﬁ le shar- ing, but again the availability of legitimate commer- cial services, such as Netﬂ ix or Hulu, is progressively displacing illegal services as they are extended to more territories and have greater content coverage.
But there remain large parts of the world where content is not available for download legally, because content licensing and copyright are so complex and fragmented that small markets are too often ignored (chapter 6).91 An issue that is more difﬁ cult to resolve surrounds the restriction, or ﬁ ltering, of certain types of online content.

Every country has different redlines on con- tent it regards as dangerous or offensive.
Germany has restrictions on hate speech, while Thailand monitors comments about its king.

There are also certain abso- lute values, such as restrictions on child pornography.

Such restrictions are understandable and justiﬁ ed where they represent a societal consensus adopted by an accountable government.
The Supreme Court of India, for example, recently reconsidered its posi- tion on free speech issues, potentially lifting existing restrictions on online speech.92 But few governments have the capability to enforce such content moni- toring on their own.

Instead, they must cooperate with the major websites and search engines, which then have to apply their own judgment.
Google, for instance, publishes a transparency report that pro- vides statistics on government requests to remove content, which have grown signiﬁ cantly since 2011.93 In the six months ending December 31, 2013, Turkey submitted the most removal requests (895), followed by the United States (481).
Some governments try to block access to content directly, for instance by imposing national ﬁ rewalls or restricting the use of certain internet applications, such as virtual private networks or voice over IP ser- vices.
Google reports that, in the ﬁ rst nine months of 2015, six countries had experienced disruptions of 222WORLD DEVELOPMENT REPORT 2016includes “cybercrime.” The more common threats to cybersecurity are malware, denial of service, and phishing attacks (attempts to acquire sensitive infor-mation online by someone who is masquerading as a trusted entity), but cyberincidents are increasingly perpetrated by disaffected insiders.
So, cybersecurity usually refers to securing data and infrastructure in a civilian context; but acts that might previously have been considered civilian attacks are now being uncov-ered as acts of states against states via nonstate actor proxies, blurring the lines between acts of cybercrime and cyberwar or cyberterrorism.

Threats to personal security online, such as online identity theft, are also growing.
This may erode public conﬁ dence in e-commerce and e-government applications, and make internet use less attractive, thus suppressing its use for certain applications.

Likewise, cybersecurity can include securing critical information infrastruc-ture from acts of nature, such as developing backup facilities in alternative locations.

However deﬁ ned, weak cybersecurity is a sig-niﬁ cant problem worldwide, with both the scale of ﬁ nancial losses, and the costs of preventing them, growing (box 4.8).
New breaches of security over trafﬁ c to its products—China, the Democratic Repub-lic of Congo, the Islamic Republic of Iran, Pakistan, Tajikistan, and Turkey.94 Excessive restrictions on use can increase the costs of doing business, particularly for international businesses, which may be dissuaded from investing.95 In addition, inconsistent and com-plex content ﬁ ltering requirements can make it dif-ﬁ cult to offer internet services and applications that are global in nature.
Policy makers in governments that impose such restrictions have to choose between the relative perceived advantages of controlling cer-tain kinds of information and the economic costs, including lost opportunities, of maintaining such systems.Cybersecurity: Trust in the internet will come from balancing the security of networks and information with the protection of individual rightsThe term “cybersecurity” is a convenient shorthand for a very complex set of issues.
It commonly refers to systems and actions aimed at securing data and communications over the internet and even the infra-structure of the internet itself.96 It also sometimes Map 4.1 Evidence of internet content ﬁ lteringSource: Open Network Initiative, http://map.opennet.net/ﬁ ltering-pol.html.
Data at http://bit.do/WDR2016-Map4_1.Europe InsetCaribbean InsetNo evidenceSelectiveSubstantialPervasiveNo data availableLevel of political content ﬁlteringIBRD 41702 SECTORAL POLICIES 223 the internet are reported almost weekly.

Reliable estimates of the size of the problem are hard to come by because of the deﬁ nitional problem that com- pounds a lack of common indicators—and because ﬁ rms and governments suffering cyberincidents are unwilling to disclose losses and thus to reveal vul- nerabilities.
Some of the published sources are based on ﬂ awed assumptions, and all reports raise as many questions as they answer.

The growing centrality of the internet in daily lives around the world, and the increasing use of mobile devices, combined with the “internet of things” (see spotlight 6), appear to have increased exposure to cyberrisks.

Equally important, the incentives to deal with cyberrisks need realignment.
For example, individ- uals sometimes do not take proper precautions to secure their devices or data, passing on the cost of security to society at large.

Vendors of hardware and software are in a highly competitive environment and may push products to market at the expense of ensuring proper security features.

Cybersecurity is expensive and complex (whether through incurring up-front costs of “prevention” or dealing with costs of restoring security in “recovery and resilience” regimes).
It may be economically rational to accept some degree of insecurity for the convenience to transact online.97 That said, there are also various ways of identify- ing the costs involved, including direct and indirect costs, and two types of costs to be considered.

First are the costs of the breach (actual loss) and of the remedi- ation efforts to ﬁ x it.
Second are costs associated with prevention and providing an environment of “trust,” as well as understanding the incentives of actors to provide security.

The methodology encapsulated in table 4.2 provides a systematic framework for more precisely evaluating “cybercosts” and identifying which stakeholders are most likely affected by partic- ular costs.
Aggregating the cumulative costs across all players and cost categories yields an estimate of the total direct, the total indirect, and the total implicit costs.

This kind of assessment will be key for policy planning.

Public safety and security in the analog world is a public good, ensured by governments.

In the cyber- world, governments also have an obligation, through their policies, laws, and institutions, to ensure the protection of data, communications, and critical infrastructure.
One particularly vexing problem in government attempts to address cybersecurity is that much of the infrastructure, and most of the commu- nications, are controlled by the private sector or other nonstate actors.

Around the world, governments of Box 4.8 The costs of cybercrime Estimates of the costs of cybercrime abound, but many reports are based on weak evidence or overly simpliﬁ ed assumptions.

Often the methodology is not disclosed, complicating an assessment of its validity.
Damage, typically assessed at a highly aggre- gated level, is diffi cult to link to speciﬁ c incidents.

Furthermore, most estimates are developed by com- panies directly involved in the sector, which may have an interest to overestimate the risks.
Nevertheless, the cost estimates are both high and growing: • A 2014 study put the global costs of cybercrime at between US$375 billion and $US575 billion, or about 0.6 percent of global GDP.a • A 2014 study showed the average per person cost of data breaches ranged from US$51 in India to US$201 in the United States, and had risen 15 percent in a year.b • A 2013 study estimated that the global costs to consumers (excluding businesses) were around US$113 billion, and had risen by half in one year.c • A 2008 study estimated that the global eff ects of malware were around 0.5 percent of global GDP.d Source: Adapted from Bauer and Dutton 2015, for the WDR 2016. a. CSIS and McAfee 2014. b. Ponemon Institute 2014. c. Symantec 2013. d. Bauer and others 2008. both developed and developing economies are taking action at the national level to address cybersecurity concerns.
But because of the global nature of the internet and the cross-border nature of cyberinci- dents, governments should be encouraged to do more to protect themselves and their citizens through cooperation at the international level, for instance by exchanging information on threats.
Because of the role of nonstate actors in the provision of infrastruc- ture and services, governmental efforts will have to involve public-private partnerships (working with a variety of nonstate actors beyond the private sector) and ﬁ nd ways of addressing and even overcoming jurisdictional boundaries and barriers.

Technical solutions will help, as in combating spam, but these need to be backed by legal measures and enforce- ment.

Collaboration and openness are key.
In the areas of cybersecurity, there are few obvi- ous policy recommendations, and in these areas— 224 WORLD DEVELOPMENT REPORT 2016 Table 4.2 A basic framework for assessing the costs of cybersecurity incidents Direct costs Indirect costs nt e m y plo e d d n nt a e m p ort p p n al level atio niz a e org n at th nforce atio Investig w e La ost of infrastructure nt e m e g a n a nt e m C evelo er su use m atch d m usto C b A P u d ctivity Lost pro u n e v e R e loss nfid o C e ct a p n atio v o n h c a u n e v ollateral im e loss asures c d re ptio ntiality bre nterm n-relate o d T a urity c er IC utatio w Slo T in er IC w Slo c e S p e R u o n e e asures ecurity m d u Fra S air costs ata loss D p e R Market players End users Home Business e-commerce companies Infrastructure Software vendors Internet service providers Hosting providers Registrars Computer emergency response teams Law enforcement Society at large Source: Bauer and Dutton 2015, for the WDR 2016, citing Bauer and others 2008.
Note: ICT = information and communication technology.

perhaps more than others—governments can play a role in developing effective policies.

The “perimeter security” paradigm that pervades today, born in an era of a few centralized mainframe computers, needs revisiting, putting users—not devices—at the center of the discussion, and thus implying a great role for capacity building.98 Public policy could be used to change misaligned incentives to achieve security.
Given the pace of technological change, these policies should be guidelines or principles, not prescriptive, and be technology neutral.

They should encourage interoperability among regimes and legal systems to investigate and prosecute cybercriminals across jurisdictions and to avoid the creation of safe havens for cybercriminals.

Finally, work could be done to develop a common set of indicators to measure the economic impact of cybercrime and other cyberrisks.
Protecting personal privacy and data online is essential in building trust in the internet The other side of the “balance” is protecting privacy and data online.99 One of the key drivers in the digital economy is the ﬂ ow of personal data, of which an estimated 90 percent has been added in the last two years.

Collecting and analyzing data about individu- als is integral to how some of the largest companies in the world do business.
For example, Facebook is a company with a US$230 billion capitalization largely through its sales of ads that reach Facebook users.100 But data also allow small and medium companies to monetize their services.
The World Economic Forum (WEF) has identi- ﬁ ed data-driven enterprises as part of a strategy for economic development in developing countries.101 SECTORAL POLICIES 225 Protecting personal data online is key for the data- driven economy, since it will increase trust in the internet, and greater trust will foster more use.

And privacy is not just a developed-country issue.


Some studies show how concerns over maintaining privacy online have more to do with “awareness” of threats to privacy posed by the internet, rather than with relative economic development, debunking the notion that privacy is mainly a western preoccupation.102 But the issue is not as simple as having and enforcing national laws that protect personal data.
Data ﬂ ows nowadays are global, and privacy regimes need to be interopera- ble with one another to really enable the internet to be an engine of innovation and economic growth.

Privacy concerns range from the personally sensi- tive (personal health information or precise locational information) to the seemingly trivial (search or brows- ing history).
But even the most innocuous data can become harmful when used by third parties in unau- thorized or unexpected ways.103 Most internet users are willing to surrender personal data—or control over it—for more convenience (gift suggestions based on their past purchases), for possible gain (the chance to win a holiday), and to avoid payment (notably, when downloading and using free mobile apps).
But few users have the means to challenge data use poli- cies or even make the effort to read the small print.104 Privacy online is also a balance.

It may be economi- cally rational to relinquish some degree of privacy for the convenience of transacting online.

But beyond respecting users’ choice in how they transact online, public policy choices involve determining what other measures are necessary to afford appropriate privacy protections.
The key is to ensure that users are made aware of the risks of diminished privacy.

One of these privacy challenges105 is the growing use of “big data.”106 Data mining has been routinely used, especially by social media and e-commerce companies, to create value.

The business model of Twitter or Facebook, for instance, is to grant users free storage, communication, and functionality in return for privileged access to the content they cre- ate.
Such companies then aggregate and analyze user-generated content to sell value to advertisers wishing to reach targeted audiences.
This classic two- sided market approach can make for a more intelli- gent and convenient user interface, but at the risk of alienating users if they ﬁ nd the use of their data too intrusive.107 Mobile call data records (CDRs), which record basic data like the time, duration, location, and direction of calls, can also be mined to extract trend information.108And many applications are potentially valuable, as in trafﬁ c analysis109 or epidemiology.110 Like big data, the internet of things also poses new privacy challenges, notably in the ability it offers to develop detailed user proﬁ les.111 The number of connected devices in use worldwide is set to rise signiﬁ cantly as consumer goods companies, auto manufacturers, health care providers, and other busi- nesses continue to invest in connected devices.112 Data collected are generally anonymized, but users may be unwittingly relinquishing control of their personal data.
Open data initiatives by governments raise sim- ilar concerns about “anonymization,” data breaches, and unauthorized or unintended re-use.

Privacy concerns need to be balanced against other important issues such as transparency, freedom of expression, proportionality, and security.113 There is tension between protecting the privacy of individuals and keeping them safe from terrorism or criminals.
Law enforcement and national security agencies need access to CDRs, and legal call interception, to track criminals, but they should do this by having appropriate safeguards in place to seek authorization, and not by using blanket surveillance measures.
The exposure of indiscriminate snooping by governments has, ironically, encouraged large internet content providers to make far wider use of encryption, and operating system manufacturers are following suit.114 Outside the domain of law enforcement, legislation should give users more control of their data at the point of use (if not at the point of collection).
Con- sider the Electronic Health Record System in Estonia, which is based on the principle that citizens own their own health records and can easily access them and transfer them between doctors.115 Privacy policy concerns also need to be balanced against countervailing public policy issues such as freedom of expression and government transpar- ency in the internet context.

A recent decision from the European Court of Justice,116 popularly known as the right to be forgotten, highlights this debate.
Users in Europe now have greater control of the data about them on the internet.117 This right can be exercised against search engines, such as Google or Bing, and would include seeking to remove search results pointing to documents held elsewhere in the cloud.

But the decision does not offer clear guidelines for applying the right.

Beyond that, once something is online, it is virtually impossible to ensure that all copies are deleted.
Complying with user demands to delete personal data will impose additional costs on businesses and governments.

One sign of the growing awareness of public policy concerns is the surge in new privacy laws, even while there has been divergence among countries (such as 226WORLD DEVELOPMENT REPORT 2016a long-standing concern in the United States about which Europe had been more hesitant.
The U.S. administration unveiled a blueprint for a consumer privacy bill of rights that would address consumer privacy more comprehensively.
At the same time, in reaction to the Edward Snowden revelations (dis-cussed below), the European Court of Justice issued its opinion in the Schrems case effectively invalidating the “Safe Harbor” agreement reached between the European Union and the United States permitting the handling of European data in the United States.126Different approaches, however, are making it difﬁ cult to develop truly global internet services and applications because local adaptations are required to comply with differing national privacy laws, impos-ing additional compliance burdens and costs on busi-nesses (see chapter 6).127 Diverging rules also stiﬂ e trade and innovation.
In addition, the threat of “data nationalism”128—the idea that a country’s data should be stored within its borders, recently embodied in a new Russian law, for example, that requires the local storage of the personal data of Russian citizens—has in the European Union and the United States) in their approach.118 According to the United Nations Confer-ence on Trade and Development (UNCTAD), 107 coun-tries had privacy laws or bills in place as of 2014, but only 51 of them were developing countries (map 4.2).119 At the international level the United Nations Gen-eral Assembly has adopted a Resolution, introduced by Brazil and Germany, on the Right to Privacy in the Digital Age.120 The Africa Union Convention on Cyber-security includes data protection.121 The OECD, in 2013, published its updated Privacy Guidelines, revising work originally carried out in the 1980s.122 The Asia-Paciﬁ c Economic Cooperation followed up on its Privacy Framework with a cross-border privacy arrangement in 2010.123 The European Union is conducting an over-haul of its data protection framework.124 while the United States is also considering options.125 The data protection story is becoming more complex.
There is some evidence of convergence: the newly proposed EU data protection framework includes a directive looking closely at the protection of data as they relate to security and defense issues, Map 4.2 National data protection and privacy laws and billsSource: UNCTAD 2015.
Data at http://bit.do/WDR2016-Map4_2.Europe insetCaribbean insetComprehensive data protection law enactedPending effort or obligation to enact lawNo law or informationNo data availableData protection lawsIBRD 41703 SECTORAL POLICIES 227 grown since the revelations by Edward Snowden about the U.S. government’s surveillance of foreign internet trafﬁ c, which was subsequently declared to have been illegal.129 That puts an additional burden on companies seeking to build services that rely on cloud-based networks.130 What is clear, however, is that getting the data protection and privacy piece of the puzzle right is, together with cybersecurity, a key element in engen- dering trust in and conﬁ dence in use of the internet.
Even before “Snowden,” users in countries of all regions were concerned that they should be careful about what they say online, as more and more per- ceived that their actions would be monitored.131 While data protection and privacy are essentially matters of local law, a preponderance of privacy laws around the world are based on a common set of international, durable, and recognized principles.
Moreover, inter- operability of data protection regimes will encourage cross-border data ﬂ ows and decrease the propensity for data nationalism.

As discussed, data protection is not solely a preoccupation of advanced economies.

Unlike investments in infrastructure, ensuring that good practice in data protection is part of the overall internet enabling environment makes sense for a country interested in the internet as a means of eco- nomic development.

Does net neutrality matter?


One of the more confounding issues around the internet today is “net neutrality.” The term, euphemis- tically derived out of debates in the United States, has become a shorthand for a debate about the manage- ment and prioritization of scarce resources—notably bandwidth—over the internet.
Thus the debate has pit- ted users and content providers against network pro- viders.132 In oversimpliﬁ ed terms, content providers want an “open” and “free” internet where every data bit, or IP packet, is treated equally, while network pro- viders seek to charge higher rates for services chewing up more bandwidth.

In the United States, the debate over net neutrality was mainly about the bandwidth consumed by video downloads.
After announcing new rules in February 2015, opponents of the rules in the United States (mainly network providers) have claimed that compelling the openness of the internet imposes on their rights as a corporation to determine which content to make available.

In other parts of the world, the debate over net neutrality is recognized as a matter of freedom of expression or access to informa- tion for individuals—a human rights issue.
So, depending on where one sits, the issue can be taken up as an issue of scarce bandwidth or of free speech.

As with other resources where capacity is scarce, as on mobile networks, carriers attempt to use price discrimination to manage trafﬁ c. Network pro- viders argue that regulators should grant them more ﬂ exibility to manage their trafﬁ c ﬂ ows.
But others argue that trafﬁ c management should not become an excuse to block certain trafﬁ c streams, content, or expression, to give preference to others, or to impede competition.

The recent trend to develop services in which some basic content can be accessed free of data charges (such as Facebook’s Free Basics or Internet.
org), while other content is subject to data charges, would appear to be the antithesis of net neutrality and a distortion of markets.133 Nevertheless, some defend the practice as a means of extending internet use in low-income countries.134 In India, following protests, some participating organizations withdrew support to Airtel Zero and Internet.org, as the regu- lator indicated that these platforms do not provide equal treatment to all online services.135 An open and free internet is also a key contrib- uting factor to innovation in the digital economy, making it critical to protect this openness.
Care should be taken to ensure that users have the greatest possible access to internet-based content, applications, and services of their choice.

But trafﬁ c management measures, while legitimate, should not reduce the enjoyment of fundamental rights and freedoms, particularly freedom of expression.

The balance here should be carefully calibrated so that network operators continue to have incentives to build out and continuously improve networks and network capacity.
Recognizing the balance to be sought in this debate, the Council of Europe in 2010 announced its policy on “net neutrality” (without calling it such), emphasizing the rights-based aspect of the issue.136 Much of the early debate on net neutrality in the United States was focused on the classiﬁ cation of the internet under the 1996 Telecommunications Act; in the rest of the world, the issues argued under the same moniker look at the impact of trafﬁ c man- agement techniques, such as deliberately slowing (or “throttling”) data streams, on human rights, and the continuing impact of the internet as a driver of innovation.
Access to information is not solely a “developed” or “developing” country preoccupation.

Not only is it a fundamental human right, inherent in Article 19 of the International Covenant on Civil 228 WORLD DEVELOPMENT REPORT 2016 and Political Rights,137 it is also an essential element in the online innovation ecosystem, and therefore an economic development issue.
In whatever form a country would wish to use the internet for develop- ment purposes, its public policies should ensure that technical management of internet trafﬁ c is not used to suppress a tool of innovation.
Promoting the digital economy The internet as an open access ecosystem Once the internet is widely available and affordable in a country, and public trust that the internet is a safe and open platform for doing business or storing per- sonal information has been established, it can become an unrivaled platform for promoting entrepreneurial opportunity.
Indeed, 9 of the top 20 people in the Forbes 2015 billionaires list made their money from the sector.138 Initially, internet entrepreneurship was associated with the dot-com bubble of the late 1990s, but the networks of the day lagged behind the aspi- rations of entrepreneurs.
As one subsequently said, “A lot of the business plans were deeply ﬂ awed, but a lot of the ideas would have worked had there been broadband.”139 Since 2008, when broadband crossed the threshold of 10-percent penetration worldwide, a new and more sustained period of internet entrepre- neurship has developed.

The U.S. economy has so far been the main bene- ﬁ ciary of the internet as a source of innovation and entrepreneurship.140 This success is exempliﬁ ed by the Silicon Valley technology cluster.
Many coun- tries have tried to imitate it.141 Few have succeeded.

The ingredients of success for ICT clusters have traditionally included close collaboration between academia and industry, easy access to venture capital, high levels of government research spending, and a physical environment and climate that is attrac- tive to footloose, highly paid workers.
However, in recent years, certain cities with doubtful climates have also developed a vibrant tech entrepreneur- ship scene, notably Bangalore, Berlin, Hangzhou, London, Nairobi, and New York.
This suggests that the internet is creating a new set of geographical preconditions for innovation districts that are more about density and bandwidth than about sunshine and golf courses.142 Speciﬁ cally, the serendipitous “collisions” between like-minded individuals that create innovative ideas are more likely to occur in high-density urban environments than in lower- density locales where high-technology industry has traditionally ﬂ ourished.143 Governments are generally not very good at pick- ing technology winners.
Nor can they easily create technology clusters, which tend to grow organically, where the right conditions are in place, as ﬁ rms draw upon the same talent pool and startups spin off from established enterprises.

From the recent development of tech hubs and FabLabs—for instance, there are now more than 555 FabLabs across 77 countries144—it is unclear if all of them would have come up organically, though government involvement in most of them has been minimal (box 4.9 and map 4.3).
But government policy can help to sustain an emerging technology cluster, for instance by instituting favorable tax regimes or liberal policies on awarding employment permits to skilled workers (“tech visas”).

Israel shows how government can stimulate the growth of an ICT cluster once it becomes established (box 4.10).
Govern- ment procurement can also help create opportunities for local companies to ﬂ ourish without infringing commitments to free trade, for instance by unbun- dling large ICT projects into smaller components.

But governments also can unwittingly undermine a local ICT sector, with lax rules on intellectual property protection or burdensome taxes on the import of ICT goods and components.
National ICT strategies In recent years, it seems to have become ever more complicated to develop a coherent set of policies to regulate and promote a nation’s ICT sector.

Rapid technological change, coupled with disruptive changes in the supply side of the industry and grow- ing challenges on the demand side, requires ﬂ exi- bility.

But industry players demand predictability in policy setting and a level playing ﬁ eld.
ICT users are becoming ever more vocal, and expertise that may once have been centralized is now dispersed through- out government.

So, coordination becomes all the more important.


When countries take a conscious decision to develop a national strategy for broadband, or their ICT sector more generally, they are rewarded with SECTORAL POLICIES 229 Box 4.9 Tech hubs in Africa reinforcing The recent development of tech hubs across Africa (see map 4.3) exempliﬁ es how technology clusters create a snowball eff ect whereby initial preconditions for success generate additional, mutually innovation drivers.
Though nowhere similar in scale to Silicon Valley, technology clusters in Africa nevertheless demonstrate that close collaboration between academia, government, and the private sector can help develop a vibrant eco- system that facilitates ongoing innovation and market entry.
Tech hub clusters, such as in Cape Town, Lagos, and Nairobi, show that once a certain threshold is passed, new hubs and ongoing entrepreneurial activity can be stimulated through enhanced access to ﬁ nance, services to entrepreneurs, and the demonstration eff ects of successful “ﬁ rst mover” startups.

The development of Nairobi’s tech cluster dates to the founding of iHub in March 2010.
Growth has spread, ﬁ rst to the rest of the Bishop Magua Centre where it is located (including Nailab, m:lab East Africa, and the longer-established Ushahidi), and then to nearby Strathmore University (where iBiz and iLab are located) and along Ngong Road to the GreenHouse and 88 mph/ Startup Garage.a As with the creative destruction of the original dot-com bubble, many new startups, including some of the hubs themselves, have overestimated market demand for their products and services and ended up with short lifespans.
Thus the turnover of hubs and incubators in Africa has been relatively rapid over the last ﬁ ve years,b but the growth path is still upward, with a net increase of around 15 percent since the start of 2014.

Tech hub performance also depends on context-speciﬁ c dynamics, and the situation of the local business community.
However, the comparative success of certain clusters, while others remain stagnant, suggests that organic, multistakeholder ecosystems work better than initiatives led by government, the private sector, or academia alone.

a. Firestone and Kelly 2015. b. http://www.gsmaentrepreneurshipkenya.com/GSMA_KENYA-AR2014-060214-WEB-SINGLE-PGS.pdf.

higher rates of service take-up.145 As of mid-2013, some 134 countries had already developed national broadband plans, and a further 12 planned to do so.
Once developed, plans need to be regularly refreshed and updated, ideally on a cycle of three to ﬁ ve years, according to the United Nations Broadband Commis- sion, which has set a target that all countries should have a national broadband plan by 2015, with at least 40 percent of households in developing countries served with broadband.146 National broadband plans are also more effective when they include speciﬁ c benchmarks, or targets, that are relevant, measurable, realistic, and actionable.
For example, Estonia has set a target that at least 100 Mbit/s broadband service should be available to each citizen by 2015.

What seems to be important is not so much the plans themselves, which vary enormously in quality and scope, but the consultation process for devel- oping them and whether they can be easily imple- mented.
In the same way that international internet governance has evolved toward a multistakeholder model, so too national strategies can beneﬁ t from ensuring that there is an opportunity for all stake- holders to express their views and that those views are reﬂ ected in policy making and regulation.
In an era in which mobile subscriptions exceed the world’s population, and with each internet user hav- ing within easy reach a vast library of global knowl- edge, ICT policy is too important to be left to the bureaucrats.

Broad multistakeholder collaboration is the key.


Equally important is the fact that digital development strategies need to be broader than they are today, strengthening the country’s ICT infra- structure, but also the foundation underpinning its digital economy—an issue explored in the next chapter.

230WORLD DEVELOPMENT REPORT 2016Map 4.3 African tech hubsSource: WDR 2016 team.
Interactive map and source data available at http://bit.do/WDR2016-Map4_3.BeninCivCive-TRILABSJokkolabs Cotonou1.2.Angolan Institute of Support forMicro, Small and MediumEnterprises [INAPEM](ICT Incubator)1.AngolaGvtZimbabweCivSky Hub InitiativeHypercube HubMuzinda Umuzi Hub1.2.3.CivCivRwandaCivCivkLabThe OfficeTHINK Technology Incubator 1.2.3.HyCongo, Dem.
Rep.CivImani Hub1.Côte d’IvoireCivCivCivCivCivJokkolabs AbidjanThe W HubAkendewaAMN Co-working SpaceMwasi Tech Hub1.2.3.4.5.n Institute of Support forSmallandMediumGvtZambiaCivBongohive Zambia1.TunisiaCivWiki Start Up1.TogoMara Launchpad1.The GambiaCivCivJokkolabs BanjulWoe Lab1.2.MaliCivJokkolabs Bamako1.MadagascarCivCivI-Hub MalagasyHabaka1.2.Côted’IvoireLiberiaCiviLab Liberia1., Dem.
Rep.CivHubnInstituteofSupportforaGvtCongo, Rep.CivBantuHub1.CameroonCivActivSpaces1.olabs BamakkoCivCCC1Burkina FasoCivCivYam PukriJokkolabs Ouagadougou1.2.CivEgypt, Arab Rep.CivCivCivCivCivCairo HackspaceThe DistrictFlat6LabsIceCairoFab Lab EgyptThe Greek CampusTechnology InnovationEntrepreneurship CenterAlexandria Hackerspace1.2.3.4.5.6.7.8.HyHyGvtEthiopiaCivIceAddisxHub1.2.AcaCivMwasi Tech Hub5.TogoCivCivCivCivCivJokkolabs AbidjanThe W HubeeAkendewaAMN Co-working SpaceMwasiTechHub1.2.3.4.5Côte dIvoireCongo,Imani H1.CongoCongo,BantuH1.GhanaCivCivCivmFridayMeltwater EntrepreneurialSchool of Technology (MEST)[Incubator]gSpaceiSpaceGhana Multimedia IncubatorCentreMobile Web GhanaKumasi Business IncubatorOguaa Business IncubatorHub Accra1.2.3.4.5.6.7.8.9.CivHyHyGvtCivAcaJokkolabs Cotonou2.Benine-TRILABSJkklbCt1.2AngolaMicro,S1.TogoMara Launchpad1.Angola1AngolaNigeriaCivCivL5 LabCo-creation HubWennovation HubTechnology Incubation CentreMinna Tech Incubation CentreInformation DevelopersEntrepreneurship Accelerator(IDEA) Focus HubEnspire IncubatorCalabar Technology IncubationCenter88 MPH (400 NG)1.2.3.4.5.6.7.8.9.10.CivHyHyHyCivGvtGvtGvtivroonCameCCaCSpacesActivS.CivCivEthihihiopiaIceAdAddAddisxHubbbbbb1.2.22UgandaCivHIVE Colab@TheHubOutbox HubGrameen Foundation AppLabWomen in Technology Uganda(WITU)1.2.3.4.5.CivCivCivCivSouth AfricaCivCivCivCivJozihubCapetown GarageBlack Girls CodeThoughtWorksTechinBraamSilicon Cape InitiativeImpact AmplifierCodebridgeAngel HubEastern Cape InformationTechnology InitiativeCape Innovation and TechnologyInitiative (CITI)1.2.3.4.5.6.7.8.9.10.11.CivCivCivCivCivCivHySmart XchangeCodedinBraamSoftStart TechnologyThe House 4 HackmLab Southern AfricaStart-up Garage/98MPHIMPACT HUBRlabsInvo Tech IncubatorThe Innovation Hub (TIH)Startup 90Grindstone12.13.14.15.16.17.18.19.20.21.22.23.CivCivCivCivCivCivHyHyHyCivCivGvtCivAcaCivCivCivKenyaiHubm:lab East AfricaGrowthHubNailabC4D LabAkiraChixLake HubiBiz AfricaiLab AfricaFabLab Nairobi88 mph /Startup Garage1.2.3.4.5.6.7.8.9.10.11.CivCivHyAcaAcaAcaHyAcaMoroccoCivCivCivJokkolabs CasablancaNew Work LabGirls in Tech (GIT) – MoroccoChapterOCP Entrepreneurship Network1.2.3.4.HyMauritiusEbène Accelerator1.GvtusMauriticceleratorEbène Ac1.GvtFrance (La Réunion)Cyclotron Réunion IndianOcean (CYROI GIP)Technopôle de La Réunion 1.2.ZimbabweSky Hub InitiativeHypercube HubMuzinda Umuzi Hub1.2.3.CivCivCivCivSmart XchangeCodedinBraamSoftStart TechnologyThe House 4 HackbShf12.13.14.15.CivCivCivHyCivCivCivFranceLaRéu(n RéunioCyclotronYROIGIPOcean (CYôle de LaTechnopô1.2.MozambiqueMICTI Technology and BusinessCentre1.GvtSmall and Mediumrises [INAPEM]cubator)aCivhiveZambiaCivCivZambiBongoh1CivCiMicro, SEnterpr(ICT IncNamibiaNamibia Business InnovationCentre (NBIC)Fablab Namibia1.2.HyAcaMM1The GambiaCivCivJokkolabsBanjulJokkolabs BanjulWoe Lab1.1.2.CivMliMMMaliMMJokko1.CivGirls in Tech (GIT) MoroccoChapterOCP Entrepreneurship Network3.4.HyHySenegalJokkolabs Dakar CTIC DakarAfrica Living Lab Mobile Senegal Jjiguene Tech Hub1.2.3.4.5.CivCivCivAcaMadagascarRwandaCivCivkLabThe OfficeTHINK Technology Incubator 1.2.3.Hy88 mph /Startup Garage11.HyMadagascarCivCivI-Hub MalagasyHabaka1.2.TanzaniaKinu Innovation and Co-CreationSpaceTANZICTDar Tekinohama BusinessIncubator (DTBI)Buni Hub1.2.3.4.CivCivCivHyCivhive ZambiaBongoh1.CivCivtretretortionCivHyHyHyCivGvtGvtGvtbiaNamibia Business InnovationNamibi(NBIC)(NBIC)Centre CtNamibiaFablab 1.2.HyAcaBotswanaBotswana Innovation HubFirst Steps Venture Center1.2.HyGvtCivAcaHyGvtCivAcaHyGovernment ledCivil society ledAcademic institution ledHybrid1078920Tech hubs in AfricaTotal tech hubs by Sept. 2015 = 117IBRD 41639 SECTORAL POLICIES 231 Box 4.10 Israel as a startup nation The term “startup nation” was used to describe Israel in a 2011 best-selling book.a It takes as its starting point the 6,000 startups created between 2000 and 2010, more than twice the rate of the previous decade.
In 2013, the informa- tion and communication technology (ICT) sector in Israel made up 16 percent of GDP and 26 percent of exports and employed 8.5 percent of its workforce.b It was also the ﬁ fth largest exporter of computer software and services in 2012, according to the World Trade Organization,c as ICT exports have increased almost tenfold since 1990 to over US$20 billion (ﬁ gure B4.10.1, panel a).d A key ingredient in the success of the startup nation has been the role of the Israeli government, which designed its interventions so as not to hamper the emergence of the private sector.
Many Organisation for Economic Co-operation and Development (OECD) governments play an active role in funding innovation but Israel’s program, from the very start in the late 1960s, has been particularly geared toward “sector-neutrality”—meaning that the government did not try to “pick winners.” The program’s design avoided crowd- ing out private investment and stimulated additionality.e Recent programs have included the Tnufa program (since 2000), supporting entrepreneurs in the very ﬁ rst stages of development; Magneton (since 2001), supporting industrial/ academic cooperation; the Public Technology Incubator Program set up in the early 1990s to help assimilate a wave of immigrants from the former Soviet Union; and the Yozma Fund, a venture capital fund set up in 1993 for technology companies.
As a result, Israel consistently scores the highest level of gross domestic expenditures on research and devel- opment among OECD economies, although the Republic of Korea is catching up (ﬁ gure B4.10.1, panel b).

But government support for ﬁ rms in the ICT sector is not the whole story.
Israel’s government has promoted a high level of investment in education, and the sector has bene- ﬁ ted from the innovativeness of the ﬁ rm’s themselves, which have been particularly successful in ﬁ elds such as cyberse- curity, mobile phone apps, and voice over internet protocol.
Recent tech startups include Taboola (a content distribution and discovery platform), Silverbyte Systems (providing hotel management software), and Ceragon Networks (a wireless backhaul provider), while longer-established ones include Waze, which provides a location-based navigation app, and Wix, off ering a cloud-based web development platform.

Figure B4.10.1 How Israel stays ahead in high-tech entrepreneurship a. Israel’s ICT exports, 1990–2014 b.
Gross domestic expenditures on R&D as a percentage of GDP, selected economies, 2004–13 s r a l l o d .

S .

U f o s n o i l l i B Israel Korea, Rep. Japan Finland United States OECD average China Source: OECD STI Indicators, available from http://www.oecd.org/sti/msti.htm.
Data at http://bit.do/WDR2016-FigB4_10_1.

Note: In panel b, the percentages shown on the ﬁ gure are for 2013, except for the U.S. percentage, which is for 2012.

GDP = gross domestic product; ICT = information and communication technology; OECD = Organisation for Economic Co-operation and Development; R&D = research and development.

a.

Senior and Singer 2011. b. Getz and Goldberg 2015. c. See https://www.wto.org/english/res_e/statis_e/its2014_e/its14_trade_category_e.htm.
d. Israel, Central Bureau of Statistics 2014. e. Lach, Parizat, and Wasserteil 2008.

232 WORLD DEVELOPMENT REPORT 2016 Notes 2.

3.

4.

5.

6.

7.

8.

9.

10.

11.

12.

13.

1.

“High-speed internet” in this chapter is equated with ﬁ xed-line broadband service (such as digital subscriber line, cable modem, and ﬁ ber optics) and fourth-generation (4G) mobile services.
Internet usage is much higher, at around 40 percent, but this is generally at slower speeds and is not necessarily affordable or “always on.” See chapter 1 and Kim, Kelly, and Raja (2010).

Markovitch 2013.

Qiang 2010.

UN Broadband Commission 2013.

Levinson 2007.

Internet protocol (IP)–based networks used packet- switching, a technology developed in the 1960s, that packages information into uniform chunks of dig- ital data, or “packets,” that can be used to transmit voice, text, video, or data.
IP-based networks thus combine into a single network those functions that were previously handled by separate and distinct networks (Mathison, Roberts, and Walker 2012).

Wu 2010.

See Heeks (2014), notably ﬁ gure 8 on the changing focus of ICT4D priorities over time.

IDATE 2014.

Cleland 2014.

Wheeler 2015.


The United States followed a different model of private ownership, but even there the monopoly of AT&T initially prevailed, as this was considered essential to achieving “universal service,” a tele- phone in each home.

An antitrust suit launched in 1974 eventually broke up AT&T into seven separate regional operators and a national long-distance and international carrier a decade later, opening the door for competition (Crandall 1991).

Harper 1997.

Cho 2002.


OECD 1999.

Ungerer 2000.

See http://ec.europa.eu/priorities/digital-single -market/.

The 69 World Trade Organization member coun- tries that made commitments in telecommuni- cations in 1997 have now risen to 108; see https:// www.wto.org/english/tratop_e/serv_e/telecom_e /telecom_e.htm.

14.

15.

16.

17.

18.

19.

20.

ITU 1997.

21.

Wellenius and Stern 1995.

22.


The cover photo illustrates a failing in all three ingredients for a successful digital policy: Djibouti Telecom is fully state-owned and enjoys monopoly status, contributing in part to its high prices for mobile service.

But neighboring Somalia currently lacks a national communications act and sector regulator, which means that local operators func- tion without internationally recognized licenses.
Thus Somali migrants cannot roam in neighboring countries without changing their SIM cards.

23.

Ampah and others 2009.

24.

See https://gsmaintelligence.com/, although other sources such as Gallup World Poll show lower coverage.

25.

ITU 2001.

26.

See “WhatsApp Shows How Phone Carriers Lost Out on US$33 Billion,” Business Standard, February 28, 2014, at http://www.business-standard.com/article /international/whatsapp-shows-how-phone -carriers-lost-out-on-33-bn-114022200022_1.html.

27.
27.

In the ﬁ rst half of 2014, Netﬂ ix accounted for 35 percent and YouTube 13 percent of internet data trafﬁ c to users in the United States, during peak periods on ﬁ xed networks, according to Sandvine (2014).

28.

Cisco 2015.

29.

Cisco 2015.

30.

Regional average data from GSMA at www.gsma intelligence.com.

31.

Minges 2015.

32.

Evans, Groves, and Croft 2014.

33.

34.


Stock market valuations change constantly, but on May 18, 2015, China Mobile had a market valuation of US$276.45 billion on revenue of US$103.21 bil- lion, while Alibaba had a market valuation of US$217.26 billion on revenue of just US$12.26 billion, according to Yahoo Finance.
Investment in constant U.S. dollars fell to US$248 billion in 2013, down from US$357 billion in 2008, before the ﬁ nancial crisis, according to data on private sector investment in telecoms, sourced by the Public-Private Infrastructure Advisory Facility (PPIAF) and available at http://data.worldbank.org /indicator/IE.PPI.TELE.CDcountries/1W?display= default.

35.

36.

37.

38.

39.

Ofﬁ ce of Legislative and Public Affairs 2003.


The announcement of the transition was on March 14, 2014, by the National Telecommunications and Information Administration of the U.S. Department of Commerce, but the completion date was later delayed by one year to September 2016.

For more information, see https://www.icann.org/resources /pages/process-next-steps-2014-10-10-en and http:// www.ntia.doc.gov/blog/2015/update-iana-transition.
For more information on different national research and education network models, see the South-South Exchange of Research and Education Experience, at https://openknowledge.worldbank .org/handle/10986/12367.

See the regulatory information section of ITU’s ICT Eye database, at http://www.itu.int/icteye.
As an example, the Communications Authority of Kenya, for the ﬁ nancial year ending June 30, 2012, records a surplus of around K Sh 7.0 billion (around US$74 million) on income of K Sh 8.8 billion (US$98 million), a surplus of around 80 percent.

This is over and above other taxes and other ﬁ nancial con- tributions from the sector.
See the Communications Authority of Kenya Annual Report, 2012–13, http://www .ca.go.ke/images//downloads/PUBLICATIONS /ANNUALREPORTS/Annual%20Report%20for%20 the%20Financial%20Year%202012-2013.pdf.

Blackman and Srivastava 2011.

Rijkers, Freund, and Nucifora 2014.

Economist 2012.

See GSMA at https://gsmaintelligence.com/.

ITU estimates that some 95 percent of the world’s population lived within range of a mobile signal in 2015 (ITU 2015).
This aggregate statistic (68 percent) is derived from GSMA (http://www.gsmaintelligence.com), which estimates that, as of Q4 2014, some 98 percent of the citizens of developed economies and 62 percent of developing ones lived within range of a 3G signal.

The equivalent ﬁ gures for 4G/LTE were 88 percent and 15 percent, giving an aggregate of 26 percent.

Mayer and others 2008.


As an example, the Comoros opened its mobile market to competition in 2007, but the incumbent operator, Comoros Telecoms, was successfully able to resist interconnection due to weak regulation, and the market entrant, Twama Telecom, never started service (World Bank 2014).

The Comoros announced a license award for a new second opera- tor, won by Telma, in October 2015.
Third-generation (3G) and fourth-generation (LTE) operate in multiple spectrum bands, but mainly at 1,800, 2,300, and 2,600 MHz.

In countries where the transition to digital broadcasting is complete, the more valuable spectrum of 700 MHz can be released for mobile communications.

This is more attractive to investors as fewer cells are needed to cover the same territory (Dahlman and others 2007).

See Partnership for Measuring ICT for Develop- ment 2014.

Ros and Banerjee 2000.

Wellenius 2002.


GSMA (Global System for Mobile communications Association) 2013.

Minges and others 2014.

UN Broadband Commission 2015, 64–69.

See http://www.fcc.gov/encyclopedia/connecting -america.

See http://ec.europa.eu/digital-agenda/ and https:// ec.europa.eu/digital-agenda/en/connecting-europe -facility#the-connecting-europe-facility-to-support 40.

41.

42.

43.

44.

45.

46.

47.

48.

49.

50.

51.

52.

53.

54.

55.

56.

57.

-eu-infra.


This calculation is based on projects that have received a waiver from the European Commission for the use of state aid in the deployment of broad- band networks (see http://ec.europa.eu/competition SECTORAL POLICIES 233 /sectors/telecommunications/broadband_decisions .pdf).

Marino García 2015a.

Coleago Consulting 2013.

Plum Consulting 2013.

Moore 1965.

58.

59.

60.

61.

62.

See http://www.mkomo.com/cost-per-gigabyte 63.

64.

65.

66.

67.

68.


69.

70.

71.

72.

-update.

Biggs and Kelly 2006.

Economist 2015.

This is sometimes referred to as Amara’s Law.

See http://articles.latimes.com/2006/jul/16/business /ﬁ -overheat16.

Samarajiva 2010.

Genakos and Valletti 2014.

Littlechild 2006.

Kemei and Kelly 2015.

ITU 2014. http://www.oecd.org/sti/broadband/price-baskets .htm and http://www.oecd-ilibrary.org/docserver /d o w n l o a d /5 k 9 2 w d 5 k w 0 nw.

p d f ?
p d f ?

e x p i r e s = 1419284221&id=id&accname=guest&checksum= 70B5A3123B6297371A59AC6F4C97AC55.

73.

74.

75.

76.

77.

ITU 2014.

ITU 2014.

Boston Consulting Group 2012.

World Bank, forthcoming.

See https://www.washingtonpost.com/news /the-switch/wp/2015/09/22/dig-once-the-no -brainer-internet-policy-the-white-house-just -endorsed/.

78.

Packet Clearing House 2015.

Kende and Hurpy 2012.

79.

Kende and Rose 2015.

80.

Regulation (EC) No.


2887/2000 of the European Par- 81. liament and of the Council of December 18, 2000, on unbundled access to the local loop, at http://europa .eu/legislation_summaries/information_society /internet/l24108j_en.htm.

Klein and Wendel 2014.

See https://apps.fcc.gov/edocs_public/attachmatch 82.

83.

/DOC-327104A1.pdf.

84.


See http://www.washingtonpost.com/blogs/the -switch/wp/2014/12/23/fcc-confirms-that-680000 -net-neutrality-comments-weremissing-from-the -public-record/.

85.

S e e h t t p : // w w w. ny t i m e s .

c o m / 2 0 1 5 /0 2 / 2 7 /technology/net-neutrality-fcc-vote-internet-utility .html?_r=0.

86.

87.

UNESCO.
86.

87.

UNESCO.

See, speciﬁ cally, Article 19 of the Inter- national Covenant on Civil and Political Rights (ICCPR); Article 13 of the African Charter of Human Rights (ACHR); Article 9 of the African Charter; and Article 10 of the European Court of Human Rights.

See Open Network Initiative at http://map.opennet .net/ﬁ ltering-pol.html.

234 WORLD DEVELOPMENT REPORT 2016 88.

89.

90.

91.

92.

Dutton and others 2013.

Clover 2015.

Waldfogel 2011.

Internet Society 2014.


See http://www.ndtv.com/india-news/supreme -court-reserves-orders-on-validity-of-section-66a -of-it-act-742758.

93.

94.

95.

See http://www.google.com/transparencyreport/.

See http://www.google.com/transparencyreport /trafﬁ c/.

See http://blogs.wsj.com/chinarealtime/2015/02/12 /china-internet-restrictions-hurting-business -western-companies-say/.

96.

97.

98.

99.

100.

101.

102.

103.

104.


This chapter similarly adopts an expansive view of “cybersecurity” and delves more deeply into some aspects of cybersecurity—such as privacy and cybercrime—separately.

See Bauer and Dutton (2015), citing other sources.

Bauer and Dutton 2015.

Article 17 ICCPR; Article 11 ACHR; Article 8 ECHR; and UNGA resolution 68/167 (2013) on the right to privacy in the digital age.
YCharts, Facebook Market Cap (June 10, 2015); see http://ycharts.com/companies/FB/market_cap.

WEF 2014.

Dutton and others 2013.

FTC 2013.

See http://www.washingtonpost.com/blogs/the -switch/wp/2014/11/13/facebook-rewrites-its -privacy-policy-so-that-humans-can-understand-it/.

105.

106.

107.

Polonetsky, Tene, and Jerome 2014.

World Bank and Second Muse 2014.

See http://georgemdallas.wordpress.com/2014/06/05 /making-sense-of-internet-platforms-network -effects-and-two-sided-markets/.

108.

109.
108.

109.

110.

111.

112.

Haddad and others 2014.

Berlingerio and others 2013.

See http://www.economist.com/news/leaders /21627623-mobile-phone-records-are-invaluable -tool-combat-ebola-they-should-be-made-available.

See Article 29 Data Protection Working Party 2014.

See https://www.ftc.gov/system/files/documents /reports/federal-trade-commission-staff-report -november-2013-workshop-entitled-internet-things -privacy/150127iotrpt.pdf.

113.
113.

Recent jurisprudence from both the European Court of Justice (ECJ) and the European Court of Human Rights (ECHR) support striking this bal- ance.

In Digital Rights Ireland Ltd v. Ireland (Joined Cases C-293/12 and C-594/12 Seitlinger and Others, April 8, 2014), the ECJ ruled the Data Retention Directive to be in violation of the EU Charter of Fundamental Rights.
In S and Marper v. UK 30562/04 [2008] ECHR 1581 (December 4, 2008), the ECHR, using a proportionality analysis, found the United Kingdom to be in breach of Article 8, holding that the long-term retention of both ﬁ ngerprints and DNA samples interfered with an individual’s right to privacy.

S ee http://www.bbc .com/news/technology 114.

-29276955.

115.

116.

117.

118.

119.

120.

121.

122.

123.

124.

125.

126.

127.

Doupi and others 2010.


Google Spain and Google vs. Agencia Española de Protec- ción de Datos (AEPD) and Mario Costeja González [Case No.

131/12, 2014] European Court of Justice.

Ausloos 2012.

See Schwartz and Solove (2014).

The EU generally prefers legal instruments that position privacy as a human right, whereas the United States relies more on self-regulation, seeing privacy as a consumer protection issue.

UNCTAD 2015 UN General Assembly 2013.


See the African Union Convention on Cyber- security and Personal Data Protection (July 27, 2014).

OECD 2013.

The OECD Privacy Guidelines incorporate a “Recommendation Concerning Guidelines Gov- erning the Protection of Privacy and Transborder Flows of Personal Data.” See http://www.apec.org/Groups/Committee -on-Trade-and-Investment/Electronic-Commerce -Steering-Group/Cross-border-Privacy-Enforcement -Arrangement.aspx.

European Commission (EC 2010).


White House 2012.

Maximilian Schrems vs. Data Protection Commissioner [Case No.

C-362/14, 6 October 2015] European Court of Justice.

The recent decision by the European Court of Justice about the “right to be forgotten” (Google Spain and Google vs. Agencia Española de Protección de Datos [AEPD] and Mario Costeja González [Case No.
131/12, 2014]), which requires search engines to remove links to data upon request if they are inadequate or irrelevant, throws into question not only the bal- ance of data protection and freedom of expression rights, but also extraterritorial application of law and perhaps irreconcilable compliance obligations of multinational companies processing data across borders.

See https://www.huntonprivacyblog.com/2015/01 /articles/deadline-for-compliance-with-russian -localization-law-set-for-september-1-2015/.
128.

129.

See http://www.theguardian.com/us-news/2015 /may/07/nsa-phone-records-program-illegal-court.

130.

131.

132.

Castro 2013.

Dutton 2015.

The origins of the debate around net neutrality are the U.S. Communications Act of 1996, as amended.

Under the act, “telecommunications services” are regulated under common carrier rules, and other communications services, such as data, are regu- lated differently.
In the United States, the internet has been classiﬁ ed as a data service and therefore not subject to the same regulatory rules as telecom- munications services.

In most other jurisdictions, the distinctions found in the act do not apply, although the term net neutrality (though derived out of speciﬁ c statutory language) has come to be applied globally.

See http://trak.in/tags/business/2015/04/17/trai 133.

-airtel-zero-internet-org-against-net-neutrality -violate-free-internet/.

134.

135.

136.

137.


138.

139.

140.

141.

142.

143.

West 2015.

See http://www.bbc.com/news/technology -32334181.

Council of Europe 2010.

See http://www.ohchr.org/en/professionalinterest /pages/ccpr.aspx.

See http://www.forbes.com/billionaires/list /#version:static.

Citation from entrepreneur Mark Simon, quoted in Madslien 2010.

Kushida 2015; Minges 2015.

Bresnahan, Gambardella, and Saxenian 2001.

Katz and Wagner 2014.


See http://fortune.com/2012/05/09/the-random -collision-theory-of-innovation/.

144.

145.

146.

FabLabs are similar to Tech Hubs, but focus more on making physical prototypes than software, content and applications development; see, for instance, Tokushima and Tanaka (2015).
The United Nations Broadband Commission (UN Broadband Commission 2013) reports that the 134 countries that had a national broadband plan as of mid-2013 had, on average, some 2.5 percent higher ﬁ xed broadband penetration and 7.4 percent higher mobile broadband penetration.

See http://www.broadbandcommission.org/about /Pages/default.aspx.

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“Opinion 8/2014 on Recent Developments on the Internet of Things.” http://ec.europa.eu/justice/data-protection /article-29/documentation/opinion-recommendation /ﬁ les/2014/wp223_en.pdf.

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240 WORLD DEVELOPMENT REPORT 2016 SECTOR FOCUS 4 Smart cities Cities are where problems and solutions meet.

They are our centers of commerce and innovation—and the gateways to the global economy.
With the world rapidly urbanizing, cities will only grow in impor- tance; the urban population of the developing world is expected to double between 2000 and 2030, adding 2 billion city dwellers.

This creates urgency to get our cities “right” because the global response to our most pressing challenges—from climate change to rising inequality—will likely succeed or fail in cities.
Innovative urban leaders have begun to tap into new streams of data on the state and performance of their cities, often in real time, to realize a forward- looking vision of a “smart city”—a city that leverages the latest in technology and connectivity to make better decisions and achieve the urban aspirations of its residents.1 Speciﬁ cally, smart cities collect lots of data through instrumentation, bring these data together through integration, and then analyze the integrated data for intelligence on how to improve the city’s services and quality of life (ﬁ gure F4.1).
Smart cities use this three-step approach to tackle everything from reducing trafﬁ c congestion to ﬁ ghting crime to improving air quality.

Despite widespread enthusiasm, however, dis- cussions held under the World Bank’s Urbanization Knowledge Partnership indicate that most city leaders struggle to understand how to best invest in intelligent infrastructure and connectivity to deliver long-term value.

In addition, the concept of a smart city has grown somewhat controversial.
Proponents argue that smart city innovations offer a genuine rev- olution in city management.

Skeptics see empty hype that risks wastefully distorting the investments of resource-constrained governments as they prioritize This sector focus was contributed by Dennis Linders.

“fancy” technology over less exciting but more impor- tant foundational investments.
While evidence of sustained impact remains elu- sive, governments allocate signiﬁ cant sums on smart city projects, including in the developing world.

China has launched a reported US$70 billion “smart city” credit line and a US$8 billion investment fund.2 India is seeking to leverage its homegrown informa- tion technology (IT) industry to construct 100 smart cities, with a ﬁ rst-year budget of US$1.2 billion.
3 Rio de Janeiro implemented a ﬁ rst-of-a-kind Intelligent Operations Center, bringing together data from over 30 agencies and services in a command center like that of the U.S. National Aeronautics and Space Administration (NASA).

Even resource-constrained cities in Africa are embarking on the smart city jour- ney, such as in Konza Techno City near Nairobi.
Pragmatically, old and new cities alike have begun to incorporate smart technologies into the everyday fabric and complexities of their existing urban cen- ters to drive greater efﬁ ciencies in city operations; provide a platform for innovation at a citywide scale; and promote social inclusion through heightened accountability, citizen empowerment, and smarter decision making.
Effi ciency—to do “more with less” By collecting large amounts of data and then trans- lating these data into insights, cities are able to boost the efﬁ ciency and responsiveness of their operations.

Data help cities better match the supply of public services with real-time needs and uncover emerging problems before they turn into crises.

Smart city tech- nologies make this possible in several ways.
Automated SMART CITIES 241 241 Figure F4.1 Smart cities: From data to intelligence Instrumentation Integration Intelligence Collect (a lot of) data.

Connect and bring these data together from across the city.

Analyze integrated data for insights and trends to make smarter decisions.

INCLUSION EFFICIENCY INNOVATION Sensors (examples: traffic, water, energy) Systems (example: building automation) Satellites (example: weather patterns) Society (example: social media) Source: Adapted from Palmisano 2008.
“Internet of things” Ubiquitous connectivity Smart grid Big data analytics Predictive analytics Data-driven optimization optimization translates data from cameras, sensors, and anonymized cellphone records into intelligence to, for example, help optimize trafﬁ c ﬂ ows in real time.

Predictive analytics uses such data to track and predict everything from rainfall to crime hot spots to possible landslide areas.
Evidence-based decision making and planning can continuously monitor milestones and targets to ensure cities can quickly take corrective actions as needed to achieve their goals.

Innovation—through collaboration at city scale Most smart city innovations have their origins in the private sector.

Engineers argue that a city is essen- tially a complex system of systems, and each of these systems generates data that can be analyzed to make cities smarter.
But for individual “smart systems” to add up to a “smart city,” innovations must be on a citywide scale.

That requires contributions and ideas not just from commercial ﬁ rms but also from gov- ernments and citizens through public-private-people partnerships.

Open data, social media, and cellphones enable governments, ﬁ rms, and citizens to exchange vast amounts of information at virtually no cost—making it far easier to share knowledge and ideas that are dis- tributed throughout society.
These tools also enable real-time collaboration, enabling governments to view their citizens and ﬁ rms not just as passive customers of public services, but as key partners in innovative problem solving.

Amsterdam and Singapore have begun to use this collaborative approach to bring together citizens, businesses, and government to experiment with innovations to lower their city’s envi- ronmental footprint, one neighborhood at a time.

Governments can facilitate collaboration through three platforms.
Through local open data, cities share local data with the public, promoting transparency, accountability, and collaborative problem solving.

Through “living labs,” governments designate parts of the city as test beds to collaboratively pilot new ideas.

Through urban analytics centers, cities partner with local universities and industry to seed cross- disciplinary research centers with systematic access to local urban data.
Inclusion—to ensure everyone beneﬁ ts City leaders should focus smart city efforts on the needs of all residents.

Three valuable urban practices in the developing world are worth noting.

First, use data to target the most vulnerable, as São Paulo did by devel- oping a comprehensive geographic database of socio- economic and physical indicators to prioritize housing and slum upgrading investments.
Second, open up data to promote accountability, including grassroots initia- tives such as the mapping of facilities, pollution, and community needs in Kibera, Nairobi’s largest informal settlement.

Third, tap mobile connectivity to expand civic participation, as cities in the Philippines have done for participatory budgeting and for crowdsourcing the identiﬁ cation of smoke-belching vehicles.
The road ahead—the city as a laboratory The explosion of urban data will slowly give rise to a “science of cities.” City leaders can speed up this process by turning their cities into laboratories for smart innovations that translate local experiments 242 WORLD DEVELOPMENT REPORT 2016 into global knowledge, and global knowledge into local solutions.
This exchange of ideas will no longer ﬂ ow only from the West to the rest, since rapid urbanization enables cities in the developing world to leapfrog their global peers by incorporating smart from the start in ways that are cheaper and easier than retroﬁ t- ting legacy infrastructure.
Cities in the “global south,” from Rio to Shanghai, often push the boundaries of innovation as aggressively as their peers in the “global north.” In fact, smart cities may be the ﬁ rst instance of a large-scale urban transformation that is truly global in origin, with innovations and ideas ﬂ owing in all directions simultaneously—and with pockets of innovation appearing in unexpected places.

Accelerating this progress will require actions at all levels.
Global institutions like the World Bank can facilitate the sharing of experiences.

Cities can work together to establish open standards to avoid vendor “lock-in” and to make it easier to share solutions—a community-developed app in, say, Chicago, can then be rapidly deployed in Chengdu and Caracas.

Local governments can address the often fragmented struc- ture of their bureaucracies and outdated procurement systems that are incompatible with the design and implementation of integrated IT systems.
And city halls everywhere should bring together governments, ﬁ rms, and the public to jointly design a vision for the future of their city with long-term goals and short- term priorities to guide the development of smart city projects that deliver value for all the city’s residents.

Notes 1.

Townsend 2013.

2.

People’s Daily, “China Prepares for Smart City Con- struction Boom,” October 16, 2013, http://en.people .cn/90882/8426660.html.

3.
3.

Times of India, “Government to Set Up 100 Smart Cities,” July 23, 2014, http://timesoﬁ ndia.indiatimes .com/india/Government-to-set-up-100-smart-cities /articleshow/38919516.cms.

References Palmisano, Samuel J.

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244 WORLD DEVELOPMENT REPORT 2016 ENABLING DIGITAL DEVELOPMENT Th e data revolution 5 T H G I L T O P S A report commissioned by the United Nations, A World That Counts, proclaims, “Data are the lifeblood of decision-making and the raw material for account- ability.
Without high-quality data providing the right information on the right things at the right time, designing, monitoring and evaluating effective poli- cies becomes almost impossible.”1 Recognizing the potential for harnessing the ongo- ing explosion of data, but mindful of gaps between the developing and developed world, the report calls for a data revolution that would aid in the achieve- ment of the Sustainable Development Goals.

The world is witnessing an unprecedented explo- sion of data.
Digital data overtook analog around 1998, and in 2013 amounted to 46 billion trillion bytes.

That’s equivalent to about 400 trillion printed copies of this Report, which when stacked would reach from Earth to well beyond Pluto.

Figure S5.1 shows the ongoing upsurge of data, as measured by total storage capacity.

Figure S5.2 shows the evolution of telecommunica- tions capacity.
Although the absolute gap between higher- and lower-income countries is increasing, growth in the latter has been faster since 2008.

In harnessing this data explosion for development, attention focuses on two overlapping innovations: “big data” and open data.

Big data are voluminous or fast.

They come, for instance, from satellite and ground sensors and as by-products (“data exhaust”) from electronic transactions and from mobile phone calls.
The promise of big data is to provide informa- tion of unprecedented scope, detail, or rapidity.

For instance, Global Forest Watch crunches massive amounts of open satellite data in order to generate near real-time, global maps of tropical deforestation.2 WDR 2016 team, incorporating contributions by Amparo Balli- vian and Thomas Roca (2015).

Open data are those that are freely and easily acces- sible, machine-readable, and explicitly unrestricted in use.
Open data aren’t necessarily big, and big data aren’t necessarily open.

Governments are, or could be, important sources of data on population, public budgets, education and health facility usage and sta- tus, weather, and trade.

When opened, these data can be combined and recombined in ways that directly beneﬁ t the public (for instance, by increasing the transparency and accountability of government) and provide the basis for commercial, value-added services (such as apps for navigating public transit).
Box S5.1 presents some examples of both big and open data.

Exuberant estimates of the current and potential economic value of big data and open data range from the hundreds of billions to the trillions of dollars per year.

The clearest beneﬁ ts so far have been for map and weather data.
Openly available global positioning system (GPS) data supported markets for geospatial data and services worth US$56 billion in 2013 in the United States alone.3 At least four companies valued at over US$1 billion—Zillow, Zoopla, Waze, and the Climate Corporation—process and resell open data about real estate, trafﬁ c conditions, and weather.

Yet sustained, impactful, scaled-up examples of big and open data in the developing world are still rel- atively rare.

Open data has far to go.


Figure S5.3 shows that readiness, implementation, and impact of open data are all highly correlated with GDP per capita, but that there are shortcomings in high-income coun- tries, as well.

Data impact requires willing suppliers and eager demanders.

On the supply side, private holders of data may be reluctant to share it for fear of jeopardiz- ing customers’ privacy or corporate competitiveness.
Yet some of these data, if pooled and shared, could Figure S5.1 World’s capacity to store information in optimally compressed bytes Fig ure S5.2 Growth in telecommunications capacity in optimally compressed kbps THE DATA REVOLUTION 245 245 y t i c a p a c l l a c i g o o n h c e T 1022 1021 zettabyte 1020 1019 4.6 zettabytes 309 exabytes 54 exabytes 16 exabytes 2.6 exabytes 1018 exabyte 1017 1016 y t i c a p a c s n o i t a c i n u m m o c e e T l 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 ≈ 2013 12,400 KBPS 1,500 KBPS Δ ≈ 10,900 KBPS ≈ 8 ≈ 2007 940 KBPS 51 KBPS Δ ≈ 890 KBPS ≈ 18 ≈ 2003 100 KBPS 9 KBPS Δ ≈ 91 KBPS ≈ 11 5 5 T T H H G G I I L L T T O O P P S S 19 8 6 19 9 0 19 9 4 19 Total Analog Digital High-income Rest Source: Hilbert 2015.
Data at http://bit.do/WDR2016-FigS5_1.

Source: Hilbert 2015.

Data at http://bit.do/WDR2016-FigS5_2.

Note: kbps = kilobits per second.

generate public beneﬁ ts.

There are emerging models that seek to create a symbiotic relationship among public, private, and academic actors that incorporates beneﬁ ts for all.

For instance, taxi companies may justiﬁ ably be unwilling to share detailed data on vehicle move- ments.
Data on average vehicle speed by road seg- ment is valuable for the companies—it helps them Box S5.1 “Big data” and open data in action Informing relief eff orts in the wake of the Nepal earthquake.

A critical need in disaster relief is to track displaced populations for effi cient logistics planning.
Cellphone location data can provide comprehensive, real-time information on population, but cellphone operators are often reluctant to share this data for techni- cal, conﬁ dentiality, or competitive reasons.

Flowminder, a Swedish nongovernmental organization (NGO), has worked out procedures for accessing this data and has used it to estimate population movements following the 2015 earthquake to aid in relief eff orts.

http://www .worldpop.org.uk/nepal/.

Real-time independent measures of inﬂ ation.


PriceStats computes daily inﬂ ation data for 22 economies by scrap- ing price data from the web.

These inﬂ ation statistics are more timely than offi cial numbers, and provide an independent cross-check.

http://www.pricestats.com.

Accountability for subsidies in Mexico.

Fundar Center for Analysis and Research, a Mexican NGO, persuaded the Mexican Ministry of Agriculture to open its data on the large PROCAMPO subsidy program.
The data showed that 57 percent of the beneﬁ ts were going to the wealth- iest 10 percent of recipients.

A website now tracks these and other ﬁ nancial ﬂ ows, and allows data to be visual- ized.

http://subsidiosalcampo.org.mx/.

Promoting effi cient procurement of pharmaceuticals in Southern Africa.
The Southern African Regional Programme on Access to Medicines and Diagnostics (SARPAM) InfoHub assembles information about pharma- ceutical procurement volume and prices in the Southern African Development Community.

It publishes price data on the web, and estimates the potential savings, for each member country, if medicines were purchased at the low- est available price.

http://med-db.medicines.sadc.int/.

Source: WDR 2016 team.
246 WORLD DEVELOPMENT REPORT 2016 Figure S5.3 Readiness, implementation, and impact of open data 100 90 80 70 60 50 40 30 20 10 l d e a c s - n o i t t a n e m e p m l I NZL NLD GBR USA SWE AUS DEU ESP EST DNK AUT CHE BEL CHL BRA CZE ITA PER RUS HUN POL ECU MYS PRT IRL RWA KAZ SGP VNM UGA BEN TZA YEM THA EGY COL CHN KEN ARE MAR TUN PAK NGA QAT MMR 0 CMR MLI 5 T H G I L T O P S 0 10 20 30 40 50 60 70 80 90 100 Readiness-scaled Impact-scaled 0 20 40 60 80 100 Income Low-income Lower-middle-income Upper-middle-income High-income Source: WDR team based on 2014 data from World Wide Web Foundation 2015. http://barometer.opendataresearch.org/report/about/data.html.
Data at http://bit.do/WDR2016-FigS5_3.

with dispatching—and for city managers it provides a useful gauge of congestion.

The World Bank is exploring ways to provide companies with software that distills their data down to average vehicle speed.

This summarized data could then be shared between companies and with the public, yielding more accu- rate and comprehensive estimates of travel speeds.
In Australia, a tech startup called The Yield is work- ing with public sector regulators to test ways to help farmers share data for the common good.

The $A 100 million Australian oyster industry loses nearly $A 34 million a year due to harvesting closures by regulators to protect human health when runoff is contaminated.

The idea is to equip the oyster farms with real-time sensors on water quality.
The data will help individual farmers with farm management, while allowing regu- lators to optimize decisions, avoiding costly, unneces- sary closures and still maintaining safety.

Public agencies are also reluctant to share data, even when it has large public beneﬁ ts.

For example, of the 86 countries surveyed by the Open Data Barom- eter, one-third of the high-income countries and 85 percent of the remainder had made little or no prog- ress in opening map data.
One reason is that cash- strapped agencies support themselves by selling data.

This shuts out many potential users, even though the additional cost of providing the data to them would be negligible.

A dramatic example of reversing this trade-off is the decision of the U.S. government to reduce the cost of a digital Landsat satellite image from US$600 to zero in 2008.

The annual number of downloads increased from fewer than 25,000 to 3 mil- lion.
The direct beneﬁ ts are estimated at US$1.8 billion a year for U.S. users and US$400 million for interna- tional users;4 there are substantial indirect beneﬁ ts as well.

The loss of government revenue from selling the 25,000 images was miniscule by comparison.

So if the ﬁ xed costs of data maintenance can be ﬁ nanced, the beneﬁ ts from free distribution can be large.

There are other reasons for public agencies to be reluctant to share.

Agencies may lack technical skills to share data.


They may be unwilling to expose the data to scrutiny because of quality concerns.

They may value the political leverage afforded by monop- olizing data.

Nonetheless, both the G-8 countries and the African Union’s High-Level Conference on the Data Revolution have endorsed the concept of mak- ing ofﬁ cial data open by default.

Effective demand for data may also be weak, even if there is underlying interest.
Of course, accessibility to the internet is a prerequisite.

Outdated or poor- quality data will discourage demand.

Because data lit- eracy is critical, intermediaries can play a key role in interpreting, analyzing, and disseminating open data.

But capacity or incentive to do this is often lacking.

There has not been as much uptake by journalists as some have hoped.
And while a beneﬁ t of open data is enhanced sharing among government agencies, relatively few governments are making optimal use of existing statistics for planning purposes, according to PARIS21.
However, Bangladesh, Cambodia, and Niger scored high on statistical capacity (according to PARIS21’s IDR Metadatabase), showing that it is pos- sible for low-income countries to excel at generating and using statistics.5 The pioneering Kenyan Open Data Initiative shows both the promise and challenges of open data.

A champion, Permanent Secretary Bitange Ndemo, persuaded ministries to open their data, and the program was inaugurated in 2011.
The World Bank, Google, and Ushahidi provided technical and ﬁ nan- cial support.

Drawing on Nairobi’s vibrant tech scene, the ancillary Code4Kenya initiative spurred the development of apps that presented health, safety, and other information in engaging and useful ways.

THE DATA REVOLUTION 247 A journalist, Irene Choge, attended a Data Journalism Boot Camp.
She then used the Open Data Platform to trace a chain of links: funding for school toilets had gone missing, so the student-to-toilet ratio for many schools was intolerably high, leading to open defe- cation; consequently students were suffering from illnesses associated with poor sanitation, and female students, especially, were discouraged from attend- ing school; the end result was poor performance on tests.
The ﬁ ndings prompted government action.6 Despite this promising beginning, the Open Data Initiative lost steam.

Data were not updated, the apps struggled to ﬁ nd users, and a legal framework for open data was not in place by mid-2015.

Kenya’s score on the Open Data Barometer dropped from 43 to 26 between 2013 and 2014.

This example underscores the global need for sus- tained commitment to openness and for investment in high-quality data if the dream of a data revolution is to be realized.
Countries can seek ways to discour- age data hoarding, by adequately funding data hold- ers and showing them that they can attain a higher proﬁ le by opening their data.

Donors and the interna- tional community can support these actions through funding, capacity building, and ensuring that their own data are open.

Notes 1.

Independent Expert Advisory Group Secretariat 2014.

2. http://www.globalforestwatch.org/.

3. http://gpsworld.com/the-economic-beneﬁ ts-of-gps/.

4.

Miller and others 2013.


5. http://datarevolution.paris21.org/metabase.

6. https://www.youtube.com/watch?v=A58R2yNQtio.

References Ballivian, A., and Thomas Roca.

2015.

“New Data for Development.” Background paper for the World Devel- opment Report 2016.

World Bank, Washington, DC.

Hilbert, Martin.

2015.

“Quantifying the Data Deluge and the Data Drought.” Background note for the World Development Report 2016.

World Bank, Washington, DC.

Independent Expert Advisory Group Secretariat.

2014.
2014.

A World That Counts: Mobilizing the Data Revolution for Sustainable Development.

New York: United Nations.

Miller, Holly M., Leslie Richardson, Stephen R. Koontz, John Loomis, and Lynne Koontz.

2013.

“Users, Uses, and Value of Landsat Satellite Imagery—Results from the 2012 Survey of Users.” Open-File Report 2013–1269.

U.S. Geological Survey.

http://pubs.usgs .gov/of/2013/1269/.


5 T H G I L T O P S CHAPTER 5 National priorities Analog foundations for a digital economy Estonia is one of a handful of countries closest to becoming a digital society.

After regaining its indepen- dence in 1991, it decided to promote the use of digital technologies in all areas of society and the economy.

The nation was not rich by European standards, so one objective was to take advantage of efﬁ ciency gains.
While investing in information and communication technologies (ICTs), Estonia also greatly improved its business climate, human capital, and governance.

The greater ease of doing businesses spawned a host of technology-intensive startups, including Skype and TranferWise, a company disrupting the money trans- fer industry.

The country today ranks high in the PISA (Programme for International Student Assessment) educational rankings and invests in digital literacy for its older citizens.
The greater accountability in gov- ernment boosted it from 78th to 40th between 1996 and 2010 on a ranking of 144 countries on their control of corruption.

Today, Estonians have access to 3,000 e-government, e-banking, and other services, saving each of them an average of 5.4 work days a year.1 Estonia demonstrates that even small and devel- oping or transitioning countries can seize the oppor- tunities the internet offers by implementing a smart and comprehensive digital development strategy.
Many other countries have also eagerly invested in digital technologies but have failed to create the environment for it to support development.

So, while the internet has spread rapidly, development has advanced much more slowly.

Chapter 4 discussed policies that ensure universal, affordable, safe, and open access to the internet.

These supply-side policies are critically important, but are not enough.

Why is technology by itself unlikely to solve persistent development problems?
The key insight is that a typical task in development has two broad parts: one that can be automated, and one that cannot.

The automatable part of the task consists of repeat- able, routine activities that produce measurable outputs and outcomes, and therefore are amenable to automation.

Tasks performed by, say, bank tellers, bookkeepers, or clerks—and services such as regis- tration and licensing—can to a large extent be done with digital technologies.
In contrast, many tasks per- formed by teachers, researchers, or managers—and services such as policing or those performed in health care—involve activities where the providers must exercise considerable judgment in deciding what to do or how to respond.

ICT projects often fail when they focus solely on technology without also address- ing shortcomings in the complements that cannot be automated.

The line that divides automatable activi- ties from those that are not is, of course, continuously shifting.
But solving the most difﬁ cult development problems will almost always require more than just technology.

Chapters 1−3 of this Report presented evidence of the problems that can arise from greater use of tech- nology and identiﬁ ed the main risks that countries face as a consequence.
To mitigate these risks, invest- ments in digital technologies must be accompanied by improvements of their analog complements (ﬁ gure 5.1): • Lower-than-expected internet adoption means that many ﬁ rms in low- and middle-income countries forgo considerable productivity beneﬁ ts.

The rea- sons include a poor business climate and vested interests that hinder market entry and reduce the pressure to innovate.
Without improved regula- tions, especially those governing competition, econo- mies of scale brought by the internet could well lead to harmful concentration and monopolies—and thus to greater divergence between and within countries, rather than convergence and catching-up.

• Rising shifts of income from labor to capital and the drop in mid-level jobs in many countries sug- gest that the gains from greater use of technology may not be equitably shared.
Without complemen- tary investments in the skills that workers need to leverage the internet, automation could exacerbate inequality rather than promote greater opportunity and shared prosperity.

• E-government projects have a poor record in many countries; governments have too often been unable, and sometimes unwilling, to use the inter- net to improve service delivery and increase public participation.
Without more capable and more accountable public sector institutions, technology investments could lead to more control and not to greater empowerment of citizens.

Business regulations that ensure a high degree of competition, skills that prepare workers for the 21st-century workplace, and accountable public insti- tutions that use the internet to improve services— together these constitute the analog foundation that supports an inclusive, efﬁ cient, and innovative digi- tal transformation.
The idea that technology alone is not enough to have a widespread impact on development is sup- ported by a growing academic literature.

Research- ers focus on different angles, but come to similar conclusions (box 5.1).

In a growth context, the level of analysis is a country or sector, and what matters is how technology interacts with rules—that is, with regulations and similar endowments.
In a labor mar- ket context, the level of analysis is occupations or speciﬁ c tasks, and what matters is the interaction of automation and worker skills.

And in a government context, the level of analysis is a public service, and what matters for delivery is the accountability of institutions.

The interdependence between technology and complements Technology and its complements feed on one another.
Improvements in the business climate, human capi- tal, and public sector governance are already high on the reform agenda in most countries.

With greater use of technology, the complements also become more valuable because they interact.

Thanks to tech- nology, ﬁ rms operating in a well-regulated business environment are more innovative.

Skilled workers are more efﬁ cient.


And accountable institutions are NATIONAL PRIORITIES 249 Figure 5.1 Risks from digital technologies in the absence of complements DIGITAL TECHNOLOGIES Scale without competition Automation without skills Information without accountability CONCENTRATION INEQUALITY CONTROL Source: WDR 2016 team.

more inclusive.

The internet thus tends to amplify existing strengths and weaknesses, and progress in these areas therefore becomes even more urgent.
Otherwise, there is a risk of falling further behind for those who do not make the necessary reforms.

As the following sections will show, technology does not just increase the value of complements.

It can also often raise their quality—for instance, through online business registration programs, online education, or better monitoring.

So how can businesses, people, and governments reap the greatest digital dividends?
The Report suggests many detailed steps to strengthen analog complements, but policy makers should also keep in mind a set of overarching principles concerning the interaction of technology and complements.
Guiding premises The inability to scale up is one of the most commonly cited reasons for failed digital interventions The popular media is ﬁ lled with inspiring stories involving technology: digital marketplaces are helping artisans in remote hillsides to access global markets; the on-demand economy is creating new startups and digital entrepreneurs; and social media tools are helping citizens organize and rally around issues of common concern.
But after a promising start, many initiatives seem to ﬂ ounder.

For every successful online commerce platform, nearly four fail to achieve scale.

Despite the growing popularity of the on-demand economy, the ﬁ rm startup rate in 250 WORLD DEVELOPMENT REPORT 2016 Box 5.1 Three ideas about the interaction between technology and its complements The relationship between technology and complements that is at the core of this Report is also the topic of recent work by a number of prominent researchers.
Technology and rules (competition).

Paul Romer develops a simple growth model in which technology interacts with “rules”—including, importantly, regulations shaping the business climate.

Technology is tradable and can spread to new places quickly.

Rules are established locally.

Even if they are negotiated internationally, they will not be simply imported like, say, capital goods.
So there will always be a complex, context-speciﬁ c political process that leads to their adoption and determines how eff ectively technology is deployed.

Together, technology and rules enable the cre- ation or adoption of new “ideas”—new or improved ways of producing, working, or serving citizens.

The quality of rules varies across countries.

Romer cites the municipal water sector privatization to a French company in Argentina to illustrate his argument.
The program was initially success- ful, but—like in many other countries—eventually ran into popular opposition, which prompted renationalization.

The technology required and the rules and preferences about regulating utility monopolies were present in France but not in Argentina.

Technologies and rules were thus poorly matched.

In contrast, ideas about setting up and operating mobile phone systems spread quickly to many countries—even to fragile states like Somalia.
Mobile phone technology, in contrast to landlines or municipal water, easily allows competition among providers even in places with low regulatory capacity.

For mobile, local conditions (or rules) have accommodated the new technology.

Technology and skills.

David Autor is most concerned with eff ects of technology on labor markets.
Looking at occupations and even individual tasks, he considers how much of a person’s job is routine and could be done by a machine—and how much is nonroutine and not easily auto- mated.

Those tasks that follow easily codiﬁ able procedures can be done by computers faster, better, and more cheaply.

With increasing computing power and better software, the rule of thumb is that if you can fairly easily explain a job to someone, it can probably be automated.
Tasks that require problem solving, adaptability, and creativity, in contrast, are very hard to automate.

Again, the diffi culty in automating a job tends to match the diffi culty in describing it.

Autor stresses the interaction of technology with non- routine tasks.

Nonroutine jobs cannot easily be automated, but they can beneﬁ t from automation because technology tends to complement skills.

Workers in nonroutine jobs get more productive as the automation of other tasks increases.
Technology and discretion (accountability).

Lant Pritchett, Michael Woolcock, and Salimah Samji focus on public ser- vices and develop a typology of organizational capabilities for speciﬁ c public sector tasks.

They do not speciﬁ cally look at the role of technology, but their framework provides insights about when technology could improve services.
Informed by the accountability framework in the 2004 World Development Report, Making Services Work for Poor People, their main criterion is whether a task involves local discretion and therefore some judgment by a civil servant.

Others are whether a task is transaction-intensive, and thus involves many people; whether it is a service (education) or an obligation (policing); and whether it can draw on existing knowledge or requires innovation.
Categorizing public ser- vice tasks in this framework helps explain why e-government eff orts often fail—when organizational capabilities are poorly matched to technology and the requirements of the task.

These studies make very similar arguments.

First, tech- nology alone will not be enough.

Second, increasing the use of technology needs to be matched by complementary reforms.
And third, knowing the best combination of tech- nology and complements for diff erent tasks, occupations, and services is the key to translating technological progress into development.
Sources: Romer 2010; Autor 2014; Pritchett, Woolcock, and Samji, forthcoming; World Bank 2004. the United States continues to decline, with the larg- est decline in the retail and service sectors.2 And as the Arab Spring showed, citizen mobilizations based on social media are as easily crushed by governments as they were stitched together by citizen activists.

All this because it is easy to scale up the technology, but difﬁ cult to improve its complements.
The internet is no shortcut to development, but it can be an accelerator For policy makers, using technology to solve a prob- lem is often more tempting than ﬁ xing an ailing institution.

A manifestation of this is the popularity of distributing laptops to schoolchildren as an elec- tion pledge.

There is also growing demand to wire NATIONAL PRIORITIES 251 schools, hospitals, and all government buildings.

Connectivity is important, but it is not enough.


Technology can rarely bypass or substitute for other shortcomings.

When technology is deployed in an environment of weak complements, the gains will be limited.

But when technology and its complements work together, the impacts can be profound and lasting.

While the internet is no shortcut, it can be an accelerator because many digital tools improve the complements.
Understanding the interaction between technology and human complements should guide how much to invest in each Some sectors, occupations, and services are more amenable to technology than others (ﬁ gure 5.2).

Gains from technology will be larger in public services such as cash transfer programs and utility services—where outcomes can be easily monitored by citizens—than in services that require a lot of discretion, such as policing and management.
Similarly, occupations involving routine tasks will be more affected by tech- nology than those requiring a high degree of judg- ment and intuition.

With technological advances, more tasks could become easier to automate, so the relative roles of technology and complements could change over time.

Since outcomes are easier to mon- itor for private businesses, as a rule of thumb, ﬁ rms are likely to be more successful than governments in using technology to solve problems.
Thus in a weak institutional environment, the priority should be to encourage greater adoption of technology by the private sector, while continuing to strengthen the complements in the public sector.

A digital strategy is more about the adoption of ICTs than their production Many policy makers wish to have a Silicon Valley in their country, dotted with large ICT ﬁ rms like Apple, Facebook, Google, Huawei, and Samsung.
But the widespread adoption of ICTs, not their production, is responsible for most of the growth and job cre- ation.3 The ICT sector in developing countries is fairly small, accounting for only 3–4 percent of GDP and 1 percent of the total labor force.

But when ICT ﬁ rms enter traditional sectors such as retail, banking, man- ufacturing, and transport, they spur competition, raise productivity, and expand opportunities.
For example, Alibaba has 30,000 employees, but provides a platform for more than 10 million ancillary jobs.

Uber has a few hundred coders, but it supports the livelihoods of around 1 million on-demand drivers.

The online outsourcing industry creates millions of freelancing opportunities in professional services.

And in Mexico, manufacturing ﬁ rms subject to com- petition from Chinese imports invest more in digital technologies, thus boosting productivity and creating more employment opportunities.
A digital strategy needs to be broader than an ICT strategy The digital economy transcends the ICT sector, encompassing most sectors of the economy and society.4 Yet many governments continue to treat the digital economy as a sector, with exclusive emphasis on developing ICT infrastructure and creating an information technology (IT) workforce.
Our analy sis shows that a successful digital strategy needs to stand Figure 5.2 Some services and sectors are more amenable to digital technology than others Ease of automation Sectors and services H i g h Lo w Source: WDR 2016 team.
Extent of complements M o d e r a t e Significant M o d e r a t e Significant Business sectors Public services Retail and wholesale trade, transport, insurance and banking Agriculture, hotel and restaurant, manufacturing, real estate Legal services Construction Cash transfers, licensing, filing taxes, monitoring elections Utility services, public works (roads), procurement Inspection, financial management Curative health, policing, teaching, policy formulation 252 WORLD DEVELOPMENT REPORT 2016 on two pillars—one digital and the other analog.
The digital pillar deals with the supply-side issues, focus- ing on policies to make the internet universally acces- sible, affordable, open, and safe (chapter 4).

The ana- log pillar aims to strengthen the demand-side policies by creating regulations that encourage competition, basic modern skills for all, and public institutions that are accountable.
Countries such as Rwanda, whose vision is to become an information-rich, knowledge-based society, have gradually tried to broaden their digital strategy to include both the digi- tal and the analog foundations.5,6 A country typology for digital development As digital development proceeds from emerging to transitioning and then to transforming, policy reforms become more complex.
There are no hard- and-fast rules, but it is useful to consider a sequence of policy priorities in line with technology’s increas- ing penetration (table 5.1): • Emerging countries.

In countries where the digital economy is still emerging and internet use is low, the priority is to lay the foundations: Remove bar- riers to internet adoption such as high duties on ICT capital imports.

Improve the business climate, including physical infrastructure critical for online businesses with an ofﬂ ine footprint.
Promote digi- tal literacy and basic cognitive and socioemotional skills.

Use the internet to provide information and monitor service providers.

• Transitioning countries.

Countries transitioning toward universal internet use need to address harder problems: Build effective competition regula- tion and enforcement capacity.

Teach advanced cog- nitive and socioemotional skills that complement technology.

Move toward effective e-government systems.

• Transforming countries.


Countries transforming into digital societies need to tackle complex prob- lems: Regulate platform competition and privacy.

Advance ICT and science, technology, engineer- ing, and mathematics (STEM) skills and lifelong learning.

Move toward ubiquitous e-government services and participatory policy making.

Classifying countries into various groups is neces- sarily somewhat ad hoc (ﬁ gure 5.3).
The labels applied in the following sections should therefore be treated with considerable discretion.

Technology adoption and the quality of complements vary not only across countries but also across sectors and across ﬁ rms in the same sector.

So a country classiﬁ ed as emerging for its government institutions could be categorized as transitioning for its skills and as transforming for its regulations.

Some sectors in a country could be transforming while the rest of the economy is emerg- ing.
So the boundary lines across country groups and complementary factors are more indicative than ﬁ xed.
Table 5.1 Policy priorities for emerging, transitioning, or transforming countries Policy goals Emerging Transitioning Transforming Stage in the digital transformation Regulations (competition): A business environment in which ﬁ rms can leverage the internet to compete and innovate for the beneﬁ t of consumers Skills: Workers, entrepreneurs, and public servants who can take advantage of opportunities in the digital world Institutions (accountability): An accountable government that effectively uses the internet to empower its citizens and deliver services Source: WDR 2016 team.
• Low barriers to internet • Effective competition • Critical “new economy” adoption (including access, affordability, and basic open and safe issues; trade and basic competition issues) • Digital literacy and foundational basic cognitive skills, and socioemotional skills regulation and enforcement (including ease of market entry) regulation (including platform competition and the legal basis for private sector data collection) • Higher-order cognitive and • Advanced ICT skills and socioemotional skills STEM education • Lifelong learning • Adoption of informational • Effective e-government services and monitoring by public sector and nonstate providers delivery systems, provider management, and citizen engagement • Increased electoral • Trust and safeguards against accountability privacy and security • Widespread citizen use of e-government services and participatory policy making • Social protection systems for a changing labor market Note: ICT = information and communication technology; STEM = science, technology, engineering, and mathematics.
253NATIONAL PRIORITIESto adopt digital technologies (chapter 1).

So those countries that are creating a level playing ﬁ eld for their businesses by embracing competition—by mak-ing it easier for new ﬁ rms to enter and for existing ﬁ rms to reorganize and exit, while preventing incum-bent ﬁ rms from acquiring monopoly power—are expected to perform well in a digital world.
The lack of competitive pressure and absence of basic infrastructure are holding back many ﬁ rms in developing countries from taking full advantage Regulations: Helping businesses connect and competeA competitive market encourages ﬁ rms to use the internet to access new markets, increase productiv-ity, and achieve scale.
Firms in more contested indus-tries—facing more domestic or foreign competitors and higher ﬁ rm entry and exit rates—are more likely Sources: World Bank World Development Indicators (various years); World Bank Enterprise Surveys (various years); Gallup World Poll (various years); World Bank Global e-Government Systems database; World Bank ID4D database; United Nations 2014; WDR 2016 team.

Data at http://bit.do/WDR2016-Fig5_3.Note: Technology is measured by the Digital Adoption Index (DAI).
DAI is based on three sectoral subindexes covering businesses, people, and governments, with each subindex assigned an equal weight: DAI (Economy) = DAI (Businesses) + DAI (People) + DAI (Governments).

Each subindex is the simple average of several normalized indicators measuring the adoption rate for the relevant groups.

Similarly, complements is the average of three subindicators: starting a business; years of education adjusted for skills; and quality of institutions.
See ﬁ gures 5.4, 5.8, and 5.10 for more details on the construction of sectoral subindexes.Figure 5.3 The quality of complements and technology rises with incomesEMERGINGTRANSITIONINGNTRANSFORMING0.100.20.30.40.50.60.70.80.91.00.100.20.30.40.50.60.70.80.91.0TechnologyComplementsLow-incomeLower-middle-incomeUpper-middle-incomeHigh-incomeLBRLSOLKAALBSENZMBBRBHUNCZEMYSLTUFRAPOLROUCYPIRLCANFINMUSTTOHTIAGOZWEBENGUYSYCBWASVNNORSGPAUSDNKBELNZLKGZSLVSWZBLZRWAPHLMEXTUNVNMBDISLEIDNBOLIRNGTMPERMARZAFJORGRCMKDTHABGRHRVSRBARMURYISRTURDOMARGCHNKWTBRABRNSAUKAZRUSSVKITAESPAREAUTJPNLUXKORCHEDEUESTUSABHRQATCHLECUVENUKRCRIMNGKENNGAPRYINDNICCMRBGDGMBYEMMRTGABMWIMOZETHPAKDZAHNDNAMGHATJKNPLLBYEGYMLIKHMPANGEOLVAPRTMLTGBRISLNLDJGDHLCEMEMMERRGNAGWIMOKHSWGYTENGHNNIBTGCHMNGTRAZEYSRSWETZALAOCOLUZB 254 WORLD DEVELOPMENT REPORT 2016 of the internet.
It is not uncommon for incumbent ﬁ rms to secure proﬁ ts by seeking protection through regulatory means rather than by competing in the open market.

The problem arises when policy mak- ers oblige.

There are also instances when regulations are genuinely outdated or reﬂ ect risk aversion to technological change and the consequent disruption.
For example, regulators around the world seem to be conﬂ icted on whether ride sharing services should be regulated as transport service companies or as soft- ware companies.

Is mobile money a banking or a tele- com product?

And in highly connected markets, could the absence of competition across various digital plat- forms inhibit future innovation?
In some low-income countries, the lack of supporting infrastructure—such as electricity, roads, ports, warehouses, distribution, and a well-functioning postal system—could hinder ﬁ rms from investing in digital technologies.

Appropriate regulation at various levels of digital adoption Policy reform priorities are likely to vary across coun- tries depending on their level of digital adoption.
Matching the country typology with appropriate regulatory reforms leads to the following taxonomy (ﬁ gure 5.4): • Emerging countries are characterized by low dig- ital adoption and protected markets.

They are also likely to suffer from poor infrastructure and weakly accountable institutions.
Investing in basic physical and digital infrastructure (chapter 4); lowering tariffs on digital products; encouraging adoption of low-tech, disruptive applications such as mobile money and social media; and reducing product market regulations are some of the policy priorities these countries should consider.

• Transitioning countries have mixed regulations, with some sectors open to competition.

Many of their business regulations are codiﬁ ed, easily available, and increasingly carried out online.
These countries also have fairly good physical infrastructure.

Tran- sitioning countries thus need to remove regulatory barriers across major sectors to incentivize ﬁ rms to invest in more efﬁ cient digital solutions and encour- age the entry of startups that can put competitive pressure on incumbent ﬁ rms.

When required, they should establish regulatory clarity between online and ofﬂ ine businesses within the same sector.
A majority of developing countries and some devel- oped countries fall into this category.
• Transforming countries are open to competition in most economic sectors and generally have account- Figure 5.4 Regulations that encourage competition also facilitate higher adoption of digital technologies 100 80 60 40 20 s s e n i s u b a t r a t s o t s y a d f o r e b m u N 0 0.2 0.4 0.6 0.8 1.0 Technology: Digital Adoption Index (Business) Sources: Doing Business database (World Bank, various years); WDR 2016 team.

Data at http://bit.do/WDR2016-Fig5_4.


Note: The Digital Adoption Index (Business) is the simple average of four normalized indicators: the percentage of businesses with websites, the number of secure servers, the speed of download, and 3G (third-generation) coverage in the country.

able and capable governments that provide good physical infrastructure and enforce business reg- ulations that promote competition.

But they face two distinct sets of problems.


First, because they are early adopters of digital technologies, many of their ﬁ rms have well-functioning but perhaps less productive and nonscalable “legacy systems.” These countries would beneﬁ t from relaxing their regulatory constraints to level the playing ﬁ eld between incumbent ﬁ rms and (internet) startups in all sectors, but especially in the legacy sectors.
Sec- ond, given the universality of digital technologies, these countries have witnessed rapid growth of digital platforms in selected sectors, some of which have achieved a dominant position in their mar- kets.

They need to ﬁ nd ways to encourage greater competition across platforms: say, by eliminating exclusivity conditions and introducing portability and seamless transfers of data and information across platforms.
Emerging countries: Invest in infrastructure and enforce product market competition For many lower-income countries, creating basic business-sustaining infrastructure is a priority, requiring ﬁ nance, local expertise, and innovative solutions.

Digital technologies can help overcome some of these problems.
Revenues from telecoms— customs duties on hardware, auctioning and man- aging spectrums, and value added tax (VAT) or sales taxes on services—have been one of the fastest growing sources of revenue in many developing countries.

But regulatory capture by powerful tele- com ﬁ rms could undermine this effort, as in Somalia.

Many other countries in Africa, however, have the opposite problem—they have used the telecom sector as a “cash cow,” taxing it so heavily as to impede its growth prospects.
Even so, there are private sector solutions to ﬁ nancing and managing infrastructure services using digital technologies that hold the most promise.

For example, Mobisol, a German company, is supplying off-grid energy to villagers in Rwanda by combining solar energy technology with mobile phone–based loan payments.7 Countries need to look at the digital economy as a source of growth and jobs and not just as a source of revenue.
Some countries impose signiﬁ cant import tariffs on computers, laptops, and mobile phones to meet short-term revenue objectives (ﬁ gure 5.5).

For example, the most favored nation (MFN) tariff rate on computers in Djibouti is as high as 26 percent.

Fiji charges MFN tariff rates of more than 30 percent for mobile phones.
The tariffs on using digital technolo- gies raise the costs of using digital technologies for ﬁ rms and households, thus delaying the emergence of the digital economy and its attendant positive effect on growth and jobs.

In general, the higher revenue buoyancy in the medium term can more than make up for short-term revenue shortfall from reduced tariffs.
In addition to electricity, countries need to invest in trade infrastructure and customs administration to improve physical connectivity and facilitate the growth of the digital economy.

Several countries still have inefﬁ cient ports and other trade infra- structure.

Among the weak performers on trade logistics in 2007, only a few signiﬁ cantly improved their trade logistics infrastructure between 2007 and 2014, including Afghanistan, Nepal, Nigeria, Rwanda, Serbia, and Tanzania (ﬁ gure 5.6).
Countries can also improve their overall logistics performance by low- ering their nontariff barriers and tackling behind- the-border issues.

Firms with improved logistics are better positioned to export their products and ser- vices using online marketplaces once these platforms gain in importance in their region.

But several coun- tries continue to lag behind, including Cameroon, the Comoros, Eritrea, Somalia, and Sri Lanka.
NATIONAL PRIORITIES 255 Another infrastructure constraint to a digital economy in emerging countries is the absence of domestic delivery systems.

There were 38 countries in 2012 where less than 50 percent of the population had access to home postal delivery (see chapter 1).
And several countries had no “last mile” domestic delivery system in place at all: Botswana, Burkina Faso, the Central African Republic, the Democratic Republic of Congo, Gabon, Kenya, Rwanda, Swaziland, Togo, and Figure 5.5 Digital products are taxed as luxury goods in some countries a.

Computers and laptops ) % ( s f f i r a t t r o p m I ) % ( s f f i r a t t r o p m I 20 15 10 5 0 35 30 25 20 15 10 5 0 C a m bodia C uba Argentina C a m eroon Brazil C entral African Republic C had C ongo, D e m .
Rep. G abon Liberia M oza m bique Sa m oa M adagascar Belarus C hile Computers Laptops b.

Mobile phones Barbados C abo Verde A ntigua and Barbuda G hana Bangladesh Zim bab w e D o minica Belize G renada G uyana Ja m aica Fiji Pakistan Sa m oa D o minican Republic Source: WITS 2014.

Data at http://bit.do/WDR2016-Fig5_5.

Note: Panel a shows most favored nation (MFN) tariff rates for computers and laptops.
The Harmonized Commodity Description and Coding System (HS) code for computers is HS 8471.49, and the HS code for laptops is HS 8471.30.

The MFN tariff for computers in Djibouti (not shown) is 26 percent.

Panel b shows MFN tariff rates for mobile phones.

For some countries, the MFN tariff rates may exaggerate the level of taxation, especially if they source a large part of their digital imports from Free Trade Agreement partners, as is the case with Chile.
256 WORLD DEVELOPMENT REPORT 2016 Figure 5.6 Infrastructure complements Trade logistics in many countries haven’t improved in the past seven years RWA SRB NGA NPL TZA SOM AFG 4 1 0 2 n i I P L 3 2 1 1 2 LPI in 2007 3 Source: World Bank Logistics Performance Index (various years).

Data at http://bit.do/ WDR2016-Fig5_6.


Note: The LPI (Logistics Performance Index) covers six areas of logistics: customs, infrastructure, international shipments, logistics quality and competence, tracking and tracing, and timeliness.

The index varies from 1 to 7.

The ﬁ gure shows only those countries with relatively weak trade logistics in 2007 (index below 2.5).

Observations above the yellow line indicate that countries improved their logistics performance between 2007 and 2014.

Tanzania.
Tanzania.

Online retailers in these countries thus struggle to deliver parcels to their customers and are forced to invest in their own logistics solution.

Reliable online payment systems are also not available in many African and Central Asian coun- tries, limiting the potential for e-commerce.

While most individuals in developing countries do not have access to a credit card, online payment systems for businesses, such as the PayPal business account, provide reliable alternative solutions.
In several Latin American countries, small businesses that do not have a bank account can use PagosOnline for payments.

Without reliable and legal online payment systems, ﬁ rms have been resorting to riskier solutions, such as Bitcoin, as in Ghana.

Not only are such activities illegal in some countries, but when undertaken on a large scale and in a weak regulatory environment, they could have a destabilizing effect on the ﬁ nancial sector.
Emerging countries should focus on enforcing existing business regulations and competition and antitrust laws.

Most countries have laws that deﬁ ne some degree of competition or antitrust regulation but that are seldom enforced.8 Moreover, business regulations are sometimes implemented in a way that discriminates between ﬁ rms, increasing regu- latory uncertainty.
Agreements among competitors on setting prices, sharing markets, and bidding for public procurement, for instance, are one of the most common anticompetitive practices, even though most countries have competition laws in place.9 Emerging countries should thus focus ﬁ rst on reducing the implementation gap in enforcing exist- ing laws.

Required changes for implementation could be handled through secondary legislation or guide- lines.
Such changes include transparently deﬁ ning appropriate ﬁ nes for anticompetitive behavior, grant- ing sufﬁ cient authority and investigating power to implementing agencies to ﬁ ght anticompetitive regulations in all economic sectors, reducing anti- competitive practices by government agencies that facilitate cartel behavior, and measuring and commu- nicating the harmful effects of cartel agreements to encourage support for competition policy.
Transitioning countries: Enhance competition by removing regulatory barriers and encouraging entry of internet startups in traditional sectors Competition law and competition authorities Anticompetitive regulations, while designed with good intentions, can be misused.

Vested interests and privileged ﬁ rms can use them to limit entry into domestic markets; to access government subsidies, contracts, or land; and to insulate them from foreign competition.
Such anticompetitive regulations seem to discourage ﬁ rms in some developing countries— including Brazil, the Democratic Republic of Congo, Ghana, Kenya, Mexico, Morocco, Tanzania, Uganda, Vietnam, and Zambia—from using digital technolo- gies more intensively (chapter 1).

Most countries have a competition authority, though many were set up fairly recently, and enforce- ment varies, especially when the state or privileged ﬁ rms beneﬁ t from market restrictions.
Limited capac- ity and the difﬁ culty of proving harm to consumers are further barriers.

A priority for transitioning coun- tries is to institute strong competition laws and boost the capacity of implementing institutions to enforce the law transparently and effectively.

Policy measures include leniency programs allowing participants of cartels to cooperate with government bodies in exchange for lower sanctions—and ex post investiga- tion of potential collusive practices in procurement.
Disruption as a strategy to create competition Transitioning countries should encourage the entry of internet ﬁ rms offering traditional services in order to disrupt protected sectors.

The internet has created a new wave of entrepreneurship and innovation NATIONAL PRIORITIES 257 around the world.
Internet ﬁ rms now compete with ofﬂ ine incumbents in banking, insurance, retail trade, transport, logistics, international currency transfers, accommodation, tourism, media, publishing, adver- tising, programming, design, and other professional service tasks.

Governments may consider abstaining from imposing regulatory barriers on new internet ﬁ rms before they achieve a certain scale.
Eliminating protection, often against the interests of inﬂ uential elites beneﬁ ting from the status quo, is difﬁ cult and takes time.

But internet ﬁ rms can do the work of the regulators and introduce competition in a sec- tor overnight.

The mobile money service M-Pesa in Kenya was able to achieve scale because of the regu- lator’s initial decision to regulate it as a telecom and not as a banking sector product.
The mobile-money schemes in other countries have often been held up by opposition from traditional banks.

At the same time, lack of adequate regulation on the telecom side meant that M-Pesa enjoyed dominant market power in Kenya for a fairly long time, which ultimately had to be curbed by the competition authorities.

This highlights the tight-rope walk for regulators in the digital economy (box 5.2).
The internet ﬁ rms operating in the ﬁ nancial sector are often not subject to the same level of reg- ulations, enabling Yu’E Bao, an online trust fund in China, to enroll 150 million depositors and collect Y 700 billion in deposits in less than two years.

It offered higher yields on the deposits by making use of underregulation of the ﬁ nancial sector outside the formal banking system.

The ongoing reforms in the ﬁ nancial sector in China have narrowed this regula- tory arbitrage.
Transforming countries: Encourage digital innovation but also regulate the digital economy to level the playing ﬁ eld between incumbent and internet ﬁ rms Critical “new economy” regulations While most of the internet’s impact will be in tradi- tional sectors that use technology to boost efﬁ ciency, “pure” internet ﬁ rms raise new challenges that regulatory authorities even in advanced economies Box 5.2 Mobile money: A success story and yet a regulatory mineﬁ eld Mobile money started informally, with users making pay- ments of airtime credit to each other (see also spotlight 2).
This system is still operating in many countries, such as Somalia, where users exhibit more faith in storable and trans- ferable credit than in the local currency, the Somali shilling.

But elsewhere, notably in Kenya, a more formal system of mobile money developed, using a separate store of credit on the user’s SIM (subscriber identiﬁ cation module) card.

Safaricom introduced its M-Pesa mobile payment service in 2007, and other operators developed rival services.
By 2013, transactions of US$21.9 billion—equivalent to just under half of Kenya’s GDP—were transacted on mobile devices.

M-Pesa was introduced two years later in Tanzania.

Although initially slow to take off , it now equates to a higher percentage of GDP (53.2 percent) and will soon overtake Kenya in volume.

Safaricom had a monopoly in the Kenyan market for almost seven years.
It had established exclusivity arrangements with M-Pesa agents, meaning the agents could only off er products and services within the M-Pesa network.

Agents were thus locked in to a single operator, and so were most users.

Since Safaricom controlled more than two-ﬁ fths of the mobile money transfer business, the exclusivity contracts with the agents posed an entry barrier for other telecom operators.
One reason Safaricom justiﬁ ed keeping its network closed was that it had incurred high costs to develop the existing infrastructure.
Recently, the Competition Authority of Kenya ruled: “(a) that all restrictive clauses in the agreements between Safaricom Limited and its Mobile Money Transfer Agents be expunged immediately, but in any event not later than July 18, 2014; (b) that the Mobile Money Agents be at liberty to transact the Mobile Money Transfer Businesses of any other mobile money transfer service providers; (c) that oversight by Safaricom Limited be thereafter limited to its business with the Agents; and (d) that each Mobile Money Service Provider be responsible for ensuring compliance with Central Bank of Kenya Regulations.”a This ruling came weeks after M-Pesa permitted its agents to work with other mobile operators.
Eliminating its exclusivity agreements reduced the cost of sending money from M-Pesa users to other unregistered users.

For exam- ple, the cost of transfers of between K Sh 101 and K Sh 500 fell from K Sh 66 to K Sh 44 within six months after the end of the exclusivity agreement.

Sources: Plaza, Youseﬁ , and Ratha 2015, for the WDR 2016; Di Castri and Gidvani 2014. a. http://africanantitrust.com/2014/10/09/antitrust-enforcer-subjects-mobile-payment-operator-to-central-bank-oversight/.
258 WORLD DEVELOPMENT REPORT 2016 struggle with.

Sharing economy ﬁ rms like Uber and Airbnb scaled up traditional ride sharing and subletting to a global scale.

But regulators struggle to determine whether these companies are taxi and hotel companies or simply software providers.

Off- line competitors complain that they do not follow the same regulations.
Where these industries tend to be overregulated—often the case in the traditional taxi business, for example—this new competition can encourage a general regulatory overhaul of the industry.

Once internet ﬁ rms offering traditional services achieve a certain scale, regulators need to modernize and impose sector-speciﬁ c regulations to level the playing ﬁ eld between online ﬁ rms and their ofﬂ ine competitors.
New York City regulators started to require Uber drivers to be licensed, to drive vehicles with livery plates, and to have commercial insurance to create fairer competition between the sharing economy and taxi drivers.

In other cases, require- ments that taxi drivers have full knowledge of local streets have become obsolete with global positioning systems (GPS) and should be scrapped.

Airbnb is required to pay local sales tax in several cities where its services compete with those of the hotel industry.
Creating competition across platforms Concentration in the digital economy paired with network effects or switching costs can lead to anti- competitive behavior.

But internet ﬁ rms confound traditional competition law because they do not act as traditional monopolies.

Their services are often free or more convenient for consumers.

It is also less than straightforward to establish their real line of business.

Google, known as a search engine com- pany, is better described as an advertising ﬁ rm.
It accounts for nearly 90 percent of the online search market in some countries, and around 25 percent of the display-ad market, while Yahoo and Facebook account for about 10 percent each.10 But given their dominance in the markets for online ads or books, some internet companies have considerable leverage over marketers and booksellers.

This is similar to credit card companies’ position with respect to retail- ers.
Since many internet ﬁ rms operate in two-sided markets, where an online platform brings together buyers and sellers, these internet intermediaries could blur price signals in either of the two markets.

Research by economists such as Jean Tirole shows that regulations in such industries must be carefully tailored to ensure competition and not harm consum- ers.11 These are very challenging problems.
Countries could consider orienting their regulations to those under development in the European Union (EU) or North America.

Skills: Making the internet work for everyone If you compared our world today with the world one hundred years ago, you would encounter amazing advances in science, commerce, health care, transportation, and other areas.
But if you were to compare the classroom of a hundred years ago with an average classroom today, you would recognize it immediately: students lined up in rows, paper and pencil in hand; a teacher at the blackboard jotting down facts; students furiously copying all that is written and said, expecting to memorize the facts and spit them out on an exam.

—Robert Hawkins (2002) Technological changes are disrupting the employ- ment landscape.
Occupations are becoming more technology intensive, and “old economy” jobs are giving way to “new economy” careers.

In many coun- tries, this transformation is just starting and will take time.

But even in these countries, the time for action is now.

Changes in education and training take a generation to have an effect, and reforms need to start early so that skills do not become a bottleneck as countries advance in their digital transformation.
A changed world with unchanged classrooms The skills mix needed to succeed in the labor market is changing, and today’s education and training sys- tems are often failing to keep up.

The use of digital technologies requires basic cognitive skills, such as literacy and numeracy.
But a well-educated worker in the 21st century also needs skills that are easily transferable across jobs and occupations and that help respond to changing labor market demands: higher-order cognitive, socioemotional, and technical skills (ﬁ gure 5.7).

This multiplicity of skills has always been important, but it is now essential.
From Lebanon to Peru to Vietnam, employers are looking for work- ers who work well in teams and can solve problems, think critically, and present their work well to oth- ers.12 Yet in many countries, education systems fail to provide even basic literacy and numeracy.
More than half of 15-year-olds are functionally illiterate in middle-income countries such as Albania, Indonesia, Jordan, Kazakhstan, Malaysia, and Peru.13 NATIONAL PRIORITIES 259 Figure 5.7 The types of skills needed in a modern economy Cognitive Social and behavioral Technical Literacy, numeracy, and higher-order cognitive skills (for example, reasoning and creative thinking) Raw problem-solving ability versus knowledge to solve problems Socioemotional skills and personality traits Openness to experience, conscientiousness, extraversion, agreeability, and emotional stability Manual dexterity and the use of methods, materials, tools, and instruments Technical skills developed through postsecondary schooling or training or acquired on the job Verbal ability, numeracy, problem solving, memory, and mental speed Self-regulation, grit, mind-set, decision making, and interpersonal skills Skills related to specific occupations (for example, engineer, economist, IT specialist) Source: WDR 2016 team, adapted from Pierre, Sanchez Puerta, and Valerio 2014.
Note: IT = information technology.

Digital technologies accelerate the pace of labor market changes, opening new opportunities but also making skills obsolete more quickly.

This calls for more adaptability from individuals and institutions, a stronger link between educational and training institutions and the private sector, and policies that promote lifelong learning.
Since skill development starts at birth and is lifelong, a life-cycle approach to learning is necessary.14 These two labor market transformations—chang- ing skill mix and rapid skill obsolescence—have pro- found implications for the skill development agenda.
While digital technologies affect the whole skill for- mation process by changing the role of teachers, how students learn, and the mechanisms to strengthen accountability in education and training (see sector focus 2), priorities for skill development in the 21st century hinge on three questions: • What are the policies and interventions needed to provide current and future workers with skills for a digital economy?

• How do these priorities vary by each country’s labor market challenges and skill base?
• How can digital technologies complement this “analog” policy agenda?

Priorities for a skill development agenda in the 21st century Countries with strong skill development systems are best prepared to leverage digital technologies, to manage some of the labor market disruptions that technology creates, and to ensure that the beneﬁ ts of digital technologies are widely shared.
In emerg- ing digital countries, such as Nepal or Senegal, the skill base remains weak, with gaps in foundational cognitive and socioemotional skills, as well as in basic digital literacy.

Transitioning countries, includ- ing Armenia, Sri Lanka, and Ukraine, have done fairly well on foundational skills, but they face the challenge of keeping up with some of the new skill demands arising from digital technologies, especially higher-order skills.
Transforming countries, such as the Czech Republic and the Republic of Korea, are best positioned to think about more advanced techni- cal skills (both in ICT and in STEM), and, since many of their citizens are also rapidly aging, also need to prioritize lifelong learning (ﬁ gure 5.8).

Every country has multiple skill development systems.
As international tests make clear, individ- uals who perform best in less advanced economies are often at par with peers in more advanced coun- tries, and there is a lot of inequality in outcomes within countries.15 So a simple sequencing of policy reforms oversimpliﬁ es what is needed in any coun- try.

Even transforming countries need to strengthen foundational skills, and emerging countries need to strengthen their provision of more advanced skills.
But skill development is a cumulative process: it is hard to develop technical and high-order cognitive skills without basic literacy or a strong foundation of socioemotional skills.
Similarly, foundational and more complex cognitive and socioemotional skills 260 WORLD DEVELOPMENT REPORT 2016 Figure 5.8 Education that upgrades skills also facilitates higher adoption of digital technologies n o i t a c u d e f o s r a e y d e t s u j d a y - t i l a u Q 15 10 5 0 0 0.2 0.4 0.6 0.8 1.0 Technology: Digital Adoption Index (People) Sources: WDR 2016 team, based on World Development Indicators (World Bank, various years) and the World Economic Forum Competitiveness Index (WEF, various dates).
Data at http://bit.do/WDR2016-Fig5_8.

Note: The quality-adjusted years of education are constructed by multiplying the average years of education for each country by the normalized WEF’s quality of education indicator; for more details, see Monroy-Taborda, Moreno, and Santos, forthcoming.

The Digital Adoption Index (People) is the simple average of two normalized indicators from the Gallup World Poll: mobile access at home and internet access at home.
built early in life and throughout general education are the base for the building and updating of techni- cal skills in postsecondary education and training.
Priorities for emerging countries: Build foundational cognitive and socioemotional skills and ensure basic ICT literacy The analog agenda for building foundational skills starts early, as early as 0–3 years of age, and goes beyond investment in education to that in health.16 These are the years when children become school- ready, their brains are the most sensitive to learning, and the basis for future learning is laid.
Families, indi- viduals, school and training systems, and employers will all play a role in building these skills throughout the life cycle.

It is also important to build these skills before specializing too narrowly.

Countries like Poland have delayed tracking of students into voca- tional education, with positive results.17 Digital technologies can help build these foun- dational skills.
While there are concerns about the impact of digital technologies on cognitive capacities and socialization, especially among young children, these technologies are here to stay (box 5.3).

“Before a child even starts primary school, she will be able to use her parents’ smartphone to learn her numbers and letters, giving her a big head start,” the Gates Foundation notes.18 Online educational games for young children, with appropriate adult supervision, are increasingly used to develop foundational skills.
ScratchJr, for example, is an application aimed at teaching algorithm thinking and coding principles to kids aged 5−7 years through a simple drag and drop interface.

Access to the internet, laptops, tablets, mobile phones, digital whiteboards, and video-based instruc- tion are increasingly common in primary and second- ary education.

Programs like One Laptop per Child (OLPC) are operating around the world (box 5.4).
In most cases, however, there is no solid evidence base of their effects on learning outcomes, and much more careful evaluation of ICT initiatives in education is needed.

But ﬁ ve uses of technology in building foundational skills are promising: connecting teach- ers to content; making learning more personalized; reinforcing content learned in school; fostering col- laboration and increasing students’ engagement; and promoting adult literacy (table 5.2).
Digital technologies can complement teachers and connect them to content.

The BridgeIT model, started in 2004 and now used in around 10 countries, allows teachers using mobile phones to download video content, which is then connected to televisions in their classrooms.

The videos are paired with learner- centered lesson plans, accompanied by teacher train- ing in how to use the technology and incorporate it in the class.19 A separate initiative, the Bridge Interna- tional Academies, goes even further.
The largest chain of preprimary and primary schools in the world, with more than 110,000 students in Kenya and Uganda, it uses technology and data analysis to standardize and scale education delivery.

While the standardization of teaching remains controversial and is being rigor- ously evaluated, it is an alternative way to make basic education more affordable.
The average family of a student in the Bridge Academy lives on US$1.60 a day per person.20 Digital technologies can offer access to high- quality material where there are no teachers with the needed skills.

In Uruguay, through video, English is taught to ﬁ rst graders by teachers from the Philip- pines.
A pilot study found that videoconferencing and laptops raised the children’s scores in English signiﬁ - cantly, as well as the English-language proﬁ ciency of the Uruguayan teachers.21 NATIONAL PRIORITIES 261 Box 5.3 The impact of digital technologies on cognitive capacities and socialization There are concerns about the impact of digital technolo- gies on cognitive capacities and socialization, especially among young children and adolescents, and some evi- dence backs these concerns.
For example, studies show that using search engines decreases our memory.

When faced with diffi cult questions, people are primed to turn to their computers, and, when people expect to have future access to information, they have lower rates of recall of the information and enhanced recall of where to access it.a There are also concerns about internet addiction.

A survey of nearly 12,000 adolescents in 11 European countries found a 4.4 percent prevalence of pathological internet use.
An additional 14 percent had a milder addiction.

People who exhibited problematic use were more likely to suff er from psychological problems, such as depression or anxiety.b a. Sparrow, Liu, and Wegner 2011. b. Durkee and others 2012. c. Spada 2014.

Yet the fear that new technologies lessen our ability to function is nothing new; in Plato’s dialogue, The Phaedrus, Socrates worried that writing would diminish the ability to engage in conversation.

Parents and schools can do things to lessen these risks.
Strengthening self-regulation in young children can mediate potentially negative eff ects of internet use.c While it is true that using technology to do things for us that we no longer are doing for ourselves means that certain abilities can degenerate, it also means that we are freeing up cognitive energy for other things.

More research on the impact of digital technologies on cognitive abilities, and how they can be managed, is an important agenda for the future.
Box 5.4 One Laptop per Child: Strengthening analog foundations and careful evaluation Of all the educational initiatives that involve digital tech- nologies, the One Laptop per Child (OLPC) program (or more generally, 1 to 1 computing initiatives) is arguably the most ambitious.
Its main objective—empowering children by providing them with digital devices at an aff ordable price—has captured the attention of world leaders, media, and academia.a Since the ﬁ rst laptop distribution started in Uruguay in 2007, OLPC programs have distributed more than 2.4 million laptops around the globe.b In Uruguay, the program was widely supported by children, parents, and school direc- tors, providing internet access to many low-income children.c Although all OLPC programs increased access to digital technologies, their implementation and impacts on learning outcomes vary greatly.
In a meta-analysis of 15 studies of OLPC programs in ﬁ ve countries (China, Colombia, Ecuador, India, and Peru), only the programs that accompanied the distribution of laptops with some level of guidance, from providing training courses to using adaptive software for weekly sessions, improved learning.
These guided-use pro- grams had a positive, albeit small, impact of 0.17 standard deviations on average scores, against an insigniﬁ cant eff ect for programs where use was not guided.d The success of digital devices in the classroom in improving academic performance hinges on complement- ing access to digital technologies with investments in teachers, and on embedding the technology with relevant content that can be integrated with traditional classroom activities.
More careful evaluations of pilot programs before they go to scale are also important to better understand whether the programs can produce positive results and are cost-eff ective, as well as the speciﬁ c changes needed to improve their eff ectiveness.

a. Trucano 2012. b. http://one.laptop.org/map.

c. Martinez, Alonso, and Diaz 2009. d. Arias Ortiz and Cristia 2014.
262 WORLD DEVELOPMENT REPORT 2016 Table 5.2 Emerging countries: A skill development agenda for a modern labor market Priority Pillars of an analog policy agenda How digital technologies can complement Foundational cognitive and socioemotional skills • Early childhood development and school readiness • Complementing teachers and expanding access to quality material (BridgeIT in the Philippines and Tanzania; Khan Academy) Digital literacy • Mainstream of • Reinforcing content learned in school, to consult with • Making learning more personalized through adaptive curricula and assessments socioemotional skills and basic digital literacy in teaching methods and assessments • Adult literacy teachers or learn new material (Eneza, Kenya) • Facilitating learning and collaboration and increasing students’ engagement (Educopedia in Brazil, game-based learning or online games) • Promoting adult literacy (using SMS in Niger and Los Angeles), in combination with e-entrepreneurship Source: WDR 2016 team.
Note: SMS = short message service.

Digital tools also make it easier to tailor learning to each student and rapidly assess student progress.

Impact evaluations suggest that the successful appli- cations of technology help introduce an appropriate curriculum or enable students to move through material at their own pace.22 Khan Academy is a good example (box 5.5).
These types of tools can be particu- larly helpful in developing countries, where students often need to develop skills that their teachers lack or do not teach.23 Digital technologies can reinforce learning.

In Mumbai and Vadodara in India, a math reinforce- ment program, delivered through computer games, had large positive effects on children’s academic achievement.24 Children were offered two hours of shared computer time per week, during which they played games that involved solving math problems.
The program increased math scores by 0.35 standard deviations the ﬁ rst year, and 0.47 the second year.

Similar uses of technology to reinforce learning are being applied around the world, often using sim- ple mobile phones.

Eneza Education, in Kenya, is a virtual tutor that provides practice questions and answers open questions via SMS (short message service) from students on low-cost mobile phones.

It has 39,000 active users, and more than 380,000 peo- ple have used it at least once.
A fourth promising technology is facilitating col- laboration among teachers and students and making learning more fun and effective through games and game-based learning.

More often than not, students are not engaged in school.

In more than 15,000 class- Yet rooms in seven Latin American countries, between one-ﬁ fth and one-quarter of total class time, a large group of students (six or more in classrooms with average size of 25) is visibly not engaged in the class- room.
This is partly because most classes are boring: for about one-third of all time spent on teaching activities, teachers use the blackboard and nothing else.25 Using digital technologies for collaboration (box 5.6) or for game-based learning could improve engagement and learning.

At its simplest, textbook material could be made more engaging: eLimu, which has embedded the primary education curricula of Kenya in tablets, enriched the content with videos and other animations.
introducing technology alone, without improved teacher training and links to changes in pedagogy, will not improve the learning process.

Digital technologies are most likely to have an impact when the focus is not on hardware and software but on how they contribute to learning.26 In Colombia, Computers for Education had little effect on student test scores and other outcomes.
Although students in the program schools were 30 percentage points more likely to report using a computer at school, they used it only for computer science.27 Similarly, in Ireland, teachers were positive about the usefulness of ICT in secondary schools, yet most uses were outside the classroom for preparing lessons, rather than exploit- ing the potential of ICT to introduce innovative teach- ing and learning practices.28 As with One Laptop per Child (see box 5.4), annual evaluations of Text2teach, the local version of BridgeIT, in the Philippines have NATIONAL PRIORITIES 263 Box 5.5 Khan Academy: A supplemental educational resource in and outside the classroom Khan Academy is an online learning platform that provides free tutorial videos on disciplines ranging from elementary mathematics to computer programming.
It attracts more than 10 million unique users a month (35 percent from outside the United States), who have viewed 365 million videos and solved more than 1.8 billion math problems.a It is an example of tools for the “ﬂ ipped classroom,” in which videos substitute for classroom instruction, and class hours are used for practice and discussion.

Khan Academy is built on free lecture videos, adaptive learning practice problems, and personalized data.
Lectures are divided by subject, but users can select what to focus on, advance at their own pace, and receive instant feed- back.

Following the video lectures, students can practice, and the system adjusts the diffi culty of practice problems based on a student’s performance on the ﬁ rst few prob- lems.

Students’ online performance is recorded, and stu- dents, teachers, and parents can follow progress through the personalized learning dashboards.
While Khan Academy is still used predominantly by individuals for informal study outside schools, its use in schools and other institutional settings is growing.

There is not enough evidence to claim that it has been an unqual- iﬁ ed success, but the evidence points to its considerable potential.

SRI International studied the implementation of Khan Academy in nine schools in the United States from 2011 to 2013.b Khan Academy mainly supplemented teach- ers’ own core instruction rather than replacing it.
Forms of use varied: additional practice or remediation for students who fell behind, enrichment activities for advanced stu- dents, and monitoring student progress.

Khan Academy increased engagement of students and the capacity of teachers to support their students, but teachers found it diffi cult to fully integrate it with the core curriculum.
A pilot in ﬁ ve schools in Chile had similar results.c Khan Academy improved student math skills, but was not “ﬂ ip- ping the classroom.” Moreover, the teachers believe that while Khan Academy improved the procedural skills, it was not best for promoting deeper mathematics learning.

Integrating tools like Khan Academy into education systems shares some of the challenges that other technol- ogies in education face.

Translation and adaptation to local contexts is costly.
Khan Academy is partnering with other organizations in several countries to do this.

And stream- ing videos requires high-speed connectivity, which is still limited in many developing countries.
Since the success of the program is a function of teacher skills and engagement, school and government administrations should support teachers throughout the period of implementation.d a. Murphy and others 2014. b. Murphy and others 2014. c. Light and Pierson 2014. d. Trucano 2015. identiﬁ ed the need to invest even more in teacher training for further improvement.29 Even when used, technology does not substitute for teachers.
High-quality education continues to hinge on high-quality and motivated teachers.

In India, the computer-assisted learning (CAL) program for math had very different impacts depending on how it was used.

When the program supplemented regular classes with one additional hour of CAL instruction every day after school, it raised math scores by 0.28 standard deviation.
But when it was a substitute for regular instruction, scores fell by 0.57 standard deviation.30 Governments can play an important role in build- ing complementary investments to leverage educa- tional technology.

This is primarily about preparing and training teachers in the use of the technology and in how to incorporate it in the classroom.

Training programs in developing countries often focus only on basic computer literacy.
In Singapore, by contrast, both pre-service and in-service teacher training curric- ula integrate pedagogy and ICT.31 With these invest- ments, technologies can amplify teacher productivity and improve the quality of teaching.

In systematic reviews of education interventions, technology-as- sisted learning, together with teacher training pro- grams, have among the largest positive effects on learning outcomes.32 Outside formal education, digital technologies can also boost adult literacy.
In Afghanistan, Chad, and Mali, more than 60 percent of adults remain illiterate; in Niger, close to 85 percent.33 Digital technologies, 264 WORLD DEVELOPMENT REPORT 2016 Box 5.6 Using digital technologies to foster collaboration and learning: Rio de Janeiro’s Educopedia In 2010, the Rio de Janeiro municipality launched Educo- pedia, a collaborative online platform of lessons open to students and teachers from public schools.
By off ering stim- ulating multimedia resources in the classroom, Educopedia’s goals are to support teachers in creating and sharing teach- ing materials online and to increase students’ motivation to learn.

The lessons online cover math, Portuguese, science, history, geography, English, music, and physical education, organized by grade and week of the curriculum.

The modules generally blend videos and interactive exercises for students with a clear structure and repeated reinforcement questions.
Each Educopedia module con- sists of a lesson plan to help teachers structure the class; supporting content such as PowerPoint presentations on new material and texts, videos, and games; and interactive resources such as a chat system, a digital library, quizzes, summaries, and sets of test questions.

The materials are projected on digital whiteboards.

When the program was piloted, teacher take-up was low.
The secretariat responded by asking the network of teachers that produces and assesses the adequacy and quality of online materials to reach out to colleague teachers and provide hands-on support in using the new resources.

In 2010, Rio municipality teachers used information and communication technology (ICT) only 1 percent of the time in the classroom; a year later, use had quadrupled.
Today, Educopedia operates in all 700 Rio de Janeiro municipal schools and serves 680,000 students; 50 per- cent of teachers report that they use the tool more than once a week.

The impact of Educopedia on student learning has not been evaluated yet, but the secretariat believes its eff ects on the motivation of both teachers and students are positive.
Educopedia was one of the pillars of education reforms in Rio de Janeiro, which between 2009 and 2012 saw a 22 percent increase in its score in the Basic Education Development Index for middle schools.

In a recent survey, 80 percent of Rio de Janeiro municipal students agreed that Educopedia contributes to their learning, particularly through the interactive exercises and educational games.

Sources: Bruns and Luque 2014; WDR 2016 team.


especially mobile phones, can promote basic numer- acy and literacy for these adults.
In Niger, including instruction on using simple mobile phones with voice and SMS capacity in a basic adult education curric- ulum substantially improved learning outcomes.34 Similar programs in advanced settings, like Los Ange- les, have had similar effects, with technology actually improving literacy without the need for teachers.35 In only four months, basic reading scores went up about ﬁ ve years, and more advanced reading scores, about two and a half years.
Digital literacy is a new foundational skill In a world where digital technologies are at the center of people’s personal and professional lives, digital lit- eracy—just like reading and writing—is a new foun- dational skill.

Among children and youth, just giving access to these technologies can be enough for them to learn the basic use of devices.
The evidence from One Laptop per Child (see box 5.4) and from Hole-in- the-Wall in India indicates as much.36 The main chal- lenge is to broaden the digital literacy agenda beyond the basic use of devices to focus more on information skills, including the ability of students to search for information and separate high-quality sources from low-quality ones.

International experience offers some important lessons (box 5.7).
In many developing countries, the greater chal- lenge is to reach adults, often in low-literacy environ- ments.

Lack of awareness of the potential usefulness of digital technologies remains an obstacle to adop- tion.37 In some cases, digital technologies, especially mobile phones, are adapted for the illiterate or those with little education through the use of graphics, symbols, and audio or video tutorials.
In addition to technical training, which can be costly and which many adults would not use, countries can raise awareness and demonstrate some of the potential beneﬁ ts of digital technologies—as in Turkey, where a mobile unit goes to lagging regions and shows how to use government services online.

Among youth and adults, digital literacy training can be combined with e-entrepreneurship training and seed funding to conduct business over the internet.

Two areas of focus could be e-commerce and online work.
For e-commerce, the focus could be on how to NATIONAL PRIORITIES 265 Box 5.7 Emerging lessons from digital literacy programs Digital literacy programs considered most successful have some principles in common: • They are mainstreamed into the non-ICT (information and communication technology) curriculum.

They emphasize ICT as a tool rather than a subject.

Students learn how to use digital technologies not in specialized and isolated labs but as part of their learning other subjects.
Finland has gone for mainstreaming, which makes the digital skills learned more useful in real life, but requires train- ing for all teachers.

Training also aims at using internet search eff ectively and safely, and understanding privacy rules.

a lack of digital literacy or fear of using new methods is a constraint for teachers.

As a result, programs are increasingly being combined with intense teacher train- ing.
eLimu—which has embedded the Kenya primary education curricula in tablets and enriched the content with animations to make learning more engaging—had to extend teacher training from 15 minutes to a full day.
• They go beyond ICT, into the beginnings of “computa- tional thinking.” Such thinking refers to the problem- solving skills and techniques software engineers use to write programs, especially those related to breaking a problem into parts, pattern recognition, abstraction, and algorithm design.a • They focus on teachers’ digital literacy.
Evaluations of Khan Academy, the rollout in schools of broadband in Ireland, eLimu and Eneza in Kenya, and the One Laptop per Child programs in Latin America show that • They are embedded in local content (chapter 4).

This can motivate learners by connecting them to information on issues relevant to them but also by reducing language barriers.

a. ISTE and CSTA 2011. market yourself and be able to sell online.

Countries could explore partnerships with e-commerce plat- forms.
Alibaba, for example, offers training on how to sell on its platform, and has signed agreements with governments (such as the Republic of Korea) to do so.

For online work, the training could focus on intro- ducing participants to online work, setting up their proﬁ les, and establishing payment accounts.
Nigeria is starting to provide this type of training.38 Priorities for transitioning countries: Build new economy skills for careers, not just for the ﬁ rst job Improving advanced cognitive and socioemotional skills requires rethinking curricula and teaching methods In addition to foundational skills, workers are being required to use more critical thinking and problem solving, communication, teamwork, and creativity.
These are general skills, which many traditional education systems fail to impart, and can be applied across occupations and jobs (ﬁ gure 5.9 and table 5.3).

How can teachers, administrators, and policy makers create an environment that goes beyond rote learning and memorization, and where students really learn— where they think critically about information—and apply it to the world around them in meaningful ways?
A ﬁ rst step is to modernize general education curricula and teaching methods, shifting toward student-centered curricula that emphasize new economy skills.

Which qualities school systems need in order to develop these skills is debated, but there is agreement that it needs to start early.

One model is Montessori schools.

Teachers trained in a Montessori perspective emphasize, from early child- hood onward, attention to the individual interests of students.

Classrooms are less hierarchical.
Students have substantial unstructured time to collaborate around shared interests and freedom to research a topic of interest and present it to the class.39 While rigorous evidence on this is limited, students in ﬁ ve Montessori middle schools in the United States were more intrinsically motivated and interested in their academic activities at school.40 Similarly, the Perry Preschool Program in the United States teaches kids reading and math, but also to plan tasks, execute their plans, and review their work in groups.
Although based on a small sample, the program has been found to boost socioemotional skills and to determine life outcomes of former students well into their 40s.41 Modern curricula should balance competency- based and content-based learning, and be combined 266 WORLD DEVELOPMENT REPORT 2016 Figure 5.9 Even in advanced countries, youth are often unable to think critically and solve problems Share of youth (aged 16–24) scoring below 2 in the Programme for the International Assessment of Adult Competencies in problem solving in technology-rich environments t n e c r e P 70 60 50 40 30 20 10 0 Poland U nited States Slovak Republic Ireland U nited Kingdo m Japan D en m ark Estonia A ustralia A ustria C anada C zech Republic G er m any N etherlands N orw ay S w eden Korea, Rep. Finland Source: Davalos and Santos, forthcoming, based on the OECD Programme for the International Assessment of Adult Competencies (PIAAC) website, http:// www.oecd.org/site/piaac.
Data at http://bit.do/WDR2016-Fig5_9.

with teaching methods that stimulate and build in critical thinking, problem solving, communication, teamwork, and creativity.

The New School model in Colombia (Escuela Nueva, in Spanish) has taken this approach, putting stronger emphasis on group learn- ing and problem solving than on memorization and copying.
This model has informed the modernization of the curriculum in many countries: so far, it has been piloted or has been already extended to around 17 countries (box 5.8).42 Countries like Brazil, Finland, the Republic of Korea, the former Yugoslav Republic of Macedonia, Mex- ico, Peru, Singapore, and Vietnam are taking actions to foster new economy skills.43 Despite being a top performer in international student assessments, Fin- land recently concluded a large reform of its preprimary and basic education curricula.
The aims are to develop schools as learning communities and to emphasize the joy of learning and a collaborative atmosphere, as well as promoting student autonomy in studying and in school life.

In particular, there will be much focus on general transversal competencies and work across school subjects.

The competencies will also be assessed as a part of subject assessment.
The emphasis set on collaborative classroom practices will be brought about in multidisciplinary, phenomenon- and project-based studies where several teachers may work with any given number of students simultaneously.44 Table 5.3 Transitioning countries: A skill development agenda for a modern labor market Priority Pillars of an analog policy agenda Higher-order cognitive and socioemotional skills • Modern curriculum, teaching methods, and assessments with increased emphasis on critical thinking, problem solving, and socioemotional skills (Escuela Nueva model; Republic of Korea; Singapore) How digital technologies can complement • Directly promoting critical thinking, team- work, problem solving, and creativity (through online games, wikis, hackathons) • Delivery of training in socioemotional skills (grit and mind-set interventions) • Modernize teacher training in-service and pre-service accordingly • Promoting collaboration (virtual exchanges) Source: WDR 2016 team.
NATIONAL PRIORITIES 267 Box 5.8 Building new economy skills: Escuela Nueva in Colombia and Vietnam The Escuela Nueva model started in Colombia in 1976 as an innovation in multigrade teaching, promoting active, participatory, and cooperative learning among primary school students.

Today it serves 5 million students in 16 countries, including Brazil, the Dominican Republic, Mexico, the Philippines, Uganda, and Vietnam.
The model is based on several innovations for improving teamwork and developing critical thinking.

The curriculum is focused on a self-paced and self-directed learning guide.

Group learning is facilitated through the use of learning guides that contain interactive exercises.

Teachers are trained in group management.

Group learning is also fos- tered by class arrangements and a modiﬁ ed role of teach- ers as facilitators.
Students are seated in clusters of four or ﬁ ve, with teachers guiding, supervising, and evaluating the children in these groups.

The school calendar and evalua- tions are ﬂ exible, so that children can meet learning goals at their own pace.

Evaluations of the model in Colombia and elsewhere indicate that the program is fostering both cognitive and socioemotional skills.
The model improves levels of Spanish and math in the third and ﬁ fth grades, as well as self- esteem and the abilities to lead others in group tasks and to work peacefully with others in a team.

A recent impact evaluation of Escuela Nueva’s ﬁ rst two years in Vietnam shows that the model helps children learn to work with each other and develop communication and interpersonal skills.

Improved cooperative learning skills also enable a student to obtain better results in math.
Sources: WDR 2016 team based on Bodewig and others 2014; Colombia Aprende 2015; Forero-Pineda, Escobar-Rodriguez, and Molina 2006; Fundación Escuela Nueva 2015.

Singapore has also made large changes to its education system to adapt to the knowledge-based economy.
The main change was in 1997, with a move from an efﬁ ciency-driven model to an ability-driven model.45 The efﬁ ciency-driven model, an engineer’s vision to education, had a top-down approach in designing, disseminating, and enforcing the national curriculum; streaming students by competency lev- els to ensure that teachers were dealing with students of similar levels; and creating clear but rigid paths to vocational and tertiary education.
While this model produced students who scored high on international math and science tests, it produced students who were not critical thinkers and teachers who were not motivated.46 Under the new ability-driven model, schools have more autonomy over their curriculum and develop programs to suit their students.

More emphasis is placed on project work, introduced from primary education onward, with a move from high- stakes examinations to smaller assessments.
The government has also emphasized the use of ICT in the curriculum.

Whether to streamline teaching new economy skills into the traditional curricula, as in Finland or Peru, or whether to teach them in targeted classes or interventions, as with grit (that is, perseverance in pursuing long-term goals) in FYR Macedonia, is an open debate.

Even if taught separately, it is important to reinforce learning these modern skills across subjects.
A teacher could give a lecture on history with little class interaction, or could break the class into small groups that would reﬂ ect on the reading material, prepare takeaways, and present to the whole class, thus teaching history as well as teamwork, empathy, communication skills, problem solving, self-regulation, and self-esteem.47 Changes can also include introducing more open-ended ques- tions in home assignments and in tests, more ﬂ exible classroom seating arrangements that allow work in groups, having discussions involving the full class- room, and creating spaces in classrooms and schools for collaborative projects.
The increased demands on teachers need to be accompanied by modernizing teacher training, both in- and pre-service.

Teacher training needs to focus on how to teach curriculum content and on how to impart socioemotional skills.

Countries are making progress in improving stu- dent assessments, critical for identifying strengths and weaknesses in the education system, designing policy, and strengthening accountability.
Yet current assessments typically focus on testing information, facts, or the ability to read or perform math opera- tions.

While important foundational skills, these skills are often fairly routine and easily programmable, so 268 WORLD DEVELOPMENT REPORT 2016 student assessments can be further strengthened by broadening their scope to better incorporate higher- order skills.

Open-ended questions in tests can put greater emphasis on critical thinking and problem solving.
New economy skills can be monitored, as is tradi- tional academic learning, through mechanisms such as the KIPP Report card, where socioemotional skills are identiﬁ ed, measured, and discussed with parents and students at evaluation time.48 At the international level, the Organisation for Economic Co-operation and Development (OECD) and the World Bank have recently implemented new skill measurement assess- ments that aim at measuring, among adults, problem solving in technological environments, and socio- emotional skills, respectively.49 L’Oréal, the French cosmetics company, asks job candidates in China to answer three open-ended questions on mobile phones, and then uses “big data” and an algorithm to mine the responses for cues on critical thinking and socioemotional skills.50 Digital technologies can also foster higher-order cognitive and socioemotional skills—in at least three ways: • Directly promoting critical thinking, teamwork, problem solving, and creativity.
This could be done through digital activities, such as programming.

Scratch, a simple programming language for kids, can help develop abstract and critical thinking from an early age.

Digital tools, such as wikis—online content- management systems that allow for collaborative modiﬁ cation, extension, or deletion of its content and structure—can promote discussion and com- munication inside and outside the classroom.
Many schools are now using hackathons, events where teams collaboratively work on software projects, and which can provide a creative space that also fosters problem solving.
Incorporating learning games into classrooms (game-based learning) and applying the principles of gaming to education (gamiﬁ cation) could also foster higher-order cogni- tive and socioemotional skills, such as abstraction, reasoning, and teamwork, while bringing the power of play to education and engaging, inspiring, and immersing students in learning (box 5.9).

• Developing and delivering training in socioemotional skills.
Grit (that is, perseverance in pursuing long- term goals) and growth mind-set lessons,51 for exam- ple, can be delivered via videos and over the internet.

Additional online modules that target other socioe- motional skills could be part of teachers’ toolkits.

• Supporting teamwork and communication skills by bringing together diverse teams and breaking the dis- tance barrier.
The World Links for Development Program has worked with ministries of education in more than 20 middle- and low-income countries to link classrooms to the internet but also to one another.

European Schoolnet has fostered long- term online connections among classrooms across borders.52 Social media can also be used to connect classrooms.
Priorities for transforming countries: Focus on advanced technical skills and lifelong learning ICT skills and training in computational thinking As in other countries, the skills agenda for transform- ing countries needs to also strengthen foundational skills, and develop new economy skills, such as higher-order cognitive and socioemotional skills.
Because the skill base in transforming countries is stronger than in the emerging and transitioning countries, they also have to focus on more advanced technical skills (table 5.4).

To address shortages in advanced ICT skills and improve competitiveness in a growing industry, countries are paying more attention to providing advanced ICT skills training in their education sys- tem.

Many ﬁ rms report difﬁ culties in ﬁ nding work- ers with advanced ICT skills (chapter 2).
Partly in response, coding, as a subject, has been introduced in the general education curriculum in Estonia and the United Kingdom.

Incorporating advanced ICT skills in the general curriculum can teach computational thinking in transforming countries.

But not everyone needs to become a professional coder.
Incorporating coding in general education can strengthen not only ICT skills but also critical thinking, especially if it is a vehicle to teach logic and learning strategies for solving prob- lems, designing projects, and communicating ideas.

Done well, it can be not only about “learning to code” but about “coding to learn.”53 Training in advanced ICT skills can also be pro- vided less systematically, and outside of the formal education system.
This could be the route for coun- tries with less mature education systems.

For exam- ple, advanced ICT skills could be offered in middle or high schools through accredited massive open online courses (MOOCs).

Individuals can also learn coding through specialized online platforms.
Codecademy, an online interactive platform that offers free coding classes in seven programming languages, has more than 24 million users who have completed over 100 million exercises.54 NATIONAL PRIORITIES 269 Box 5.9 Building modern skills: Game-based learning and “gamifying” education But most of today’s teachers are not equipped with the skills to make games eff ective learning tools, such as designing materials and environments for game-based learning, partly because they are not familiar with many tools of the digital age.g Teachers need to be trained so that they understand both the potential and the limits of games for learning and fully understand the game, how to play, and how to use it as a teaching tool.
Teachers can work with parents in ﬁ nding appropriate games and deﬁ n- ing parameters for usage.

Updated curricula, reformed assessments, and resources for learning games can all help to shift classrooms to be focused on learning.

Policy makers could also encourage more research and develop- ment to create successful learning games that are engag- ing, thoughtful, and immersing, and facilitate effi cient learning.

The future of games and game-based learning extends beyond the classroom.
Evoke, developed by the World Bank, uses social media tools and narrative approaches commonly found in video games to empower young people to start solving urgent social, real-world problems.

Food Force, created by the United Nations, teaches strategy and networking by simulating aid agencies working in food insecurity.

The Facebook game Half the Sky highlights gen- der equality and raises money for female empowerment.
Games can also be tools for job training, especially when real on-the-job training is dangerous; the U.S. military has used video games to teach strategy, skills such as ﬁ rst aid, and military rules and ethics.h Learning can be fun.

Play can be a great conduit for learn- ing and creativity because it taps into people’s intrinsic motivation, satisfying needs of autonomy, competence, and relatedness.
When playing, many people achieve a state of “ﬂ ow”—a state of concentration that activates the brain and is considered optimal for new learning.a Applying the principles of gaming—rules, goal achievement, pro- gressive diffi culty, interaction and student control, uncer- tain outcomes, and immediate feedback—to classroom activities can teach both cognitive and socioemotional skills.
Some games apply these principles to teach basic skills, such as math and vocabulary in games like King of Math and FunEnglish, while others integrate learning into the game.
Dragonbox, Freddi Fish, and Guild Wars require creative thinking, problem solving, and building on existing knowledge to succeed.b Requiring inference and problem solving, rather than direct questioning for learning, they are more engaging and can lead to sustained learning.c Games can not only increase engagement but also improve learning outcomes.
A unique English program in India can be implemented with diff erent technologies (a specially designed machine or games and activities based on special ﬂ ash cards).
New methods yielded gains of about 0.3 standard deviation in test scores.d A 2006 study of ﬁ fth graders found that playing math games was more eff ective than basic math drills at building math skills, as measured by performance on a standardized math exam.e And two science games, RiverCity, which emphasizes ecology and biology, and Supercharged!, a program on electrostatics, improved learning outcomes over a traditional lecture by 15 to 18 percent and 8 percent, respectively.f a. Jarvilehto 2014. b. Becker 2007; Prensky 2006; Jarvilehto 2014. c. McFarlane, Sparrowhawk, and Heald 2002. d. He and others 2007. e. Grabowski and Fengfeng 2007. f. Mayo 2009. g. Prensky 2006; Becker 2007; Jarvilehto 2014. h. Prensky 2007. technology Countries with a industry local or where online work is common, already teach advanced ICT skills outside the education system.
In Kenya, NairoBits equips youth with knowledge in web design, IT skills, creative multimedia, and entrepreneurship.

This technical training is combined with training in socioemotional skills to build self-con- ﬁ dence.

NairoBits-trained youth have secured employ- ment in both formal and informal sectors and report a job placement rate of 90 percent.55 Similarly, iHub, one of the innovation and hacker spaces in Kenya, holds hacker labs for children and youth aged 10 to 16.
Many developing countries are partnering with the private sector to develop technical training in advanced ICT skills after general education.

Mexico First, a partnership with Cisco and Microsoft, targets professionals and university students to facilitate training and certiﬁ cation in ICT.
270 WORLD DEVELOPMENT REPORT 2016 Table 5.4 Transforming countries: A skill development agenda for a modern labor market Priority Pillars of an analog policy agenda Advanced ICT skills and STEM in general education and beyond • Strengthen collaboration between the private sector, governments, and educational institutions (Mexico First) • Promote STEM education How digital technologies can complement • Coding for kids (Scratch) • Coding among adults and outside the educational systems (NairoBits, Kenya; Codecademy) • Enhancing practical training (virtual labs and online work) Lifelong learning • Promote practical training in education • Increasing ﬂ exibility and reach for adult • Provide incentives for ﬁ rms to provide on-the-job training learning (MOOCs) Source: WDR 2016 team.
Note: ICT = information and communication technology; MOOCs = massive open online courses; STEM = science, technology, engineering, and mathematics.

Strengthening education in science, technology, engineering, and mathematics (STEM) Improving STEM education has become a major goal not only in transforming countries but also in most other countries.

But good intentions are not always paired with concrete and effective actions.
Address- ing shortages and deﬁ ciencies in the teaching of STEM requires preparing and equipping teachers properly and including STEM across the educational system—not just in tertiary education.

It also requires creatively involving the employers, more effectively connecting the teaching and research activities, and establishing ﬁ nancial incentives or compensatory mechanisms to make STEM education viable and affordable to underrepresented groups.
And it requires enabling institutions and governments to share experiences and lessons in addressing the STEM education deﬁ cits.

The World Bank–funded Partnership for Skills in Applied Sciences, Engineer- ing and Technology brings together the expertise in several Sub-Saharan countries with that in Brazil, China, India, and the Republic of Korea.
Women are much less likely than men to choose a STEM ﬁ eld in tertiary education, in both advanced and developing countries, and this is partly reﬂ ected in occupational choices.

In the United States, although women ﬁ ll close to half of all jobs nationwide, they hold fewer than 25 percent of STEM jobs, and for every dollar a man earns in STEM, a woman earns 86 cents.56 Women with a STEM degree are more likely to work in education or health care.
The gender gap in STEM ﬁ elds starts early, both in the education system and at home.

In OECD econ- omies, at age 15, fewer than 5 percent of girls consider careers in engineering and technology, compared with 18 percent of boys.57 Addressing gender stereo- types in school and at home can encourage girls to believe that they have the required ability for STEM and that signiﬁ cant opportunities will emerge for them.
Other actions include providing girls with rele- vant role models; targeting girls for recruitment into the STEM ﬁ elds early in their education, as Finland does; clearly establishing targets and incentives for recruitment, retention, and graduation of women in STEM ﬁ elds; and working with employers to make work settings gender-friendly.

Promoting lifelong learning in rapidly aging societies In rapidly changing labor markets, the skills learned in formal education risk becoming obsolete.
Contin- ued (re)training and upskilling can help workers stay current, and ensure that their skills are complemen- tary to new technological developments.

A ﬁ rst part of a lifelong learning agenda is ensuring that the skills students learn are useful for entering the labor market and provide a strong base for continuing to learn on the job.

Given the pace at which digital technologies are changing and how they are changing the labor market, students and adults must learn how to learn.
Governments can: • Provide students with practical training and exposure to the world of work prior to their graduation.

In addition to traditional apprenticeships, technology can be useful.

Virtual labs and simulation games for sci- ence education and machine operations are spread- ing and moving ever closer to the brick-and-mortar experience.58 Online work can also expose young students and trainees to the world of work.
NATIONAL PRIORITIES 271 • Explore modular approaches to learning so that stu- dents can move between education and work, as in Denmark or in College to Careers in the United States in postsecondary education.

In the latter, students complete modules with clear accredita- tion and competencies acquired (often equivalent to “expertise” levels), which allow them to mone- tize the newly acquired skills in the labor market, even before completing the full degree.
Students can then return to the community college and con- tinue to the next level of expertise.

Nanodegrees or microdegrees, offered by MOOC platforms Uda- city and Coursera in partnership with the private sector, take the modular approach to online-based education.

• Strengthen links between the private sector and higher education and vocational systems.
Ensuring that graduates from the education system acquire job- relevant cognitive, socioemotional, and technical skills requires that ﬁ rms, universities, and voca- tional schools, and current and future students, become better connected.

The German dual system is a very formal and institutionalized way of fos- tering these links, but there are other approaches.
Chicago’s reforms of the city’s community colleges targeted curricula more explicitly to sectors with a large presence in the region, including manufactur- ing and insurance.

Speciﬁ c components of these cur- ricula were discussed with major employers in these sectors to ensure relevance for the job market.59 • Focus publicly ﬁ nanced training on new economy skills and ICT skills.
New economy skills are likely to be underprovided by ﬁ rms because the beneﬁ ts do not accrue solely to the ﬁ rm.60 Several youth employ- ment programs, such as Jovenes in Latin America, combine technical training with socioemotional skills for disadvantaged groups, and many have had an impact on employment and earnings.61 Vocational training institutes in developing countries are starting to use the internet to deliver at least parts of their courses.
The Dominican Repub- lic training institute offers a wide range of online courses, including teacher training and inventory management, and reports particular interest from youth and individuals who are already working or who have family responsibilities.62 MOOCs can also be a tool for lifelong learning (box 5.10).

• Promote on-the-job training.


Traditional market fail- ures limit on-the-job training63 so one common mechanism for promoting on-the-job training is to have institutional arrangements between employ- ers and employees.

“Payback clauses” commit the worker to stay at the ﬁ rm for a speciﬁ c amount of time if training is provided.

In apprenticeships, the worker shares the costs of training through lower wages.
The German apprenticeship system is a well-deﬁ ned program that relies on a dual system of classroom training in vocational institutions and training at the workplace.

A second common mechanism for on-the-job training relies on ﬁ nancial arrangements that internalize some of the externalities related to employer-provided training.

In developing coun- tries, this typically takes the form of training funds, usually through payroll taxes, as in Brazil, Chile, Malaysia, and Mexico.
Other schemes compensate ﬁ rms for the cost of training through levy exemptions, tax rebates, and cost reimburse- ments.

But as with other subsidies, these can be inefﬁ cient and crowd out private expenditures on training.
It is, therefore, important to target the subsidies carefully, trying to go beyond ﬁ rm size, as in Malaysia’s Human Resources Development Fund.64 In OECD countries, different coﬁ nancing savings and loan schemes match individual con- tributions to contributions from employers and governments.
Individual learning accounts, learn- ing vouchers, and income-contingent repayment loans are just some of the possible instruments that could be used.65 Box 5.10 Massive open online courses (MOOCs): A promising tool for lifelong learning MOOCs are a recent development in distance learning, characterized by three key aspects: open enrollment, online assessment, and an interactive forum.

They sepa- rate themselves from traditional distance learning tools by providing postsecondary education in large scale.
They are mostly free, with fees for getting certiﬁ cations.

Some popular courses’ enrollment reach over 100,000 students.

Platforms such as Coursera.org, Udacity.com, and edX.org host these online courses, facilitate online discussions, and assess participants’ performances.
In the ﬁ rst two years (Box continues next page) 272 WORLD DEVELOPMENT REPORT 2016 Box 5.10 Massive open online courses (MOOCs): A promising tool for lifelong learning (continued) following its introduction in summer 2012, open courses off ered by HarvardX and MITx, and hosted by edX, attracted an average of 1,300 new participants per course per day.a to self-study are necessary characteristics to access and complete MOOCs, but so are more basic elements such as high-speed internet and digital skills.
MOOCs are promising.

People from anywhere around the world can access postsecondary education from pres- tigious institutions with only a gadget and access to the internet.

Among adults who work and who have a certain level of skills, online education can be a powerful force for lifelong learning.

These are individuals who would appre- ciate the ﬂ exibility (since they can combine it with work, which is one of the usual barriers for retraining).
These are also workers who are likely to be best prepared for self- guided learning.

In addition, the courses provide access to specialized topics that may not be available in the local economy.

At the very least, MOOCs can complement offl ine learning.

Coursera and edX have started to evaluate their pro- grams.

One study ﬁ nds that a slight majority of MOOC students are seeking certiﬁ cation, and those opting for fee-based, ID-veriﬁ ed certiﬁ cates have higher rates of com- pletion.
The study also ﬁ nds that literacy and motivation Yet, while their potential is large, there are questions about ﬁ nancial sustainability, the value of online educa- tion, and the evaluation methods.

Another study argues that MOOCs are an improvement on noninteractive, online courses, but that the current model is unsustainable.

Eventually, content will no longer be free, and star instruc- tors will have to be paid like stars.
And although they can be an effi cient way for transferring content and reinforcing learning, especially in basic courses, the lack of face-to- face interactions, the absence of individualized feedback from faculty, and the lack of access to complex infrastruc- ture such as labs, make MOOCs an unlikely competitor to existing postsecondary education institutions, especially in the developed world.b Finally, in terms of evaluation, MOOCs are complementing multiple-choice and short- answer questions with peer-grading and peer-commenting systems, in which students help each other with assign- ments and comment on each other’s work.
a. Ho and others 2015. b. Hoxby 2014.

Institutions: Connecting for a capable and accountable government Digital technologies have had limited impact on strengthening government capability and account- ability because of the misaligned incentives of policy makers and service providers—a gap between institu- tions and technology.

They have helped willing and able governments serve their citizens better, but they have not yet empowered citizens to make unwilling governments more accountable.
The policy agenda is thus to use digital technologies to strengthen insti- tutions by tailoring policies that are compatible with the incentives of politicians and providers.

The policy choices for different country contexts are informed by the ﬁ ndings in chapter 3 that for some services, digital technologies can substitute for weak institu- tions and be transformative—while for other services, digital technologies are only complementary and require strong institutions to have an impact.
Technology mixes appropriate to institutions The policy agenda needs to be guided by the country context, classiﬁ ed here as emerging, transitioning, or transforming depending on the extent to which gov- ernment uses digital technology and the quality of political and administrative institutions (ﬁ gure 5.10).

Emerging countries are characterized by weak institutions and, in fragile contexts, the institutions may be failing.
Politicians are often kept in power by a narrow set of elites who are largely unaccountable to the poor.

The bureaucracy is largely patronage-based, with little incentive to deliver services.

These reform contexts are the most difﬁ cult, as the state is failing not only to deliver services but also to perform the most basic functions of maintaining security.

The priority in these countries is to lay the institutional foundations so that governments can start perform- ing basic functions.
They should ensure that teachers and doctors show up to work and are paid on time.

They should curtail the outright theft of public funds Figure 5.10 Countries with more accountable governments also adopt more digital technologies −1 −2 −3 0 0.2 0.4 0.6 0.8 1.0 Technology: Digital Adoption Index (Governments) Sources: World Governance Indicators (World Bank, various years) and WDR 2016 team.

Data at http://bit.do/WDR2016-Fig5_10.


Note: The Digital Adoption Index (Governments) is the simple average of three normalized subindexes: core administrative systems, online public ser- vices, and digital identiﬁ cation.

Data for online public services are provided by the UN’s Online Service Index.

Data for core administrative systems and digital identiﬁ cation were compiled by the World Bank for this Report.

through transparency and accountability measures.


And they should strengthen alternative channels of service delivery through nonstate providers.

The focus, from the perspective of this Report, should be in areas where digital technologies can be effective substitutes for these weak initial institutional condi- tions.
Around 15 to 20 countries fall into this category, NATIONAL PRIORITIES 273 among them such fragile and conﬂ ict-affected states as Afghanistan, the Democratic Republic of Congo, Haiti, Somalia, the Republic of Yemen, and Zimbabwe.

Transitioning countries have mixed institutions characterized by pockets of pro-poor politicians and performance-oriented agencies.
The priority for these countries should be to take advantage of this institu- tional heterogeneity and to use digital technologies to strengthen government capability in the “islands of excellence” that exist, and through demonstration, scale them up.
The emphasis should also be on tar- geted transparency initiatives, those likely to be rele- vant to the daily lives of citizens and able to mobilize a broad coalition of supporters among businesses and other elites to align their incentives with those of willing politicians.

Most developing countries fall into this category.


In transforming contexts, governments are gener- ally accountable and capable, internet access is close to universal, many services are online, and many back-ofﬁ ce systems are automated.

One big challenge in taking e-government to the next level is the rela- tively low use of online services by citizens, especially poor households.
Within-government collaboration across ministerial lines is weak, pushing up the trans- action costs for citizens to interact with government.

Another challenge is that government-citizen collabo- ration in policy making and service delivery is limited.
Policies should focus on deepening collaborative insti- tutions, both within government, through whole-of- government service delivery—and between govern- ment and citizens, through participatory approaches, while instituting digital safeguards to protect privacy.

Digital technologies can help in implementing policies more effectively.

The key is to align the choice of digital technologies with their availability, skill requirements, and political incentives (table 5.5).
While the focus here is on what to do, aligning Table 5.5 A framework for policies: How to improve services in diff erent contexts Emerging countries: Laying the foundations for institutions Transitioning countries: Building capable and accountable institutions Transforming countries: Deepening collaborative institutions • Improve informational services to • Strengthen government delivery • Improve collaboration across citizens systems government • Strengthen provider monitoring • Strengthen provider management • Enhance participatory policy and payment • Get regular user feedback on making • Establish population registers service quality • Scale up nonstate provision of • Increase transparency in priority services areas • Increase electoral accountability Source: WDR 2016 team.
274 WORLD DEVELOPMENT REPORT 2016 policies to institutions should also guide what not to do.

For example, the misalignment of policies and political and administrative incentives is one of the most common reasons for failed ICT interventions in government.

As chapter 3 showed, many low-income countries have overinvested in low-impact adminis- trative systems, resulting in ﬁ scal waste.

So, to use the popular metaphor, investing in “toilets, not the internet” may indeed be advisable.
Similarly, political elites will have little interest in collaborative service delivery or citizen engagement in clientelist systems, suggesting that an across-the-board push for open data in emerging contexts is unlikely to be successful.

lack is an ofﬁ cial identity, which excludes them from accessing many services, both public and private.

So, a priority should be to build digital civil-identity sys- tems to establish citizenship and become a platform for nonstate provision of services.
The underlying policies can be grouped in ﬁ ve cat- egories: improving informational services; strength- ening the monitoring and management of service providers and facilities; developing robust digital population registers for citizen identity; strengthen- ing nonstate provision of services through for-proﬁ t and not-for-proﬁ t providers; and improving electoral accountability through better monitoring.
Emerging countries: Laying the foundations for institutions Given the persistent failure of many governments to deliver adequate services, the priority in emerging contexts is to use digital technologies to begin build- ing the foundations of government institutions and, where possible, to support alternative institutional channels for delivering services.
The digital solutions should be relatively simple and low cost and should not require signiﬁ cant business process reengineer- ing in government bureaucracies or interagency col- laboration.

Where possible, they should substitute for inefﬁ cient government institutions.

And to be incen- tive compatible, they should deliver immediate and visible beneﬁ ts for politicians without threatening the elites who keep them in power.

Examples of appropri- ate technologies and complements appear in table 5.6.
Although institutions are failing, mobile phones are ubiquitous, and many poor people in even the poorest countries have a cellphone.

This almost universal access opens many possibilities for mobile- phone applications to improve services and outcomes, substituting for ineffective institutions in some services and functions.
However, what poor people Table 5.6 Emerging countries: An agenda for laying institutional foundations and improving services Technology Complements • Mobile phone–based informational services • Civil society and community involvement • Mobile phone–based • Traditional media • Rewards and not sanctions monitoring and management • Digital population registers • Digital election monitoring Source: WDR 2016 team.
Improve informational services to citizens Mobile phones are delivering information to poor citizens in a variety of low-income countries with positive outcomes, and health applications are among the most promising uses of digital technology (see sector focus 3).

In Malawi, governments and non- governmental organizations send daily reminders to HIV-positive patients on their treatment schedule.
In the Democratic Republic of Congo, health call centers enable mothers to get answers to questions about their children’s health.

And in Benin, Uganda, and Zambia, mobile apps raise health awareness and monitor disease outbreaks.66 Mobile phones have also improved communication between governments and citizens for natural disasters and relief efforts—and promoted literacy through daily text message stories and teaching tips for teachers, with promising initial results (see sector focus 2).
Strengthen the monitoring and management of service providers and facilities Ghana, Niger, Pakistan, and Uganda have demon- strated the efﬁ cacy of mobile phones as a cost- effective monitoring technology to address absentee- ism among teachers and health workers.

In principle, similar monitoring approaches can be applied to address missing textbooks, drug stock-outs, and petty corruption.
Scaling up from pilots to national pro- grams will, however, face bureaucratic resistance—to be mitigated by focusing on rewards instead of sanc- tions, such as ﬁ nancial incentives and recognition in the local community.

A basic reward—or right—is getting regularly paid for work, a problem in many low-income countries due to inefﬁ cient budget exe- cution.
In Haiti, three-quarters of school teachers sur- veyed had gone unpaid for months at a time.67 Mobile payment platforms provide a low-cost solution, as in the Bridge International Academies in Kenya.
If linked to digital population registers, they can also NATIONAL PRIORITIES 275 identify ghost workers, as in Nigeria, where a digi- tal identiﬁ cation scheme for civil servants removed about 60,000 ﬁ ctitious workers from the government payroll, saving US$1 billion annually.68 Establish population registers Digital population registers can establish citizen identity and be leveraged later for a variety of applica- tions through appropriate credential veriﬁ cation (see spotlight 4).
The focus should be on developing the identity database and on the systems to ensure com- pleteness and high quality.

Only after the country has developed harmonized identity registers can it legiti- mately begin to tie e-services and issue the right cre- dentials to support them.

In many cases, countries, under vendor pressure, have prematurely procured costly smart cards, which then remained unused as the identity registers had not been developed ﬁ rst.
India focused on enrollment and unique identity and launched the program without any smart cards or credentials, just an Aadhaar number communicated to individuals.

Now, more than ﬁ ve years later, differ- ent programs are issuing application-speciﬁ c creden- tials linked to the Aadhaar framework and database.

Scale up nonstate provision of services Citizens in many low-income countries send their children to nonstate schools (for-proﬁ t or not-for- proﬁ t) and seek care from private health providers.
Nonstate provision raises questions of equity and quality.

These risks can be mitigated through regu- lations, disclosures, and public-private partnerships, such as voucher programs and contracting out.

These programs, if implemented well, can be highly effective.
In an educational scheme for marginal communities in rural Pakistan, the government paid the private provider a per-child subsidy, increasing primary school enrollments and boosting test scores by 30 percentage points.69 These programs can also be compatible with the interests of even clientelist pol- iticians, as they are likely to be supported by impor- tant stakeholders like the business community and private service providers.
Nonstate provision theoretically relies on the power of the market to solve accountability failures in ways that public provision cannot.

But in practice, parents may lack the choice of alternative providers or the information on provider quality to “vote with their feet” and hold nonstate providers accountable.
The impact of low-cost private schools on student learning is generally positive, but in some cases they can be even worse than their public counterparts.70 Performance agreements between governments and nonstate providers require some contracting and monitoring capacity in government, and the collec- tion and veriﬁ cation of data to hold nonstate provid- ers accountable.
Digital technologies can improve the impact of these schemes through better data collection, moni- toring, and dissemination of information on provider quality.

Parents can make more informed decisions, ﬁ xing the market failures in private provision.
Non- digital school report cards in Pakistan’s rural Punjab for example, improved parental information, lowered private school prices, and boosted school quality.71 Digital technologies can make these choices easier through simpler versions of the school and health care provider rating systems that are now common- place in the high-income countries.

And govern- ments, in the absence of parental choice, can better hold the private providers to account.
Improve electoral accountability Digital technologies are improving both the sanctity of elections and providing citizens with meaningful and actionable information on government perfor- mance.

Although the number of electoral democ- racies in poor countries has increased over the past two decades, the integrity of elections in these new democracies is low.
Over half of the elections over the past decade had irregularities either in the run-up to the election or on election day.72 Elections are well-suited for digitally enabled monitoring.

As high- proﬁ le events that attract signiﬁ cant international attention and scrutiny, improving electoral integrity may be possible even in politically difﬁ cult emerging country contexts.

Digital technologies can reduce election violence, as in Kenya and Mozambique, and uncover fraud in vote-counting, as in Afghanistan.
Digital identiﬁ ca- tion is being increasingly used to register voters.
In Pakistan for example, ahead of the 2013 parliamen- tary elections, the digital identity database was used to clean the electoral rolls, leading to the removal of 37 million voters with either no, invalid, or duplicate identities, and the addition of 36 million new voters, mostly young and poor, who had valid identiﬁ cation.73 Similarly, in the 2015 presidential election in Nigeria, biometric identiﬁ cation was used for the ﬁ rst time to enroll 68 million voters and to eliminate 4 million duplicate identities (see spotlight 4).
Despite these suc- cesses though, biometric identiﬁ cation is not without its risks in emerging countries.

Simpler, lower-cost monitoring technologies like cellphones that require fewer institutional complements may be preferable.74 Digital technologies can also improve electoral accountability by exposing corruption and abuse of ofﬁ ce, thereby better enabling voters to sanction 276 WORLD DEVELOPMENT REPORT 2016 lawbreaking politicians.
Municipal audits in Brazil and Mexico show that targeted digital transparency initiatives can provide salient and credible informa- tion on corruption and on the quality of candidates that is easy to understand and attribute to individual politicians.

Widely disseminated before an election, such information can inﬂ uence voters’ decisions.
But such initiatives are contingent on a supportive legal framework—such as right to information laws or disclosures of conﬂ icts of interest and assets—or on independent supreme audit institutions that may be absent in these country settings.

Civil society advo- cacy, in partnership with traditional media, is neces- sary to uncover abuse and to make this information available and understandable to voters.
Transitioning countries: Building capable and accountable institutions By introducing an automated complaint management system we took a noose and put it around our own necks.

We are now accountable!

—A manager of the Nairobi water utility Countries transitioning digitally have invested in the automation of core government administration, such as digital identiﬁ cation, ﬁ nancial and sector- speciﬁ c management information systems, and on government-to-citizen and government-to-business services.
They can increase the impact of these investments through complementary policies and strengthen performance orientation in bureaucracies.

Strengthen government delivery systems These countries should continue to expand e-gov- ernment, particularly digital identiﬁ cation systems and the business and citizen-facing services like online registration of businesses, e-ﬁ ling of taxes, e-procurement, and citizen service centers.
But these investments should be conditional on enacting the complementary reforms of regulatory changes, improving interdepartmental and interagency coop- eration, and streamlining procedures.

Digital technol- ogies can strengthen project management through better monitoring of the different stages of the proj- ect cycle.
By making procurement and contract mon- itoring more transparent, they can also give agencies ﬂ exibility in negotiating contracts with vendors, relaxing the procurement rigidities that cause many ICT projects to fail (box 5.11).

Examples of appropriate technologies and complements appear in table 5.7.
Institutionalize user feedback on service quality Incorporating citizen feedback into policy maker- to-provider management routines can be a powerful mechanism for tackling petty corruption and improv- ing services, as in the Dominican Republic, Kenya, Nigeria, and Pakistan (chapter 3).
It works especially well for private goods and services that are easy to Box 5.11 Increasing the impact of e-government systems in 2009 Better project management: The U.S. Offi ce of Management and Budget introduced the IT [Information Technology] Dashboard, a public website that provides detailed performance information on major IT investments by the federal government.
That information is then used to review problem projects at monthly TechStat meetings between the federal Chief Information Offi cer and the respective agencies.

The Government Accountability Offi ce found that these reforms improved the transparency and oversight of government IT spending.

Flexible and transparent IT procurement: E-government projects often fail because of rigid procurement rules.
But making procurement transparent can ensure that discretion Sources: U.S. GAO 2014; Kenny 2014; Krishna 2015, for the WDR 2016. is not abused.

The European Union allows agencies to negoti- ate with multiple bidders and award the contract to the ven- dor with the best revised bid.

The greater discretion would not be possible without the greater monitoring, accountabil- ity, and trust aff orded through the e-procurement system.
Public-private partnerships: A number of middle-income implemented e-government projects countries have through public-private partnerships, minimizing the risks of failure associated with misaligned incentives and limited government capacity.

Such partnerships are fea- sible for revenue-raising services, for managing citizen service centers, as in Brazil and India, and for government e-procurement systems, as in the Indian state of Karnataka.
NATIONAL PRIORITIES 277 Table 5.7 Transitioning countries: An agenda for building capable and accountable institutions and improving services Technology Complements • Digital ID, G2G, G2C, and G2B e-government and e-procurement systems • Digital performance management • Targeted digital transparency initiatives • Digital platforms for citizen feedback and participation Source: WDR 2016 team.
• Streamlining of procedures • Improved interdepartmental cooperation • Regulatory reforms • Public-private partnerships for fee-based services Note: G2B = government-to-business; G2C = government-to-citizen; G2G = government-to-government.

monitor, like drivers’ licenses, property transfer and registration, and water and electricity connections, since users have both the incentive and the ability to provide feedback.
Politicians are likely to support it because it yields immediate and visible service improvements without threatening elites and vested interests.

Similar approaches can monitor service providers, facilities, assets, and public spending.

Digital platforms can also raise resources from citi- zens to fund infrastructure, hire contract teachers, and purchase drugs and educational materials, and digital monitoring technologies can assure citizens that their contributions are going to their chosen causes.
Give- Directly, a Silicon Valley–based philanthropy, enables well-off individuals all over the world to contribute funds directly to poor beneﬁ ciaries in developing countries.

The private sector has also been much more successful in getting citizens to create internet con- tent for public causes.

Wikipedia, Yelp, Trip Advisor, and Amazon product reviews provide lessons for solv- ing collective action problems and engaging citizens in public service delivery improvements.
Strengthen provider management through regular small-stakes monitoring Most services and functions in government—teach- ing, curative health, policy making, and manage- ment—require considerable discretion from workers and produce outputs and outcomes that are difﬁ cult to monitor.

Improving these services requires strong institutions.

Digital technologies can only augment and not substitute for institutions.
Even though mea- suring performance is difﬁ cult for these services and functions, the processes of setting goals, of regularly communicating and discussing them with staff, and of associating small rewards, such as public recogni- tion, for teams and individuals in the achievement of even imprecisely measured goals can motivate workers to perform better (box 5.12).
A survey of gov- ernment workers in the Philippines found that a per- formance incentive scheme triggered improvements in management practices through goal setting and improved teamwork.75 And a mobile phone–enabled Box 5.12 Regular, small-stakes monitoring Regular monitoring with small rewards or sanctions can be more eff ective than irregular monitoring with large rewards or sanctions.
The logic of this proposition is motivated by the economic theory of crime that postulates that the incen- tives for criminals to commit a crime are a function of the probability (P) of getting caught multiplied by the severity of the punishment (C).
While standard economic analysis presumes that what matters is only the product P x C, the evidence suggests that raising the severity of punishment in response to low probabilities of catching criminals is not credible because many law enforcement offi cials are loathe to impose draconian punishments for smaller off enses.
For example, in Hawaii, revoking probation when probationers failed a drug test was for years an ineff ective strategy, given the large numbers of violators and the impracticality of sending them to prison for several years.

But raising P and lowering C—regular, randomized drug tests and jail sentences of two days—deterred parole violations because the punishment strategy became more credible.

These ﬁ ndings are generally applicable to other ser- vices.
Digital technologies reduce the cost of monitoring and thus make it more feasible to give regular rewards and sanctions.

If the rewards and sanctions are small, they can be feasibly imposed, improving performance.

Source: Romer 2013.
Source: Romer 2013.

278 WORLD DEVELOPMENT REPORT 2016 monitoring scheme increased the motivation of rural teachers in part by showing that ofﬁ cials in the far- away ministry of education cared about their work and were looking out for them.76 Digital technologies can improve goal setting and within-government communication between policy makers, managers, and providers.
Many private orga- nizations are introducing short “pulse” staff surveys to get rapid responses from employees on particular issues, to gauge employee motivation, and to moti- vate workers through “employee of the month” public recognition schemes, and “gamiﬁ cation” techniques like assigning points, leaderboards, badges, and other small rewards for the achievement of particular activ- ities.77 The ubiquity of mobile phones makes such within-government feedback channels quite feasible even in low-income countries, and can certainly be applied in the pockets of excellence in transitioning contexts.
While the measurement of performance and the feedback is subjective and imprecise, it is the regular communication and monitoring tied to the small-stakes rewards that improve worker motivation.

Reinforce targeted transparency initiatives Digital technologies can provide a new lease on life for transparency initiatives such as the Open Govern- ment Partnership, an international platform for com- mitted domestic reformers.
But the initiatives should be targeted and of value to citizens and of interest to the private sector and other important stakeholders.

Consider the transparency of government contract- ing.
Governments annually spend over US$9 trillion on procurement, at high risk of corruption, both in bid- ding and during contract execution.78 E-procurement is technically easy to implement, yet, as described in chapter 3, developing countries have invested less in such systems than in the more complex budget and treasury systems—or have done so without the com- plementary reforms to deliver results.
E-procurement also has the potential to galvanize substantial support from the business community by reducing barriers to entry—since it expands the market to new entrants, including international ﬁ rms—and by opening politi- cal space for reform.

Digital technologies can also expand the range of actors that generate information, breaking the state’s monopoly in information provision.
Because such information can be skewed toward the digitally savvy, it should be used where representativeness is not a requirement and the risks of manipulation are small, as with real-time information on emergencies or on the quality of services that are easy to monitor, like electricity and water.

Transforming countries: Deepening collaborative institutions Many transforming countries have improved service delivery, but only in some areas.
Their services are not yet sufﬁ ciently integrated, holding them back from more ambitious interventions such as greater government-citizen collaboration in policy making and service delivery.

Increase citizen use of government services through integrated whole-of-government digital solutions The gap between the provision of e-services and their use is wide—even in digitally advanced coun- tries—and it is not closing.
In Australia, Canada, and New Zealand, a majority of survey respondents prefer traditional channels like phones for routine transactions such as paying taxes or registering chil- dren for day care.79 This low use reveals the waste in e-government investments.

Part of the explanation lies in less friendly experiences.
Federal government websites in the United States provide a poorer user experience than comparable private ones.80 Of more than 400 applications that the Korean government offers over smartphones, none meet the criteria of a seamless, cross-agency, or cross-functional one-stop service.81 Increasing use will require better integration of e-government across government, which requires breaking down agency silos and improving data shar- ing across government.
In the private sector, digitally enabled improvements in customer service, a core differentiator in the service industry, are conditional on high levels of shared knowledge in the ﬁ rm.82 Esto- nia’s X-Road data-sharing protocol shows how data integration can work within the constraints of the ministry and agency structure of government (box 5.13).

Data integration is also essential for effective open data platforms that the private sector can use to develop applications that citizens want.
Examples of appropriate technologies and complements appear in table 5.8.

Expand participatory policy making and service delivery Increasing use of digital technologies is also condi- tional on a better understanding of citizens’ needs and thus on simpliﬁ cation and customization.
Behavioral research has shown that individuals are “cognitive NATIONAL PRIORITIES 279 Box 5.13 Estonia’s X-Road is an Estonia’s X-Road internet-based e-government system that enables participating institutions, including private business, to communicate and exchange data.a It serves as a platform for application development by providing numerous common services to users, including query design, query tracking, and data visualization.
Its open design is protected by digital authentication, multi- level authorization, log monitoring, and encrypted data transfers.

This collective process improves the user expe- rience and motivates state institutions to develop digital services and people to tap into digital government services.

The common goal is to shift activities from the physical world to the much more effi cient digital realm.

X-Road’s utility is evident in its exponential growth.
The system launched in 2003 with 10 participating institutions.

By 2013, almost 900 had joined—70 percent are national or local government agencies, and the remainder private ﬁ rms.

The annual number of queries through X-Road rose from half a million to 340 million.

In 2014, two-thirds of queries were automated system-to-system exchanges.

The remaining one-third, about 113 million human queries, reﬂ ects enormous demand for e-services from a population of only 1.3 million.
The system’s main strength is that it is decentralized.

Participating institutions retain ownership of their data, but can share it or access other institutions’ data as neces- sary.
Estonia’s Public Information Act prohibits institutions from requesting user information already stored in a data repository connected to the X-Road.b Thus the system’s architecture—coupled with complementary policies—has reduced the need for repetitive data entry, increased gov- ernment effi ciency, and reduced costs to users.
If e-services are assumed to yield 30 minutes in time saved per inter- action (for the service provider and the citizen) relative to predigital physical interaction, the number of applications in 2014 implies a savings of more than 7 million work days a year—5.4 work days for each citizen.

Source: Vassil 2015, for the WDR 2016. a.

See the Information System Authority’s website at https://www.ria.ee/x-road/.

b. https://www.riigiteataja.ee/en/eli/522122014002/consolide.
Table 5.8 Transforming countries: An agenda for deepening collaborative institutions and improving services Technology Complements • Integrated whole-of- • Breaking down government digital solutions of silos • Participatory policy making • Learning from the and service delivery private sector Source: WDR 2016 team.

misers” who engage in motivated reasoning.


Their decision making is often automatic, and they are more likely to search for and absorb information that conﬁ rms their priors rather than process new infor- mation that does not.83 The private sector understands this and simpliﬁ es and customizes the user experi- ence to engage customers.
Amazon’s search tool not only displays results the customer is looking for but also recommends other products based on the cus- tomer’s browsing history and the purchasing trends of other customers.

Transforming countries can learn from the private sector and embed these principles of simpliﬁ cation and customization in their e-services to foster greater collaboration with citizens.
Digital safeguards Reforms to strengthen the analog complements can ensure a high social and economic return from digital investments.

But downside risks remain.

Large-scale collection of identiﬁ able information creates privacy and security concerns.

Automation changes work in ways that challenge existing social protections and reveal the inadequacy of existing labor laws.

And scale economies create antitrust concerns.


Digital safeguards that mitigate these risks become more important as the digital transformation proceeds (ﬁ g- ure 5.11).

Competition and cybersafety are discussed elsewhere in this Report.

This section focuses on another important safeguard for the digital economy, namely changes to social protection, taxation policy, and labor market institutions.
Digital technologies are accelerating job cre- ation and job destruction, requiring a more ﬂ exible 280 WORLD DEVELOPMENT REPORT 2016 Figure 5.11 Digital safeguards in the WDR’s framework DIGITAL TECHNOLOGIES Information deluge Informalization and job displacement Winner-take-all economy PRIVACY POLICIES SOCIAL PROTECTION ANTITRUST POLICIES Source: WDR 2016 team.

workforce that responds to changing labor market demands.
They are also facilitating new forms of non- wage employment and work arrangements which, while adding ﬂ exibility to ﬁ rms and workers, can also erode traditional employer-employee relationships (chapter 2).

This transformation of the world of work requires a rethink of social protection, tax systems, and labor market institutions.
In incipient and tran- sitioning countries, this agenda is less urgent, but it will be important to build systems appropriate for the 21st century and not to blindly adopt models designed by advanced countries for an industrial era.

Support technology adoption and level the playing ﬁ eld between workers and technology Labor regulations, labor taxation and institutions need to support, rather than impede, technology adoption by ﬁ rms.
They should also avoid making labor unduly expensive, especially for workers who compete more directly with digital technologies.

Technology, by accelerating the pace of change in the labor market, can make existing labor regulations obsolete and delay ﬁ rms’ adjustments.84 And tight labor regulations often apply to low-skilled workers,85 increasing the incentives for ﬁ rms to substitute low- skilled workers with labor-saving technology, accen- tuating the skill-bias of technological change.
This appears to be the case globally.86 Countries with unduly protective labor markets could be slowing their digital transformation, and distorting ﬁ rms’ decisions to automate work.

This is likely to affect countries that have particularly stringent hiring and ﬁ ring practices.87 There are also implications for minimum wages, especially their growth path, if workers who earn close to the minimum wage are also in routine occupations sus- ceptible to automation.
Tax systems that rely heavily on taxing labor also make labor more expensive in relation to capital and could become unsustainable if wage employment falls.

In-work beneﬁ ts, such as income tax credits in the United States and the United Kingdom, are one mechanism for policy makers to make labor taxes more progressive while improving incentives to work and hire.88 Digital technologies themselves can reduce non- wage labor costs related to enforcement.
In Brazil, the Annual Social Information report (digital records from social security with information about all work- ers, their wages, their occupations, and the types of ﬁ rms they work for) monitors compliance with the Apprentice Law and, increasingly, other labor laws.89 Oman has a Worker Protection Scheme that allows for monitoring wage payments.
Digital technologies can further reduce enforcement costs by shifting from top-down to bottom-up accountability, empowering workers and unions to convey complaints and vio- lations and to resolve conﬂ icts.
In the United States, workers can anonymously ﬁ le online complaints and requests for inspections of their workplace if they believe there is a serious hazard or labor law violation; they can get information about their rights.90 They can also check online whether their employers have paid their social security contributions.
These tools increasing worker agency have the potential to bal- ance the loss of bargaining power for workers in non- traditional work arrangements, such as independent contractors in the gig economy, where many workers are freelancers or work online.
Balance the relaxation of job protections with stronger workers’ protections independent of work contracts Independent contracting, casual work, freelancing, and other new forms of work in online labor markets and the sharing economy challenge the foundations of most social protection and tax systems.

In most countries, social insurance schemes—for pensions, unemployment, and health—are tied to a (formal) job, ﬁ nanced through payroll taxes levied in the formal sector.
The evolving nature of work increases the need to delink social insurance from the labor contract.

Bolivia, Chile, and Costa Rica have been grappling with providing social insurance to noncontributing, nonwage, informal workers for a long time.
Their NATIONAL PRIORITIES 281 experiences suggest that all individuals should be registered in the same social insurance system, regardless of where they work, with subsidies for the poor or low-wage earners, and with ﬁ nancing coming from general revenues.91 The labor market disruptions that accompany technological change increase the demands on active labor market policies and social assistance systems.

The disruptions are likely to be greatest for workers in routine occupations.
Some of them are going to need intermediation and retraining services to ﬁ nd new jobs.

Others, if they have difﬁ culties transition- ing, may need social assistance.

Recent technological changes are bringing to the fore discussions of a guar- anteed basic income, especially in more advanced countries.
And giving workers a stake in digital cap- ital could diversify workers’ assets and reduce their costs of displacements—through pension funds, mutual funds, or even more directly in ﬁ rms active in the digital economy.92 A solution is to protect workers rather than jobs, and to level the playing ﬁ eld for regulations and tax- ation across work contracts.

If workers are protected outside their labor contract, regulations and taxes can be more lax across the board.
A ﬁ rst step is to do away with regulations that almost prohibit ﬂ exible work arrangements.

In Montenegro contracts for part- time employment cannot be less than 10 hours per week.93 Another step is to reform tax systems that tax part-time work at higher per hour rates than full-time work.
In Serbia, the reference wage (determining a minimum social contribution) is not adjusted for hours worked, so that social contributions are dispro- portionately high for part-time workers.94 Reforms are also necessary in working time arrangements.95 Notes 1.

See, for example, https://e-estonia.com.

2.

Decker and others 2014.

3.

See Atkinson and Miller 2015.

4.

See OECD 2015.

5.


The ﬁ rst stage (2000–05) of Rwanda’s National Information and Communication Infrastructure policy prepared the groundwork for the ICT sec- tor.

The second phase (2006–10) concentrated on enhancing ICT infrastructure.

The third phase (2011–15) focused on improving service delivery.

The ﬁ nal phase (2016–20) is expected to concentrate on the enhancement of skills and development of the private sector and community.
Instead of ﬁ rst dealing with the supply-side issues and then the demand-side issues, developing countries would be better off by working to simultaneously strengthen the two pillars of their digital strategy.

For details, see Rwanda’s ICT strategy at http://www.rdb.rw/uploads /tx_sbdownloader/NICI_III.pdf.

6.

See Hanna 2015.

7.

See http://www.plugintheworld.com/mobisol/.

8.

Many developing countries adopt the competition frameworks of more advanced economies, but fail to implement them adequately.
9.

Fines imposed by competition authorities remain symbolic in several countries.

In Armenia, Kenya, and Central American countries, the current struc- ture of ﬁ nes and sanctions is not conducive to deter- ring anticompetitive conduct.

In Armenia, maxi- mum ﬁ nes for price-ﬁ xing cartels are 1.5 percent of the average turnover of the 100 largest taxpayers, compared with a best practice of about 10 percent of a ﬁ rm’s turnover in other countries.

10.

According to data from the market-research ﬁ rm IDC.
11.

Rochet and Tirole 2006.

12.

World Bank 2012a; Bodewig and others 2014; World Bank 2011; Cunningham and Villasenor 2014.

13.

Functional illiteracy is deﬁ ned as the proportion of exam takers who score below a level 2 in the PISA reading test.

WDR 2016 team, based on OECD PISA 2012 scores.

14.

Guerra, Modecki, and Cunningham 2014; Shonkoff and Phillips 2000; Almlund and others 2011; Cunha, Heckman, and Schennach 2010; Cunha and Heck- man 2007.

15.
15.

STEP household surveys and OECD’s Programme for International Student Assessment (PISA).

16.

Guerra, Modecki, and Cunningham 2014; Bodewig and others 2014.

17.

Arias and others 2014; Sondergaard and others 2012.

18.

Gates Foundation 2015.

19. http://www.text2teach.org.ph/?page_id=2.

20. http://www.bridgeinternationalacademies.com /company/about/.

21. http://www.britishcouncil.co/en/about/english -education-solutions/success-stories/remote-in -service-teacher-training-english.

22.
22.

Kremer and Holla 2009; and Kremer, Brannen, and Glennerster 2013.

23.

Bruns and Luque 2014.

24.

Banerjee and others 2007.

25.

Bruns and Luque 2014.

26.

Bruns and Luque 2014.

27.

Barrera-Osorio and Linden 2009.

28.

Devitt, Lyons, and McCoy 2014.

29. http://www.text2teach.org.ph/wp-content/uploads /2012/06/Phase3-by-third-party.pdf.

30.

Linden 2008.

31.

Bruns and Luque 2014.

32.

McEwan 2013; Kremer, Brannen, and Glennerster 2013.

33.
33.

World Development Indicators (World Bank, vari- ous years).

282 WORLD DEVELOPMENT REPORT 2016 34.

Aker, Ksoll, and Lybbert 2012.

35.

Ksoll and others 2014.

36.

In a slum in New Dehli, a freely accessible computer was put up for use in a hole in a wall.

With no prior experience, the children learned to use the computer on their own (see http://www.hole-in-the-wall.com /Beginnings.html).

37.

Research ICT Africa surveys (various years), dis- cussed in chapter 2.

38.
38.

Kuek and others, forthcoming.

39.

King and Rogers 2014.

40.

Rathunde and Csikszentmihalyi 2005.

41.

Heckman and others 2010.

42.

For more information on the New School model, see http://www.escuelanueva.org/portal/en/escuela -nueva-model.html.

43.

In FYR Macedonia, for example, the government is starting a pilot introducing growth mind-set and grit training in primary schools; see Bodewig and others (2014) for a discussion on ongoing reforms in Vietnam.

44.

Halinen 2015.

45.


The “Thinking Schools, Learning Nation” concept was articulated by the Singaporean prime minister in a speech on June 2, 1997. http://www.moe.gov.sg /media/speeches/1997/020697.htm.

46.

Goh and Gopinathan 2008.

47.

Guerra, Modecki, and Cunningham 2014.

48.

Guerra, Modecki, and Cunningham 2014.

49.

See http://www.oecd.org/site/piaac/ and Pierre, Sanchez Puerta, and Valerio 2014.

50. http://www.bbc.com/news/world-asia-china -31617597.

51.
51.

See Duckworth and others 2007, for grit; and Dweck 2006, for growth mind-set.

52.

Trucano 2015.

53.

Resnik 2013.

54. http://www.codecademy.com/.

55. http://www.nairobits.com/.

56.

Beede 2011.

57.

OECD PISA 2006.

58.

Waldrop 2013.

59.

For more information on College to Careers, the ﬂ agship program of Chicago’s reform efforts, see http://www.ccc.edu/menu/Pages/college-to-careers .aspx.

60.

Almeida, Behrman, and Robalino 2012.

61.

Almeida, Behrman, and Robalino 2012.

62.


WDR 2016 team interview with INFOTEP (April 2015).

63.

Almeida, Behrman, and Robalino 2012.

64.

Almeida, Behrman, and Robalino 2012.

65.

OECD 2004.

66.

Aker and Mbiti 2010.

67.

Adelman and others 2015.

68.

Statements of then-minister of ﬁ nance Dr. Ngozi Okkonjo-Iweala, as reported by the media on Octo- ber 22, 2014. http://www.news24.com/Africa/News /Tanzania-orders-probe-into-ghost-government -workers-20150329.

69.
69.

Barrera-Osorio and others 2013.

70.

Tooley and Longﬁ eld 2015.

71.

Andrabi, Das, and Khwaja 2014.

72.

Bishop and Hoefﬂ er 2014.

73.

Malik 2014.

74.

Gelb and Clark 2013.

75.

World Bank 2015.

76.

Aker and Ksoll 2015.

77.

Banuri 2015.

78.

Kenny 2014.

79.

Reddick and Turner 2012.

80.

Morgeson and Mithas 2009.

81.

Eom and Kim 2014.

82.

Ray, Muhanna, and Barney 2005.

83.

World Bank 2015.

84.

Alesina, Battisti, and Zeira 2015.

85.

World Bank 2012b; Hamermesh 2014; Kuddo 2015.


86.

Alesina, Battisti, and Zeira 2015; O’Mahoney and Van Ark 2003.

87.

Kuddo 2015, based on World Economic Forum’s executive opinion survey on hiring and ﬁ ring practices.

88.

Chetty and Saez 2009; Blundell and Brewer 2000; Blundell, Duncan, and Meghir 2002; Hotz and Scholz 2001; Trampe 2007.

89.

Silva, Almeida, and Strokova 2014.

90. https://www.osha.gov/as/opa/worker/complain .html.

91.

Ribe, Robalino, and Walker 2010.

92.

Freeman 2015.

93.


Arias and others 2014.

94.

Arias and others 2014.

95.

Kuddo 2015.

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————.

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OECD PISA.

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Digital Game-Based Learning.

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Household survey.


Capetown, South Africa.

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286 WORLD DEVELOPMENT REPORT 2016 Ribe, Helena, David Robalino, and Ian Walker.

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Sustaining Employment and Wage Gains in Brazil: A Skills and Jobs Agenda.

Directions in Development Series.

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Sondergaard, Lars, Mamta Murthi, Dina Abu-Ghaida, Christian Bodewig, and Jan Rutkowski.

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288 WORLD DEVELOPMENT REPORT 2016 SECTOR FOCUS 5 Energy Reliable and affordable access to electricity services is fundamental to achieving the World Bank Group’s twin goals: shared prosperity and elimination of extreme poverty by 2030.
Efforts to meet the Agenda 2030 Sustainable Development Goal to “ensure access to affordable, reliable, sustainable, and modern energy for all” will also require increased investment, new and reﬁ ned technologies and systems, and institu- tional reform.

To help the world achieve this energy transformation, the effective use of information and communication technology (ICT), including data and advanced analytics, is already playing an essential role.
Changing energy business models with ICT Providing electricity to the approximately 1 billion people without access to affordable and sustainable electricity services presents an enormous challenge and opportunity.1 In Sub-Saharan Africa, only 14 per- cent of people have access to grid electricity; however, nearly 70 percent now have access to mobile phones.2 By the end of the decade, it is estimated that nearly 930 million people in Africa will own a mobile phone,3 creating not only a huge demand for phone charging, but facilitating a variety of energy and other services through the use of mobile phones.
A potential symbiotic relationship therefore exists between the development of information and commu- nication technologies and increasing energy access in Africa and other low-access areas.

As an example, cell towers require a local power supply, but in many This sector focus was contributed by Todd Johnson, Anna Lerner, and Karan Capoor.

rural areas the surrounding communities lack access to electricity.
Energy service companies in many parts of Africa have been oversizing the energy generation unit of the tower and providing local consumers with access to electricity.
The Mobile for Development program of the Groupe Speciale Mobile Association (GSMA) explores such opportunities.4 To address some of the ﬁ nancing challenges of rural energy services, companies in Africa and South Asia are leveraging ICT and sensors utilizing cellular networks through various ﬁ nancing models.5 For example, in the same value chain all the way from electricity distribution to maintenance, ICT is being deployed through short message service (SMS) or voice interaction with clients to collect and analyze mobile data, facilitate mobile payment systems, and utilize applications that are increasingly enabled by the internet.
These innovative products and services are facilitating a signiﬁ cant increase in energy access globally.

In East Africa alone, they have reached 14 mil- lion people in six years.

The average annual market growth is 140 percent, according to market research by the World Bank Group’s Lighting Africa Initiative.6 In East Africa, falling costs of ICT and efﬁ cient appliances have enabled off-grid photovoltaic (PV) systems to provide more energy services at a lower price.
Instead of relying on traditional means of col- lecting payments (with high transaction costs and losses), electricity bills can now be paid by cellphone through mobile money services such as M-Pesa.

This approach also generates large amounts of data on mobile money transfers, and has helped to establish credit histories for a previously underserved segment of the population.
Energy supply companies combine ﬁ nancial information with geographic and census ENERGY 289 289 data to identify new markets and to differentiate customers based on varying levels of service, thus allowing them to tailor the service to the customer’s ability to pay.
ICTs have also been deployed to reduce risks for suppliers and to facilitate after-sales service by tag- ging energy systems (such as solar PV panels and bat- teries) with sensors so that they can be tracked as they pass through distributors and are sold and installed.

The sensors capture remote real-time data about the equipment, enabling the provider to monitor perfor- mance and offer maintenance support.
Companies like M-Kopa and Off Grid Electric in East Africa have call center agents that resolve most payment or service-related queries, while remaining service issues are addressed by a ﬂ eet of technicians on motorcycles who are radio-dispatched.

ICT, the smart grid, and demand management Improved real-time information and automated con- trols are increasing the efﬁ ciency of the electricity grid all over the world.
The “smart grid”—which has come to deﬁ ne a broad range of sensors, meters, and con- trols enabled by information technology (IT), as well as large-scale and real-time data collection—can enhance the operational efﬁ ciency of the electricity system by optimizing energy transactions.7 The integration of ICT into the grid can improve system security through more rapid analysis of service interruptions and pre- diction of outages.
Connected devices and software offer customers access to real-time data to help them manage their energy usage more effectively, while advanced meters and automatic controls provide opportunities for energy efﬁ ciency, such as automatic dimming of street lights, or turning off lights or air conditioning in unoccupied rooms and buildings.
Potentially one of the most revolutionary internet- based innovations in the electricity sector is the ability to adjust consumer demand by providing new signals and transparency.

“Demand response” allows electric- ity consumption to be reduced during peak periods based on agreed-upon reductions in power supply.

For example, consumers agree to minor reductions in air-conditioning demand during summer peaks in exchange for a rate cut.
This helps increase system reliability, reduce energy supply costs, and lower gen- eration investments due to the reduced need for oper- ational reserves.

The International Energy Agency (IEA) estimates the savings potential for demand response programs in competitive markets at 15 to 20 percent of peak demand.8 So far, such systems have been introduced largely in advanced economies of the Organisation for Economic Co-operation and Development (OECD) and emerging economies.
But the development of low-cost sensors that will increas- ingly be factory-installed in all electrical appliances (televisions, refrigerators, fans, air conditioners) will allow both the monitoring and control of electricity use by consumers and electricity suppliers.9 One of the biggest challenges for the power sector of the future is the need to “balance” electricity gen- eration and load on a particular grid.
The growth of variable renewable energy is creating new challenges for planners and power system operators, who must rely on other sources of supply when the sun goes down or the wind stops blowing.

Predicting such variations in energy production is challenging.
In combination with (more predictable) demand vari- ations, it can lead to deviations in power frequency and power system reliability issues, and increase the need for grid balancing assets, such as fast-ramping gas power plants or electric storage.10 Research by the IEA shows that renewable energy costs can be reduced signiﬁ cantly through new forecasting and digital technologies that can help balance generation and load by monitoring and predicting the supply of variable energy resources.11 In countries and regions with growing shares of renewable energy such as Cal- ifornia, Denmark, and Germany, electricity markets are now designed to match supply and demand on a minute-by-minute basis through sophisticated auc- tions, regulatory mechanisms, and control systems that rely on the internet.12 Energy, open data, and the internet Having high-quality, easily accessible information on energy resources, demand, and usage is crucial to supporting the formulation of government policies, and can be a catalyst for commercial investment.
Just as the existence of high-quality geological data is an imperative for fossil fuel licensing and explo- ration, publicly available data on renewable energy resources is one of the ﬁ rst steps a country can take to encourage investment.
ICT facilitates this resource assessment and mapping through the use of super- computers to analyze years of historical meteorologi- cal and satellite data, by facilitating the transmission of measurement data from ﬁ eld-based instruments, and by supporting the wide dissemination of outputs through open data platforms.
290 WORLD DEVELOPMENT REPORT 2016 A recent trend in the United States is the provision of anonymous energy use and performance data that can support energy efﬁ ciency markets and services.13 The industry-led Green Button Initiative in the United States is another voluntary industry data standard for utilities and companies; it allows consumers to make their energy consumption data available to service providers, which can help consumers lower their energy bills or “green” their energy supply through home energy efﬁ ciency solutions or the design and ﬁ nancing of renewable energy equipment.
Since 2012, more than 50 utilities and electricity suppliers have signed on to the initiative, providing over 60 mil- lion homes access to their detailed energy use data.14 In India, a pilot project launched by Prayas Energy Group, a nongovernment organization, has installed around 100 devices in volunteers’ homes to measure the availability and quality of electricity on a continu- ous basis.15 The results provide a potentially powerful, crowdsourced ﬂ ow of information that can help con- sumers understand the causes and impacts of power shortages, and can help policy makers and utility companies prioritize power system investments.
Given the rapid growth of the ICT industry, there has been an increased focus on how much energy the sector uses.
Recent estimates of energy use by ICT— split almost equally into energy use by communica- tion networks, computers, and data centers—show that the sector accounts for between 3 and 4 percent of total global electricity consumption, and that energy consumption increased around 7 percent per year between 2007 and 2012.16 While a breakdown of how much of this increased demand came from devel- oping countries is not readily available, this share is likely signiﬁ cant, as more than 750 million new users have been added in China and India alone since 2000.
There are many ways to reduce the energy use from the ICT industry, including moving to faster systems.
For example, 2G networks (which are common in developing countries) require over 400 kilowatt-hours (kWh) of electricity per year to deliver 12 gigabytes (GB) of data (1 GB per month), while a 3G network con- sumes less than one-tenth that amount (35 kWh), and a 4G network uses one-sixtieth (7 kWh).17 In addition, the industry is exploring new technologies, includ- ing microtracing—a new, leaner technology for ﬁ ber access that uses less energy.
However, many of these gains are offset by ever rising volumes of data.

While it is too early to judge the overall impact of digital technologies on the energy sector, especially in developing countries, it is clear that many of the trends described above will continue to affect energy consumers and suppliers.

Ensuring that beneﬁ ts and synergies are maximized will be critical to meeting the sustainable energy goals of the World Bank’s cli- ent countries.

Notes 1.

World Bank 2015.

2.

Ericsson 2014.


3.

Ericsson 2014.

4.

GSMA 2015.

5.

Vogt 2015.

6. http://www.lightingafrica.org.

7.

MITei 2014.

8.

IEA 2014.

9.

Spijker 2014.

10.

Martinez-Romero and Hughes 2015.

Power frequency refers to the frequency of oscillations of alternating current in a power grid.

11.

IEA 2014.

12.

Martinot 2015.

13.

U.S. Department of Energy, “Open Energy Data.” 14.

U.S. Department of Energy, “Green Button.” 15.

Prayas Energy Group.

16.


TREND Consortium Partners 2014.

17.

Koomey 2013.

References Ericsson.

2014.

“Sub-Saharan Africa: Ericsson Mobility Report Appendix.” Ericsson, Stockholm, Sweden.

GSMA (Groupe Speciale Mobile Association).

2015.

“From Fringe to Mainstream: The Role of Mobile in Energy Access.” http://www.gsma.com/mobilefor development/from-fringe-to-mainstream-the-role -of-mobile-in-energy-access.

IEA (International Energy Agency).

2014.


“Task 24: Clos- ing the Loop–Behaviour Change in DSM: From The- ory to Policies and Practice.” IEA, Paris.

Koomey, Jonathan.

2013.

“Does Your iPhone Use as Much Electricity as a New Refrigerator?

Not Even Close.” http://thinkprogress.org/climate/2013/08/25/2518361 /iphone-electricity-refrigerator/.

Martinez-Romero, S., and W. Hughes.

2015.

“Bringing Variable Energy Up to Scale.” World Bank, Washing- ton, DC.

Martinot, Eric.

2015.


“How Is California Integrating and Balancing Renewable Energy Today?” http://www .martinot.info/renewables2050/how-is-california -integrating-and-balancing-renewable-energy-today.

MITei (Massachusetts Institute of Technology: Energy Initiative).

2014.

“Utility of the Future Study.” MITei.

https://mitei.mit.edu/research/utility-future-study.

Prayas Energy Group.

“Electricity Supply Monitoring Initiative: Watch Your Power Quality.” http://www .watchyourpower.org.
Spijker, Arent van’t.

2014.

The New Oil: Using Innovative Busi- ness Models to Turn Data into Proﬁ t. Technics Publications.

ENERGY 291 TREND Consortium Partners.

2014.

“Assessment of Power Consumption in ICT.” http://cordis.europa .eu/docs/projects/cnect/0/257740/080/deliverables /001-trendd16ﬁ nalwp1report.pdf.

Vogt, Heidi.

2015.

“Making Change: Mobile Pay in Africa.” Wall Street Journal, January 2. http://www .wsj.com/articles/making-change-mobile-pay-in -africa-1420156199.
U.S. Department of Energy.

“Green Button.” http:// energy.gov/data/green-button.

————.

“Open Energy Data.” http://energy.gov/data/open World Bank.

2015.

“Progress toward Sustainable Energy: Global Tracking Framework 2015.” World Bank, Washington, DC.

-energy-data.

CHAPTER 6 Global cooperation Data, spam, disease, poverty, commerce, rivers, and polluted air—all cross borders and touch many people.

And all can be better managed if people and nations cooperate.
The internet is both a subject of cooperation and a new tool to facilitate cooperation in other realms.

This chapter explores its potential for boosting three forms of cooperation.

First is governing the internet.

The internet requires technical coordination and harmonized standards to ensure its smooth operation worldwide.
Wher- ever you are, when you click or tap on http://www .worldbank.org/wdr2016, a message goes out from your device, initiating processes to discover which of the millions of servers on earth corresponds to that address.

Information is handed off from network to network and perhaps from satellite to cable to Wi-Fi, ending up on your screen.
That nanomiracle depends on the consensual and universal use of protocols for data transmission and on a legal system that deter- mines who has the right to use the “worldbank.org” address.

Less consensus exists about how to deal with cross-border issues such as suppressing viruses and spam, or deﬁ ning and enforcing rights to pri- vacy, while ensuring cybersecurity and combating cybercrime (see chapter 4).
As technology and its uses evolve rapidly together, who decides how the internet is structured and run?

Second is facilitating cross-border exchanges of goods and services.

During the last two decades or more, countries have worked out trade agreements to collect duties and taxes and to enforce intellectual property rights (IPRs): patents, copyrights, and trade- marks.
Many of these agreements are poorly adapted for the world of the internet because intellectual property can be duplicated and disseminated with little or no cost, and purely digital goods and services can now cross borders without customs inspections.

The increasingly frictionless ease of transacting busi- ness can be stymied by 19th-century procedures for shipping physical objects.

Can trade and IPR rules and procedures be modernized?
Third is providing global public goods—including poverty reduction and environmental sustainability.

These are complex and difﬁ cult challenges requiring both cooperation and massive amounts of informa- tion.

Can the advent of the internet make these quests more inclusive, more informed, and more efﬁ cient?

Internet governance We reject: kings, presidents, and voting.

We believe in: rough consensus and running code.


—David Clark, computer scientist and internet pioneer1 From its beginnings, the internet has always been different from the networks that preceded it—tele- phone, radio, television, and cable.

It was founded as a research network, explicitly noncommercial for the ﬁ rst few decades of its existence, and designed as a radically decentralized network.
As a result, it has been governed more like a federation of networks, in some respects like a Republic of Users.2 But the pragmatic libertarian ideology of the internet’s founders is under assault by the commercial and political interests of its other stakeholders, mainly large corporations and nation-states.
The growing commercialization of user data by private businesses and mass surveillance by states, including many sov- ereigns accustomed to greater state control over their citizens, have gradually eroded the trust the internet once enjoyed.

This has given rise to widely disparate views on how to govern the internet.

The internet’s growing popularity has increased the need to manage its worldwide operation.
Whereas less than 2 percent of phone calls cross borders, between 60 and 75 percent of internet trafﬁ c is international (depending on the country).

Despite GLOBAL COOPERATION 293 its virtual qualities, it has an elaborate physical infra- structure that spans the globe.

As a global resource, it requires some degree of international coordination to function.

Information ﬂ owing through the internet has transboundary repercussions, raising other issues for international debate and discussion.
To address these issues, the United Nations–authorized Work- ing Group on Internet Governance deﬁ ned internet governance as “the development and application by governments, the private sector, and civil society, in their respective roles, of shared principles, norms, rules, decision-making procedures, and programs that shape the evolution and use of the Internet.”3 How is the internet governed?
The main attributes of the global internet are that it is distributed, decentralized, ﬂ exible, multilayered, and end-to-end.4 Not a monolith, it is instead a mosaic of separate but interrelated infrastructure, applications, actors, and decisions.

Consequently, its governance is likewise not unitary but consists of an ecology of decisions and decision makers.

Internet governance features are different from those in telecommunica- tions, characterized by a multilateral system.
The governance framework for the internet is considerably more diverse than that of the telecom sector.

The policy, legal, and regulatory framework for information and communication technologies (ICTs) has shifted since the start of the millennium.
Then it was primarily about the technical and economic regulation of more liberalized and competitive tele- communications infrastructure and services envi- ronment—along an arc with the state at the center of the policy and regulatory piece and state-licensed operators orbiting around it.

Now it is a much more complex, multifarious, and loose amalgam of policies, laws, and actors having their origins in constitutional rights, criminal justice, and technical and economic regulation.
This new framework also involves non- state actors, national, regional, and even multilateral agents—each with an interest in the wide-ranging and diverse aspects of what has come to be known as the internet governance framework.

The prevailing model of internet governance con- tinues to evolve to include its key stakeholders.
The multistakeholder model (MSM) reﬂ ects the notion that better policies and outcomes can be achieved if those affected are part of a policy consultation pro- cess;5 it also refers to the range of actors running, administering, and governing the internet.6 The term came into popular use as a result of the UN’s World Summit on the Information Society, held in two phases in 2003 (Geneva) and 2005 (Tunis).
The summit conﬁ rmed that “management of the internet encompasses both technical and public policy issues and should involve all stakeholders.”7 As described in its agenda, the groups of stakeholders with an interest in internet governance include governments, private ﬁ rms, civil society, intergovernmental and international organizations, academia, and the tech- nical community (box 6.1).

The MSM label reﬂ ects the diverse actors that form the loose de facto framework for internet gover- nance.
For example, one of these stakeholders is the Internet Engineering Task Force, a loose afﬁ liation of engineers that is in charge of the protocols that run the internet.

Another is ICANN, the Internet Corporation for Assigned Names and Numbers, a California not- for-proﬁ t corporation that performs certain technical functions on the internet—such as running root serv- ers (the computers that control trafﬁ c on the internet) and administering the system of domain names (.com, .org, .gov).
But not all stakeholders feel equally repre- sented within the current governance framework.

The internet unites people; its governance divides nations Politicians and regulators are increasingly concerned about their inputs into the future governance of the internet.8 Their concerns may be justiﬁ ed (ﬁ gure 6.1): • The rapid and unprecedented growth of the inter- net has meant that it has evolved from an American technology to a critical global infrastructure in a very short period.
This has given rise to an unstated power struggle between its traditional stakeholders and many new ones, especially some developing country governments, which feel left out of the discussion.

• The bulk of internet nonusers are in developing countries—4.2 billion people, more than half the world, have no internet access, and 5.1 billion are not on social media.

Their interests, some argue, are best promoted by their national governments.
• Mass collection of user data by private businesses and unwarranted surveillance by governments have eroded trust and fed growing skepticism about the current governance arrangement.

• Increasing use of social media and unhindered access to all content, which is generally thought to be a positive development, can clash with local cul- tural norms and social practices, prompting some governments to advocate a more activist approach to govern the internet.
294 WORLD DEVELOPMENT REPORT 2016 Box 6.1 Categories of stakeholders in internet governance Individuals, organizations, and institutions with an interest or stake in particular internet governance issues include: Figure B6.1.1 maps these stakeholders according to their degree of localization or internationalization.
• States, which have policy authority for sovereign nations and are responsible for internet-related public policy issues at the global level Figure B6.1.1 Stakeholders in internet governance • Private businesses, with expertise in technical and eco- International nomic ﬁ elds • Civil society, especially at the community level • Intergovernmental organizations, particularly in facilitat- ing the coordination of internet-related policy issues important roles • International organizations, with in internet-related technical standards and developing relevant policies • Technical communities, such as the members of technical standard-setting bodies and other experts in computer science and engineering • Academics, with a focus on and involvement in internet governance.
Regional National Company/local IETF W3C ICANN Registrars Civil society ISPs Operators CERTs ITU WIPO COE Ministries Regulators Parliaments Individual Users No government All government Degree of government involvement Source: Center for Democracy and Technology, Internet Governance Forum, Athens.
Note: CERTs = computer emergency response teams; COE = Council of Europe; ICANN = Internet Corporation for Assigned Names and Numbers; IETF = Internet Engineering Task Force; ISPs = internet service providers; ITU = International Telecommunication Union; W3C = World Wide Web Consortium; WIPO = World Intellectual Property Organization.

Sources: World Summit on the Information Society 2005, Tunis Agenda for the Information Society, Document WSIS-05/TUNIS/DOC/6(Rev.
1)-E, 18 November: Paragraphs 31, 33, 35; Kummer 2013; Gasser, Budish, and West 2015.

Figure 6.1 Concerns that have fueled the debate on how the internet is governed 3.

Privacy and surveillance concerns 2.

Digital divide, with most nonusers in developing countries 4.

Clash with local cultures and social practices 1.

Power struggle: traditional vs. new stakeholders Internet governance 5.

Nonalignment with national policies and regulations Source: Dutton 2015, for the WDR 2016.
GLOBAL COOPERATION 295 Table 6.1 Multistakeholderism or multilateralism Dimension Leading principle Representation of stakeholders Multistakeholder Multilateral/intergovernmental Collaborative leadership among stake- holders, with a commitment to resolving particular problems Direct engagement of private business and industry, governments, bilateral and multilateral international institutions, civil society and academia, NGOs Sovereign right of governments to determine internet policy and regulation National government agency represents interests of all in bilateral and multilateral treaties and agreements, anchored in advice and consultation with all stakeholders Role of governments Governments are a key stakeholder, with legitimacy to make decisions National governments represent other interests in an intergovernmental entity Process • Bottom-up participatory • Top-down consultative • Horizontal across stakeholders • Hierarchical within states and through • Generally open and transparent Examples of relevant bodies and processes ICANN, Internet Society, World Summit on the Information Society, Internet Governance Forum international agreements and treaties • Intergovernmental negotiations, with open consultation ITU, UN, WIPO, WTO Source: Adapted from Bauer and Dutton 2015, for the WDR 2016.
Note: ICANN = Internet Corporation for Assigned Names and Numbers; ITU = International Telecommunication Union; NGO = nongovernmental organization; UN = United Nations; WIPO = World Intellectual Property Organization; WTO = World Trade Organization.

• More countries are asserting national policy and regulation over areas (mainly around content) that they feel the existing governance structure is not addressing.9 As a result, support for the MSM is not unani- mous.
Tension between the MSM and a multilateral model (MLM) that puts governance responsibility predominantly in the hands of nation-states has arisen many times since the World Summit embraced MSM.

Some governments worry about surrendering sovereignty or asserting national jurisdiction over internet activities within their borders.
In September 2011, China, the Russian Federation, Tajikistan, and Uzbekistan jointly submitted a draft resolution to the UN General Assembly on an International Code of Conduct for Information Security outlining their vision of governing the internet.10 The promoters of MSM argue that state control of the internet would not leave space for the range of players currently involved in internet governance and could pave the way to suppression of privacy and rights of free expression—say, in the name of national security (table 6.1).
Without the checks and balances available through the MSM, abuses might increase.
The UN has asserted that rights already protected in the real world—the right to privacy and the right to communicate (to receive and impart information)—are to be protected in the virtual world.11 More recently, a new approach to revive the multi- lateral model arose in an attempt by the membership of the International Telecommunication Union (ITU) to update the International Telecommunica- tion Regulations (ITRs) at the World Conference on International Telecommunications (WCIT) in Dubai in 2012.
Measures aimed at regulating privacy and free speech were introduced in a special codicil in the regulations.

This resulted in a clear split between 89 countries that approved the new draft and 80 that maintained reservations (map 6.1).12 Although it was expected that these issues might have been taken up at the ITU Plenipotentiary in Busan, Republic of Korea, in 2014, they were not and remain unresolved.
A key point of contention for countries favoring a multilateral approach is the U.S. government’s over- sight of IANA (Internet Assigned Numbers Author- ity).13 The MLM would like to see an IANA transition to an intergovernmental body, like the ITU.

The MSM, especially the United States, insists on further autonomy of ICANN and IANA.
In March 2014, the U.S. Department of Commerce announced a process to relinquish its oversight over certain technical functions performed by IANA to the multistakeholder community—in shorthand, the IANA transition, orig- inally scheduled to be completed by September 2015.14 A key condition of the IANA transition is that over- sight of the technical functions would not be ceded to a government or group of governments, but to the multistakeholder community.
296WORLD DEVELOPMENT REPORT 2016 evolution.15 The MSM model is evolving, and that is one of its great strengths.
However, care should be taken to ensure respect for principles of good governance (including transparency, accountability, inclusiveness, and representativeness); safeguard meaningful dialogue among stakeholders; empower stakeholders to participate effectively across groups; and prevent capture by special interests.16 According to one recent survey in 24 countries, the MSM is also the preferred governance model of end users (ﬁ gure 6.2).
It is therefore likely that a multistakeholder format—one that addresses the concerns over the digital divide and trust and use of the internet; provides meaningful forums for “left out” stakeholders; and balances uni-versal community acceptance with appropriate local ﬂ exibility—could be the accepted way forward.

Protecting the interests of users is paramountThis inability of internet stakeholders to reach a consensus on future governance mechanisms could be costly.
The lingering uncertainty is likely to affect the private sector’s long-term investment planning.

Delay in agreeing on new protocols and standards could slow the pace of innovation.
Some have even suggested that the internet is at risk of being split, so that the world ends up with several local internets—Google CEO Eric Schmidt calls it the splitnet—destroy-ing the essential global character of the internet.The new governance structure of the internet needs to accurately reﬂ ect the plurality and the mul-tifarious nature of internet actors and be ﬂ exible enough to accommodate its rapid and continuous Map 6.1 A divided world: Country positions on the International Telecommunication Regulations Source: International Telecommunication Union.
Data at http://bit.do/WDR2016-Map6_1.Countries that approved the draftCountries that maintainedreservations against the draftNot applicableIBRD 41790 Figure 6.2 The multistakeholder model of internet governance enjoys greater support than other options Percentage of respondents who said they would trust the governance options below completely or somewhat 60 50 40 30 20 10 t n e c r e P 0 body Technology co m panies U nited N ations A m ultistakeholder Engineers and m unity technical co m M y govern m ent U nited States Source: CIGI and Ipsos 2014.
Data at http://bit.do/WDR2016-Fig6_2.

Toward a global digital market One of the advantages of the internet is its ability to deliver digital goods to a global market, uncon- strained by national infrastructure—enabling devel- oping country citizens to enjoy the same products as GLOBAL COOPERATION 297 their peers in the rest of the world.

Digital transac- tions will continue to increase as the number of goods and services offered online increases.
For example, with the introduction of online music stores in many developed countries in 2004, digital music started to gain a share of global music sales—from 2 percent in 2004 to 46 percent in 2014.17 Access to a global market can be particularly advantageous to ﬁ rms in small, island, and landlocked countries, as well as for coun- tries with small populations, where the size of the local market is often constraining growth.
Digital trade is potentially global in scope, but bar- riers to digital integration prevent ﬁ rms from reach- ing appropriate scale (box 6.2).

Issues such as trade logistics and infrastructure, online payment systems, and trade barriers can be handled by national govern- ments (chapter 5).

But cross-border issues affecting digital trade need international coordination.
Indeed, the internet’s ability to seamlessly deliver digital goods and services around the world is considerably impeded by various regulations that could be stream- lined through greater international cooperation.

The two main cross-border issues are barriers to data ﬂ ows and uncoordinated intellectual property rights regime.

Removing barriers to cross-border data ﬂ ow The internet has revolutionized the way data are col- lected and shared.
This in turn has increased economic efﬁ ciency and productivity, improving welfare and Box 6.2 European Union: A fragmented market for digital products Despite being a single market with a free ﬂ ow of goods, services, and people for many decades, the European Union (EU) still functions like a fragmented market for digital goods and services.

Consumers and ﬁ rms face diffi culties in engaging in the digital economy.
Consumers in the EU prefer to shop from online stores that are within their national borders.

While 44 percent of consumers made an online purchase from a domestic business in 2014, only 15 percent did so from a business in another EU country.a The consumers may have concerns about payment security, product quality, or the reliability of the sellers located in another country (ﬁ gure B6.2.1).
Moreover, consumers in the EU face diff erent prices for the same online goods and services because of the practice of geoblocking, in which services and prices are limited to a geographic location.

Consumers are directed to their local websites, where they face diff erent prices from online retailers based on their location.

Content like video is also restricted within a single geographic location.
Firms within the EU also face many diffi culties in selling their goods and services online in other EU markets.

Firms engaging in e-commerce face high and uneven cross- border delivery charges, which are passed on to consumers.
For example, Copenhagen, Denmark, and Malmo, Sweden, are separated only by an 8-kilometer bridge, but a package sent from Copenhagen to Malmo costs €27 whereas a pack- age sent from Malmo to Copenhagen costs €42.b Moreover, ﬁ rms face large costs to adapt to various national laws, and believe that the costs outweigh the beneﬁ ts of setting up a website (ﬁ gure B6.2.2).
(Box continues next page) 298 WORLD DEVELOPMENT REPORT 2016 Box 6.2 European Union: A fragmented market for digital products (continued) Figure B6.2.1 Perceived barriers to buying over the internet in 2009 percent of individuals responding t n e c r e P 30 25 20 15 10 5 0 U nited Kingdo m D en m ark C zech Republic Ireland Serbia Turkey Bulgaria N orw ay M acedonia, FYR Croatia Poland G reece Iceland M alta Italy Slovak Republic N etherlands S w eden A ustria Belgiu m Lithuania G er m any Luxe m bourg Ro m ania Finland C yprus Estonia Portugal Latvia France Slovenia Spain H ungary Concerns about payment security Concerns about receiving or returning goods, complaints and redress Source: Eurostat.
Data at http://bit.do/WDR2016-FigB6_2_1.

Figure B6.2.2 Obstacles for enterprises not selling online in 2013 percent of enterprises responding t n e c r e P 35 30 25 20 15 10 5 0 Finland Italy France A ustria Latvia N orw ay Belgiu m C zech Republic Luxe m bourg M acedonia, FYR Poland Slovenia Lithuania G er m any H ungary M alta U nited Kingdo m Croatia S w eden N etherlands C yprus Ro m ania Iceland Spain Ireland Portugal G reece Bulgaria Estonia Source: Eurostat.

Data at http://bit.do/WDR2016-FigB6_2_2.


Legal framework Cost greater than benefits a. European Commission (EC) (2015).

b.

Figures given by Andrus Ansip, the European Commission vice president for the digital single market.

See http://www.politico.eu /article /cross-border-delivery-costs-pose-problems-for-small-businesses/.

GLOBAL COOPERATION 299 raising standards of living.
Barriers to data ﬂ ows pre- vent countries from beneﬁ ting fully from the inter- net, increasing costs and inefﬁ ciencies for ﬁ rms and individuals.

Firms require free ﬂ ows of data across national borders to operate internationally.

This is increasingly important with production being frag- mented into global value chains and the digitization of goods and services.
Firms move data internationally to control and coordinate their international opera- tions, maintain an efﬁ cient supply chain, and manage human resources, production, and sales.

The data can range from personal information about employees and customers to production and technical data.

The emerging use of cloud computing and the “internet of things” (see spotlight 6, “Six digital technologies to watch”) will increase the need for freer data ﬂ ows.
In a survey of U.S. ﬁ rms in 2012, a large share of ﬁ rms felt that data localization requirements and privacy Figure 6.3 Perception of U.S. ﬁ rms on barriers to data ﬂ ows as obstacles to trade, 2012 percent of ﬁ rms responding a.
Requirements to locate data servers in-country t n e c r e P t n e c r e P 90 80 70 60 50 40 30 20 10 0 90 80 70 60 50 40 30 20 10 0 Large SME Large SME Large SME Large SME Large SME Large SME Large SME Content Digital communications Finance Manufacturing Retail Other services Wholesale b.
Barriers to sharing information across borders Large SME Large SME Large SME Large SME Large SME Large SME Large SME Content Digital communications Finance Manufacturing Retail Other services Wholesale Source: USITC 2014.

Data at http://bit.do/WDR2016-Fig6_3.

Note: Large ﬁ rms are classiﬁ ed as ﬁ rms with more than 500 employees.

SMEs (small and medium enterprises) are ﬁ rms with more than 20 employees and less than 500 employees.
Minor obstacle Substantial obstacle 300 WORLD DEVELOPMENT REPORT 2016 requirements have emerged as substantial obstacles to trade (ﬁ gure 6.3).

Many of these ﬁ rms operate globally and have business models that depend on free access to data about their users.

In contrast to industry preferences for open data ﬂ ows, many countries are beginning to insist that data should reside within their national borders—often referred to as “data nationalism”—and are imposing barriers on cross-border ﬂ ows of data.
So-called data localization requirements require ﬁ rms to locate data servers and data centers within the country to store and process the information.

Other countries have strict regulations about data leaving their borders to protect privacy, reﬂ ecting the preference of their citi- zens, as users become more cautious and risk averse to how their data are being used for commercial gains (ﬁ gure 6.4).
Barriers to data ﬂ ows can affect trade more than an increase in tariffs: they can prevent ﬁ rms from entering or operating in a sector, while tariff rates merely impose an additional cost to operations that can be absorbed by the ﬁ rm or passed on to customers.
Cross-border data ﬂ ows, which are essential to international trade, are a substantial portion of data trafﬁ c, comprising about 16–25 percent of U.S. data trafﬁ c and 13–16 percent of European data trafﬁ c.18 Cross-border data ﬂ ows are likely to increase with the increasing use of cloud computing, which relies Figure 6.4 A majority of respondents agree that their online data and personal information should be physically stored on a secure server in their own country Total agreeing BRIC Latin America North America APEC Middle East and Africa Europe G-8 countries 0 20 60 40 Percent 80 100 Strongly agree Somewhat agree Source: CIGI and Ipsos 2014.
Data at http://bit.do/WDR2016-Fig6_4.

Note: APEC = Asia-Paciﬁ c Economic Cooperation; BRIC = Brazil, Russia, India, China; G-8 = Canada, France, Germany, Italy, Japan, the Russian Federation, the United Kingdom, and the United States.

on data ﬂ owing back and forth as users retrieve and update information directly on the servers.
Barriers to data ﬂ ows will force ﬁ rms to relocate tasks and operations, change their information technology (IT) architecture, engage a different supplier, or discon- tinue services to customers.

These barriers disrupt two of the most important business trends facilitated by the internet: the fragmentation of production into global value chains, and the creation of offshore ser- vice hubs like the business-processing operations in India or the Philippines.
The estimated effects of barriers to cross-border data ﬂ ows are signiﬁ cant.
An economic simulation conducted by the European Centre for International Political Economy (ECIPE) considers the proposed or enacted legislation on data ﬂ ows in six develop- ing countries and the EU and calculates the costs of regulations on businesses.19 The countries examined are proposing a mix of regulations in their legislative packages that will impose stricter privacy regula- tions, such as the right to be forgotten and the con- sent to transfer data to a third party (table 6.2).
The study ﬁ nds that these laws can reduce gross domestic product (GDP) by up to 1.7 percent, investments up to 4.2 percent, and exports by 1.7 percent (ﬁ gure 6.5).20 The argument to remove all barriers to data ﬂ ows, however, is not as clear-cut as the arguments to remove barriers to cross-border trade and investment.
Government regulations to place data servers in the country or to prevent information from being shared across borders can stem from legitimate concerns about privacy and security for their citizens’ infor- mation.

Countries may believe that imposing data localization and privacy requirements will allow them to better protect the data in their country.

But it is not always clear whether the data are more secure in a local data server or in a dedicated secure server over- seas.
Moreover, data localization requirements might threaten the progress of new technologies that depend on unhindered cross-border data ﬂ ows such as the internet of things, “big data,” and cloud computing.

While countries may have legitimate reasons to impose barriers to data ﬂ ows, these barriers should not be a disguised method to impede trade and eco- nomic activities.
By imposing barriers on data ﬂ ows, countries may mistakenly believe that they can encourage domestic data-driven sectors, like cloud service providers.

Such policies are akin to import substitution strategies, which have had a mixed record.

Moreover, the barriers should not treat ﬁ rms differently according to their ownership, as that would reduce competition and slow down digital adoption in the rest of the economy (chapter 1).
GLOBAL COOPERATION 301 Table 6.2 Many countries have proposed comprehensive legislation on data ﬂ ows Proposed requirement Brazil China EU-28 India Indonesia Data localization requirement Consent required for data collection Consent required for transfer to third parties Right to review Right to be forgotten Breach notiﬁ cation Impact assessment Data privacy ofﬁ cers Sanctions for noncompliance Government access required Data retention requirement Source: Bauer and others 2014.
No Yes Yes No Yes No No No Yes Yes Yes Yes Yes Yes No Yes Yes Yes No Yes No No No Yes No Yes Yes Yes Yes Yes Yes No No Partial Yes Yes Yes No No No No Yes Yes Yes Yes Yes No Yes No Yes No No Yes No No Korea, Rep.

Partial Yes Yes Yes Yes Yes No Yes Yes No No Vietnam Yes No No No Yes No No No No Yes Yes Note: EU-28 = current member countries in the European Union.
While these barriers remain, developing coun- tries participating in global markets should ensure that they are not excluded because of weak or absent regulations.
At a minimum, countries should enact data protection regulations following internationally recognized principles so that multinational compa- nies do not avoid the country because of uncertainty about compliance and trust in the handling of data.21 For example, the EU allows personal data to leave its borders if countries have “adequate” protection for personal data.

Australia allows data to leave its bor- ders only to those jurisdictions with substantially similar levels of privacy protection.
However, these regulations continue to evolve, and countries must constantly adapt to such changes to reduce the uncer- tainty and compliance costs on companies.22 Recognizing the importance of cross-border data ﬂ ows, many countries have agreed on basic princi- ples to coordinate their data regulations, as with the recently revised Privacy Guidelines and Declaration on Cross-Border Data Flows by the Organisation of Economic Co-operation and Development (OECD), or the Privacy Framework of the Asia-Paciﬁ c Economic Cooperation (APEC).
Other efforts focus on ensuring that companies that move data across borders have rigorous internal policies to maintain the privacy and protection of the data.

In the absence of international coordination on privacy rules, other solutions are being sought that rely on companies’ internal policies to protect privacy, such as the EU’s Binding Corporate Rules and APEC’s Cross-Border Privacy Rules.
While these programs help facilitate cross-border data ﬂ ows, the rules may be too cumbersome for most ﬁ rms and implicitly beneﬁ t larger ﬁ rms.23 Figure 6.5 Changes in GDP, investment, and exports due to regulatory restrictions on data ﬂ ows Brazil China EU-28 India Indonesia Korea, Rep. Vietnam e g n a h c t n e c r e P 0 –0.5 –1.0 –1.5 –2.0 –2.5 –3.0 –3.5 –4.0 –4.5 GDP Investment Exports Source: Bauer and others 2014.

Data at http://bit.do/WDR2016-Fig6_5.


Note: The ﬁ gure shows percentage changes according to simulations using a GTAP model.

EU-28 = current member countries in the European Union; GTAP = Global Trade Analysis Project.

Setting global standards on data exchange Standard setting can be another tool to reap digital dividends.

Data exchange standards, for instance, can greatly facilitate cross-border services and enable a seamless ﬂ ow of information (see spotlight 5, “The data revolution”).
Various ongoing initiatives look at setting data exchange standards in certain sectors at the international level.

The standard should also be open, and use publicly available platforms and soft- ware, so that it does not exclude ﬁ rms.

One example is the GS1 system of standards used in transport and 302 WORLD DEVELOPMENT REPORT 2016 logistics.

The GS1 assigns a global unique number so that any ﬁ rm can identify and share product data with its trading partners.
The number allows anyone to trace the origins of the product up the supply chain and track its movement downstream.

Data exchange standards are being promoted in the context of Open Data by international organiza- tions.

Examples include the Comprehensive Knowl- edge Archive Network’s (CKAN) standards—already adopted by more than 40 governments and organiza- tions, such as the governments of the United Kingdom and Uruguay and the EU—and the Open Data portals for Africa and Bermuda.
Progress has also been made in developing data exchange standards for geospatial information (such as the EU INSPIRE directive) in the electricity sector, particularly for smart grids, and in the health sector.

Countries should consider joining ongoing international efforts for standard setting for data exchange, and expanding them to other areas, at least for critical sectors.
Data exchange standards, however, are not a silver bullet; they need to be accompanied by appropriate policies and actions to have some effect on the digital market.
For e-freight, the International Air Transport Association (IATA) has been working on setting data exchange standards and has identiﬁ ed actions that need to be in place for these initiatives to succeed.24 One is the requirement that public institu- tions (such as customs for e-freight) accept electronic documentation as an alternative to paper-based docu- mentation.

Another is that all relevant actors need to be involved and act in a coordinated fashion (such as customs, security, and transportation).
And third is an end-to-end supply chain vision and e-document, as well as common business processes that are aligned with international standard-setting bodies such as the World Customs Organization, the United Nations Centre for Trade Facilitation and Electronic Business, and the International Civil Aviation Organization.
Better coordination of intellectual property rights regime The internet allows people to purchase products and access vast amounts of content and information, whether protected by intellectual property rights (IPRs) or not, leading to allegations of IPR infringements.
IPR infringement presents a risk to consumers who might purchase counterfeit goods, and a disincentive for ﬁ rms and artists to create new products and content.25 National IPR regimes allow ﬁ rms to protect and use their intellectual property.

But having different IPR regimes and multiple IPR registrations, in different countries creates problems for ﬁ rms selling in global markets.

Firms must seek recognition and enforce- ment in each jurisdiction.
Similarly, if a ﬁ rm wants to use an IPR it does not own to produce a digital good or service, it must apply for licenses in each country in which it wants to sell.

While there are international treaties governing recognition and protection across member countries, each jurisdiction has different rules and requirements, depending on the type of IPR.

Navigating these IPR regimes is confusing and creates large administrative costs for ﬁ rms.

These costs can even prevent ﬁ rms from entering new markets.
Firms operating in the global market face huge costs to apply and use IPRs across borders.

For exam- ple, in order to protect an IPR, a separate patent appli- cation is needed in each country where protection is sought.

A patent application that is valid in the EU costs at least ﬁ ve times more than an application in the United States.26 The scattered nature of the IPR regime can add complications for ﬁ rms when they need to identify the rights holders and construct a new business model.
In particular, the ﬁ rm offering a digital good or service over the internet needs to apply for a copyright license, patent, or trademark in each market it serves, and then must be ready to enforce it under each national regime.

The complex- ity and costs of doing so can discourage new market entrants.

Only larger ﬁ rms will be able to bear those costs and reap the beneﬁ ts from the internet.
Countries should make it easier for ﬁ rms to protect their intellectual property rights, thus stim- ulating more innovation and creative sectors.

The regulation process to apply for intellectual property licenses should also be harmonized and streamlined.

The Patent Cooperation Treaty allows ﬁ rms to ﬁ le an international patent application, but this just creates a standardized application for the ﬁ rm that must still be submitted to national authorities.

Going one step further would be preferable.


For instance, under the World Intellectual Property Organization’s Madrid Protocol, ﬁ rms need only register their trademark in any signatory country and it will be protected across member countries.

Similarly, it should be easier for ﬁ rms to obtain licenses to certain IPRs that will allow them to operate globally.

The availability of an online licensing system for intellectual property rights can reduce the administrative burden to ﬁ rms.
National IPR regimes should extend beyond the laws deﬁ ning and protecting the intellectual property (IP).

Countries need a broader public sector IP strategy, which considers how policies and regulations in tax, education, science, technology, and industrial policies can not only make it easier for ﬁ rms to protect their IPRs but also help to stimulate innovation and creative GLOBAL COOPERATION 303 sectors and beneﬁ t the public interest.
The availability of an online licensing system for IPRs can reduce the administrative burden to ﬁ rms.

Such an online licens- ing system requires international coordination and an agreement among many countries.

Countries can also allow the concept of “fair use” in intellectual property regulations that permits an individual or business to use the IPR for purposes such as research and educa- tion, journalism, and library activities.
Leveraging information for sustainable development Eliminating global poverty and heading off planetary environmental threats are two of the world’s great- est challenges.

The costs of action are in the trillions of dollars, making global cooperation essential.

But development assistance represents only 0.6 percent of developing country income.

How can donors, devel- opment agencies, nongovernmental organizations (NGOs), and international organizations hope to make a difference?
They can use digital technologies to deploy funds and knowledge more efﬁ ciently and to include more people in the process.

They can do so in three ways: • Getting wired for feedback.

Development projects are often very sensitive to context and have no standard blueprints.

They could be more relevant if their design and implementation drew on local knowl- edge.
Projects could be more successful if wired for rapid feedback, allowing continuous improvement by implementers and more effective supervision by funders.

National-level policies could be ﬁ ne-tuned with early information on whether poor people were beneﬁ ting.

Digital technologies can make these feedback processes much cheaper and easier.

But can stodgy organizations and their partners become nimble users of feedback?

• Taking information to scale: information as an input.
Decision makers from villages to capitals lack the information they need to optimize their actions.

Farmers could better manage their ﬁ elds with timely information about weather, pests, and mar- kets.

Ministries could better ﬁ ght poverty with up-to-date information about where poor people live and their constraints.

Land markets and envi- ronmental protection could be more efﬁ cient with accessible information about the condition and ownership of land.
New technologies make it pos- sible to widely and cheaply distribute all this infor- mation, supporting better outcomes.

But can this succeed over the resistance of those who beneﬁ t when information is tightly held?

• Mustering global information for global goods.

Global weather and water data are costly to gather but now almost costless to distribute.

They take on the character of a global public good.
Information on weather affecting mountain headwaters helps peo- ple prepare for ﬂ oods or harvests half a continent away.

New technologies make it easier to assemble and analyze this information.

But who will pay for it?

And can countries agree to share it with their downstream and downwind neighbors?

Table 6.3 and ﬁ gure 6.6 map these information needs onto the landscape of development spending.
Some projects are characterized by geographic dis- persion, sensitivity to local environmental and social context, and an inherent need for adaptive implemen- tation.

These activities could beneﬁ t greatly from rich and rapid feedback.

Another class of funding involves investments in big infrastructure systems or sup- port for government policies.
Here, ﬁ ne-grained and timely information—on everything from poverty to water consumption to service delivery—could sup- port better decisions on system design and operation.

This section explores the potential scope of these ben- eﬁ ts and the largely institutional challenges in attain- ing them.

The discussion is unavoidably speculative.


Getting wired for feedback—more inclusive, better, faster data to guide development projects Feedback on what is working and what is not enables more nimble and effective implementation.

In the past, feedback has been thin, slow, and unreliable.

Now the technical barriers to better feedback have been overcome.

But often organizational inertia pre- vents the beneﬁ ts of innovative technologies from being achieved.
Revamped structures and incentives point to possible ways forward.

Lack of feedback hampers development eff orts Development agencies committed US$6.8 trillion in project assistance from 1947 to 2012.

One would not expect these projects to be universally successful.

Development is inherently complex, and develop- ment agencies venture into areas that others would not; a high success rate would indicate unambitious objectives.
But there is room for improvement in the performance of international foundations, donors, and lenders, whether bilateral or multilateral.
About one- third of the recent projects of international ﬁ nancial 304 WORLD DEVELOPMENT REPORT 2016 Table 6.3 Information as feedback and as input, by expenditure type Expenditure type Example Information as feedback Information as input Dispersed and intensive services Rural primary health, community-driven development Rapid feedback on service provision, uptake, and impacts n.a.

Dispersed land and water management Watershed management n.a.
Small-scale and dispersed infrastructure Rural roads and sanitation Feedback on infrastructure construction, use, condition, and maintenance Large-scale infrastructure Hydropower Policy design Educational policy design n.a.

n.a.

Rapid feedback on crop, water, soil, infrastructure, and environmental conditions; information on weather, hydrological and market conditions n.a.
Optimizing design and operation of power and water systems Fine-grained, timely information on economic and social conditions for policy design Institutional development Legal and judicial development Feedback on institutional capacity and performance n.a.
Budget support Development policy loans Timely and ﬁ ne-grained feedback on impacts of policy implementation on income distribution, service delivery, environmental conditions Strategic planning for the Sustainable Development Goals Source: WDR 2016 team.

Note: n.a.

= not applicable.

institutions are deemed unsuccessful by the institu- tions themselves (ﬁ gure 6.7).

What goes wrong?
What goes wrong?

Critics paint development practice as inﬂ exible, ineffective, and out of touch.27 Too much emphasis on spending rather than on results, they say.

Project designs are cooked up by development experts and government ofﬁ cials, in this view, and often do not reﬂ ect local preferences, insights, or political realities.

They can be further hampered by lack of rigorous, systematic learning about the success or failure of prior projects.
Without reliable information on proj- ect effectiveness, ﬂ ashy bad ideas go viral while subtle good ones languish.

With such poor design, projects can go off the rails.

And if they do, there is often no fast channel for feedback and course correction.
A combination of rigid design and poor feed- back might be particularly lethal for “complex” and context- sensitive projects, where workable solutions require experimentation.28 Consider health services, where success depends on changing the culturally rooted behavior of clients and staff—or watershed management, where social and environmental condi- tions vary from one valley to the next.

Yet there is a paradox: monitoring and evalua- tion (M&E) improves performance, but agencies under invest in it.
The correlation between a project’s outcome and the quality of its M&E is stunning.

Fig- ure 6.8 (based on data from the World Bank, the only ofﬁ cial donor agency that publishes this informa- tion in this detail) shows that the few projects with high-quality M&E are almost all rated “satisfactory” or “highly satisfactory” in outcome; the larger number with “negligible” M&E are mostly rated “moderately unsatisfactory” or worse.
Evaluations suggest a strong causal link: a good M&E system supports clear for- mulation of objectives, and M&E detects and solves problems in implementation.29 Despite this, an OECD survey30 of 28 donors ﬁ nds pervasive shortcomings in their M&E systems.

A majority of the donors report incomplete results frameworks, difﬁ culty in tracking outcomes, and a view by partners that a results frame- work is a formal requirement rather than a useful tool.

Feedback loops are reportedly lacking.


NGOs echo these views.

Many donor staff and recipients see M&E as a burdensome “extractive industry,” generat- ing information that satisﬁ es some distant funder’s accountability requirements but does not serve the needs of project managers or beneﬁ ciaries.

Worse: learning is slow.

The multilateral develop- ment banks have independent evaluation units for both accountability and for learning—an important source of objective feedback.
But these units do not Figure 6.6 The evolution of development aid by information needs, 1973–2010 GLOBAL COOPERATION 305 ) n o i l l i b $ S U t n a t s n o c ( d e s u t n u o m a t n e m t i m m o C 300 250 200 150 100 50 0 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 Expenditure type Not determined Trade finance Budget support Large-scale infrastructure and industry Policy design Institutional and organizational development Small-scale and dispersed infrastructure and industry Dispersed land and water management Dispersed and intensive services Source: WDR tabulation from AidData (http://AidData.org).
Data at http://bit.do/WDR2016-Fig6_6.

have resources to review every project in depth.

They also focus on after-the-fact evaluations to avoid con- ﬂ icts of interest.

This slows feedback: at the World Bank, the average lag between project approval and evaluation is 7.5 years.

Technology enables feedback for agile implementation and learning New technology should make M&E even faster, cheaper, and more effective.
A poster-child example is the World Bank–backed Sujala project in Karna- taka, India, which employed a technology-intensive M&E system operated by the Indian Space Research Organisation.31 This combined remote-sensing imag- ery with household surveys and sophisticated data systems for management and geographic informa- tion.

Detecting that beneﬁ ts were not being focused on the poorest groups, the project ﬁ xed the problem.
It rigorously demonstrated a 24-percent increase in average incomes, together with environmental improvements, and helped shape the revised national watershed guidelines.

Computer-assisted surveying—by mobile phone or by tablet-wielding ﬁ eld agents—now enables much faster and more reliable assembly and use of informa- tion on the progress of projects.
A nascent example is the Social Observatory, a pilot that embeds a variety of feedback systems into a multibillion dollar program on rural livelihoods—precisely the kind of complex program noted earlier.

The Observatory ﬁ elds rigor- ous but slow randomized controlled trials to deter- mine whether particular phases or elements of the program had the desired impact.
It supports internet- connected management information systems, wired from the village up, that allow program managers at the district or state level to detect and correct anom- alies in performance.
Perhaps most interesting, it supports a beneﬁ ciary-designed survey, administered 306 WORLD DEVELOPMENT REPORT 2016 Figure 6.7 Proportion of international ﬁ nancial institution projects with successful outcomes World Bank ADB: Sovereign ADB: Nonsovereign IFAD IFC AfDB EBRD 0 10 20 30 40 50 60 70 80 Percent Sources: Based on most recent available reviews of independent evaluations or independent validations of self-assessments.

Data at http://bit.do /WDR2016-Fig6_7.


Note: ADB = Asian Development Bank; AfDB = African Development Bank; EBRD = European Bank for Reconstruction and Development; IFAD = International Fund for Agricultural Development; IFC = International Finance Corporation.

“Outcome” is an index combining effi cacy, relevance, and effi ciency.

“Success” is a rating of 4 or better on a 6-point scale (IFAD, IFC, World Bank); 3 or better on a 4-point scale (ADB, EBRD); or 2.5 or better on a 4-point scale (AfDB).
by locally recruited women using a tablet computer.

The annual survey, planned for 1 million respondents, aims to provide actionable feedback at all levels from village to state (box 6.3).

Feedback is facilitated for programs that are built around data platforms.

For instance, the Bridge International Academy in Kenya monitors teacher and student performance, allowing management to intervene when teachers, students, or schools are underperforming (see chapter 3).
Bus rapid transport systems can automatically monitor vehicle speed and ridership, tracking maintenance, capacity use, and responses to weather.

Health systems can track use and outcomes if patients and providers use digital ID cards to log services.

Remote sensing can track program impacts on agriculture, water use, deforesta- tion reduction, or air pollution.

Ground sensors can track the sustainability of infrastructure in remote and conﬂ ict-affected areas, as in Afghanistan and Pakistan.
These systems offer rich, representative, actionable real-time information.

Organizational inertia impedes agile, feedback-intensive approaches These techniques are technically feasible, but are they organizationally feasible?

One obstacle is a skills gap, but this can be remedied through training.

Obstacles posed by incentives are more formidable.

First, donor agencies, their staff, and their recipients are often focused more on maximizing disbursements than on optimizing results.
Disbursements are more imme- diately linked to organizational power and survival, and have traditionally been much easier to track and manage.

Second, organizations cling to procedures that assume that projects can be thoroughly planned in advance and in detail.
According to an OECD survey, “Development practitioners report being constrained by rigid results frameworks that are not ﬂ exible enough to include new sets of information to adapt to Figure 6.8 High-quality M&E improves project outcomes Substantial M&E Modest M&E Negligible M&E High-quality M&E Outcome (independently rated) Highly satisfactory Satisfactory Moderately satisfactory Moderately unsatisfactory Unsatisfactory Highly unsatisfactory Source: WDR 2016 team based on World Bank data.
Data at http://bit.do/WDR2016-Fig6_8.

Note: Colors code the proportion of projects by outcome.

The size of the circle is proportional to the number of projects in the M&E category.

M&E = monitoring and evaluation.


GLOBAL COOPERATION 307 Box 6.3 The Social Observatory and P-tracking “Do you decide on what types of clothes to wear based on your own preferences?” That’s a question on a survey instrument to assess whether Tamil Nadu’s Empowerment and Poverty Reduction Project (part of the Pudhu Vaazhvu Project, or PVP) is actually having an impact on women’s empowerment.

For project beneﬁ ciaries, it was a touch- stone indicator of empowerment.
That may be because it was crafted by a group of the women the project is designed for.

The Social Observatory seeks to build diagnostics and feedback loops into the implementation of PVP and similar livelihood projects in India.

These are complex projects, operating in hundreds or thousands of locations.
They have multiple objectives and lots of moving parts: job training, loans for small-scale income-generating activities ranging from dairy production to sanitary napkin manufacture, even self-defense classes.

So it is hard to get a ﬁ x on what is going on without a lot of information.
To provide use- ful feedback, the Observatory deploys a variety of tools, including randomized controlled trials, internet-connected management information systems, and “P-tracking,” the participatory approach to monitoring.

P-tracking builds on a few innovations.

First, as the name suggests, the survey instrument was designed in a participatory fashion with a group of beneﬁ ciaries to ensure that the information is seen as relevant.
Indeed, the women report that the acts of administering and respond- ing to the survey helped change perceptions.

(The survey is not village-speciﬁ c; after testing, it was standardized for statewide use.)

Second, it is administered by local staff , not by some external contractor.

Third, it informs higher-level project management but also provides actionable informa- tion at the village level.

Digital technologies help.


The surveys are administered using tablet-based software, and the data are pooled through village-based internet connections.

(These, by the way, also allow villagers to buy train tickets, pay electric bills, and check school exam scores without hours-long queueing or travel.)

Automating the survey makes it easier to train the local interviewers.
It is diffi cult to imagine how the Social Observatory could realize its goal of scaling up to 1 million respondents, and providing timely annual infor- mation, using traditional paper-based surveys.

Most interesting, the Observatory tackled ways to make this massive information set digestible, a problem facing all producers of data, big or small—and a particularly challenging problem when many users are illiterate.
The Observatory commissioned an interactive graphical dis- play that allows a village to compare its performance with neighbors, catalyzing healthy competition.

Like so many promising ideas covered in this report, P-tracking is still in a demonstration phase.

About 40,000 interviews have been completed in a pilot district, and it will be a big leap to cover the projected million.

Another challenge will be to mainstream annual P-tracking data into project implementation at all levels.
Information supply is just half the battle.

Source: WDR 2016 team; http://www.worldbank.org/en/programs/social-observatory.

changing contexts and emerging challenges.”32 Third, when funders—such as taxpayers—cannot directly observe results, there can be a conﬂ ict between account- ability and learning.

The OECD survey notes that “results data for accountability purposes tend to emphasize the positive,” getting in the way of learning.
Ninety percent of the agencies surveyed reported difﬁ - culties in using results for accountability.

In sum, as seen also in chapter 3, rapid feedback may be technically feasible, but it will have limited impact unless there is willingness to accept it and ﬂ exibility to act on it.
A focus on results and learning can shift incentives toward demand for information Thus the key to technology effectiveness is, once again, in the analog world—in institutional struc- tures and incentives that elevate feedback and learning.

Many private companies, and some devel- opment agencies such as the Bangladeshi-based development organization BRAC, already have cul- tures that do this.

For others, culture change will be a challenge.


Traditional and nontraditional agencies are experimenting with ways to make their business more agile—ways that are untried and carry risks as well as promise.

One approach concentrates on inclusion—bring- ing in feedback and ideas at the design stage so as to combine global technical expertise with profound local insights and knowledge.
Amplify, an innovation of the U.K. Department for International Develop- ment (DFID), tries to build collaborative networks of development practitioners to develop more inclusive proposals for grant funding.

It uses online crowd- sourcing to suggest and reﬁ ne ideas, and facilitates 308 WORLD DEVELOPMENT REPORT 2016 collaborations among distant groups—such as a New York design study and a Nepalese NGO.

Another approach to changing institutional incen- tives is by pursuing outcome-based aid.
This shifts funder and client attention from disbursements to results.

Disbursements are made only after achiev- ing pre-agreed outcomes.

This should motivate both funders and recipients to rapidly track processes, outputs, and results, introducing the possibility of ﬂ exibility in getting those results; a downside is shifting implementation risk to the recipients.
The World Bank’s new Program for Results (P4R) uses independent veriﬁ cation of outputs and outcomes to motivate countries to beef up their own monitoring systems.

In Vietnam, for instance, a P4R sanitation project links disbursements to installations of house- hold toilets.

The state audit agency sends out survey- ors equipped with smartphones to independently verify, with GPS-stamped photos, a sample of health ministry–reported installations.
Beyond simply incentivizing particular outcomes, this approach may catalyze a wholesale shift in P4R clients toward a cul- ture of results, motivating them to invest in real-time monitoring.

More disruptively, development impact bonds have been proposed as a way to use an outcome-based approach to solve agencies’ constraints of inﬂ exi- bility, risk aversion, and short time horizons.
In this relatively untried approach, agencies contract with a private party or NGO for the achievement of spec- iﬁ ed and veriﬁ ed results, potentially over a period longer than most projects.

The contractor has the ﬂ exibility to decide how to achieve those results— and could proﬁ t or lose depending on performance.

But the approach’s effectiveness will depend on how well speciﬁ ed and reliably measured the indicators are for making disbursements.
Poorly speciﬁ ed proxies could produce perverse impacts, as could measurement systems subject to tampering.

Digital technologies could make a difference by allowing better measurement and independent veriﬁ cation of the desired outcomes.

They could also monitor unexpected social or environmental impacts.

And they can be used to collect rich qualitative data as a check against the potential bias of narrowly speciﬁ ed quantitative targets.
Another way to motivate attention to results is by an evidence-based approach to ﬁ nancing, as illustrated by the Development Innovation Ventures initiative of the U.S. Agency for International Devel- opment (USAID).

Small grants support proof-of- concept pilots.

Ideas that have passed the ﬁ rst stage are rigorously evaluated in a second-stage testing phase.

Those with demonstrated impact can get large grants for scaling up.
Although Development Innova- tion Ventures is not restricted to digital technologies, many of the supported concepts are based on ICTs or use ICTs for monitoring in the demonstration phase.

ICTs could thus speed the more reliable demonstra- tion and dissemination of investment ideas.

To sum up, an alternative vision of development practice starts with incentives.

Project or program staff get incentives and ﬂ exibility to pursue results.

So do beneﬁ ciaries.


Digital technologies facilitate rapid, real-time monitoring of outputs and outcome results that matter, and provide this information in a comprehensible form to those who can act on it—complemented by systems that assess impacts.

Consistent with privacy considerations, these data streams would be made public, as open data.

Any- one—program managers, civil society, academics, or auditors—can have access to this information.
With many eyes on the information and a profusion of analyses, accountability and learning are enhanced.

In this system of open-source evaluation, it is important to have an independent group assure integrity of the data system.

Taking information to scale How can emerging opportunities to build internet - based services make development and environmen- tal management more efﬁ cient and inclusive?
These services reduce the cost of information as an input, thereby reducing risks or improving decisions—for individuals, for managers of infrastructure net- works, and for public authorities.

The rationale for involvement by development or international agen- cies is fourfold.

First is a characteristic feature of information services: many of these interventions are expensive to set up and run, but can distribute information at very low marginal cost.

So ﬁ nancing becomes problematic.


If the service is nearly costless to distribute, then it is efﬁ cient to provide it to every- one who might beneﬁ t. But the ﬁ xed costs must be ﬁ nanced somehow.

High fees might exclude poor people; low fees imperil sustainability; price discrim- ination might be difﬁ cult.

And if the information can be copied, it may be difﬁ cult to get anyone to pay for it.

So there is often an argument for public or donor ﬁ nance.
Second, the information often underpins a public good, such as environmental protection or poverty reduction, reinforcing the rationale for pub- lic ﬁ nance.

Third, development agencies—including NGOs and foundations—can play a distinctive role not only through ﬁ nance, but also via capacity build- ing, and support for complementary investments GLOBAL COOPERATION 309 and policy reforms.

Finally, there is a need for inter- national coordination to face planetary issues such as climate change.
What follows are some concrete examples of how information and analytics might be able to boost efﬁ - ciency at the individual and system level, with impli- cations for the role of development agencies (box 6.4).

Information as an input to individuals Poor people are often poor in critical information: about the beneﬁ ts of hand-washing, or tomorrow’s weather forecast, or the price their produce will fetch.

When information becomes dramatically cheaper, there is a prospect for welfare gains.
Some of the clearest and most relevant examples to poverty reduction are in agriculture, which will here serve as an illustration of the wider potential across many aspects of life and the economy.
For tropical maize in Africa, yields are typically only one- ﬁ fth of the potential, and for other crops and places in the developing world, yields rarely exceed 80 percent of the potential.33 Many factors account for this poor performance, but a lack of information— about techniques, weather forecasts, and markets—is a part of the gap.

Traditional agricultural extension agencies have tried to ﬁ ll the information gap, but have depended on in-person farm visits and printed material.
Extension agents are typically assigned to serve an impossibly large number of farmers spread over a logistically daunting stretch of countryside, so information ﬂ ows are low, and do not include customized information based on seasonal and daily weather forecasts.

Pilot programs are beginning to tap the poten- tial of ICTs to reduce costs and increase the reach of extension efforts.
Some initiatives in India show Box 6.4 ICTs and the Sustainable Development Goals In the year 2000, when the international development community came together at the United Nations (UN) to approve the Millennium Development Goals (MDGs),a the digital revolution was just beginning.

At that time, there were fewer than 1 billion mobile phones in use worldwide and just 400 million internet users.

In the intervening years to 2015, when the MDGs were reviewed, both indicators have grown by more than sevenfold.
Thus target 18—to make available the beneﬁ ts of new technologies, including ICTs (information and communication technologies)—was one where progress was easy to show.

But with the new generation of Sustainable Develop- ment Goals (SDGs), adopted by the UN in 2015, the bar has been raised.
As part of a broader goal 9, on infrastructure, industrialization, and innovation, the SDGs commit to “sig- niﬁ cantly increase access to ICTs and strive to provide uni- versal and aff ordable access to the internet in LDCs [least developed countries] by 2020.” Given that many developed countries are already close to saturation in terms of mobile penetration, it is logical to focus on internet access, and speciﬁ cally on the needs of the LDCs.
The two key words in the new target are “universal” and “aff ordable.” Given the current low level of internet penetration in the LDCs—just over 10 per 100 inhabitants by the end of 2015b—achieving “universal” coverage would imply a required growth rate of 51 percent a year, much faster than the LDCs have achieved since 2000.
Aff ordability is also likely to be a challenge as only 1 of the 48 LDCs, Bhutan, actually met the UN target in 2013.c Neverthe- less, LDC mobile coverage currently stands at close to 70 subscriptions per 100 inhabitants.

As those mobile phones are upgraded to smartphones, and as coverage of 3G (third-generation) and 4G (fourth-generation) signal expands, this target will become more attainable— although perhaps not by 2020.
The real signiﬁ cance of the internet for the SDGs is likely to lie in helping to achieve other targets, such as target 3.9 on achieving universal health coverage, target 5b on promoting women’s empowerment, or target 10c on reducing the transmission costs of migrant remittances to below 3 percent.d As noted, timely, ﬁ ne-grained informa- tion on households, the economy, and the environment can accelerate achievement of the SDGs.
This information can provide actionable feedback on where and why progress is or is not being made.

This is the essence of the “data revolution,” called for by the High-Level Panel of Eminent Persons in their 2013 report, which kick-started discussion of the post-2015 development agenda.e a.

See http://www.un.org/millenniumgoals/.

b.


See ITU 2015. c. The target for aff ordability, as deﬁ ned by the UN Broadband Commission, is a monthly price for entry-level broadband below 5 percent of gross national income (GNI) per capita: see http://www.internetsociety.org/map/global-internet-report/?gclid=CLv0tI35yMYCFQ2QHwodcWYGaw#aff ordability -mobile-broadband.

d. See UN 2014. e. See UN 2013.


310 WORLD DEVELOPMENT REPORT 2016 Box 6.5 Digital Green: “How-to” videos for agriculture and health Digital Green uses video cameras, battery-operated projec- tors, and the internet to get information into the hands of villagers in India and Africa.

It works like this: Local peo- ple ﬁ lm local farmers demonstrating a useful agricultural technique or health practice.
These include preparation of seeds, enhancements of milk yield in cattle, and oral rehydration therapy for children suff ering from diarrhea.

The videos are pooled on the internet.

Then local resource people download, show, and explain seasonally appropri- ate videos to community assemblies.

The premise is that the home-grown videos convey the technical details of the technique, and do it with the credibility of a neighbor speaking in a familiar dialect.
The system automatically keeps track of which videos are most likely to prompt adoption, so monitoring is an integral element of operations, not a burdensome add-on.

An early self-evaluation reported a 90-percent reduction in the cost per adoption.

A randomized controlled trial found that 16 percent of farmers exposed to Digital Green adopted a yield-increasing, water-conserving rice culti- vation system, versus 10 percent in a control group.
The program, in operation since 2008, reached 660,000 people in 7,645 villages by April 2015.

Sources: http://www.digitalgreen.org; Gandhi and others 2009; Vasilaky and others 2015. mixed results.34 A program that sent voice advice to farmers was little used and had no impact.

Another, targeted at cotton farmers, shifted them to less harm- ful pesticides and more valuable crops.
A program that put smartphone-equipped extension agents in contact with experts improved farmer awareness of extension services, but the impact on incomes was not measured.

In Peru, however, a careful experiment showed that provision of market information via cellphones boosted farmers’ selling prices by 13 per- cent and increased the participation of subsistence farmers in the markets.35 The effects were particularly marked for perishable goods and for risk-averse farm- ers.
A particularly interesting program—because its “how-to” video approach could be applied in domains outside agriculture—is Digital Green (box 6.5).

More ambitiously, a movement toward “precision agriculture” crunches big data to provide farming advice.

At its most capital-intensive, an instrumented tractor gathers georeferenced data on ﬁ eld condi- tions and plant health.

These data are combined with weather data and fed into a computer model of plant growth.
The model then works through the tractor, ﬁ ne-tuning the application of fertilizer and pesti- cide as it traverses the ﬁ eld.

By curbing overuse of fertilizer, water, and pesticides, precision agriculture can improve the environment while boosting farm proﬁ ts.

More affordable approaches are needed for the developing world.
An emergent example is a system of decision support for rice agriculture in Colombia developed by the national rice association with sup- port from the International Center for Tropical Research.

Colombian rice yields have been falling as increased climate variability invalidates traditional calendar-based rules of thumb on when to plant.

The decision-support system merged historical data on climate and harvests with current weather forecasts to advise farmers on optimal planting decisions.
In an early application, the model correctly foresaw that crops would fail due to drought and advised farmers not to waste time and money on planting.

Donor funds (including NGO funds) and technical inputs have been important in most of these initia- tives.

Many fail to scale up.

All face the challenge of ﬁ nding a sustainable business model.

This may entail a combination of subscription sales and recurrent public ﬁ nancing.
Assessment of the beneﬁ ts of this information could help in pricing decisions and in determining the role of public ﬁ nance.

Information as an input to managing complex systems Much of development involves managing complex systems, such as power networks and urban transpor- tation.

With better information and analysis, these systems can be designed and managed for greater efﬁ ciency.

Power utilities can be helped by information in a variety of ways (see sector focus 5, “Energy”).
Devel- oping countries, though short on power, nonetheless see much of their electricity production lost to poor GLOBAL COOPERATION 311 maintenance and to theft.

Data analytics can opti- mize schedules for transformer maintenance and replacement, and can pinpoint locations for attention to reduce theft.

Big data can also be used to enable grids to assimilate the ebb and ﬂ ow of power from wind turbines and solar panels, and to adjust prices in real time to shave off peaks in demand.
Put together, these tweaks in system operation can reduce power outages, reduce the need to invest in expensive peak supply, improve the bankability of power, and reduce environmental damages.

Many of the same principles can be applied to water utilities.

Urban transport is another complex system where newly cheap information unlocks possibilities for greater efﬁ ciency.
A good starting point is with the most basic foundation of planning: of the 25 largest low- and lower-middle-income cities, 92 percent do not have complete maps of their transit networks.36 Compiling these maps used to be time-consuming and expensive.

Recently, though, Manila developed and applied a mobile phone–based application to survey and map routes, using an open-source data standard.
The map powers a consumer trip-planning app and is being used by city planners to reduce redundant routes and plan a new mass transit corridor.

In Seoul, the transit agency used locational data from 3 billion nighttime phone messages to map travel patterns and design an optimal route for the immense city’s ﬁ rst late-night bus service.

Traditional household surveys would have been slower, more expensive, and less informative.
Moving on from static mapping, an initiative in Cebu, the Philippines, was able to ingest real-time taxi data to generate speed and congestion maps for the entire city.

This reduced the time to analyze travel time for a bus corridor from two weeks to two seconds.

Ultimately cities may be able to use real-time data to design and implement policies that increase transit accessibility, decrease travel time, substitute for expensive road construction, and abate congestion and pollution.
Rural land management, to be efﬁ cient, depends on accurate and accessible information about land plots.

Land sales and rural credit markets function better when there is a comprehensive system of land registration.

Secure, registered land tenure also gives farmers incentives to invest in their land and protects them from illegal expropriation.

ICTs have revolu- tionized the logistic burden of mapping, recording, and verifying landholdings—key elements of docu- menting land tenure.
They do so in two ways.

First, mapping boundaries with GPS is much faster, less expensive, and less demanding of scarce skills than traditional surveying.

Second, open and transparent digital registration of land titles reduces the cost of verifying ownership and inhibits fraud and corrup- tion.

Thus land registration is a platform for building a variety of valuable services.
As an example of the potential, a pilot land regularization project in Rwanda used aerial pho- tography and digital registration, and was found to double the rate of investment and maintenance of soil conservation structures.37 The effect was partic- ularly marked for female-headed households.

But the gender impacts were complicated because of the way tenure regularization interacted with laws and traditions.

Married women improved their land access, but those in informal unions were worse off.
Girls’ and boys’ planned land inheritance was equally boosted—except in female-headed households, where sons gained an edge.

Contrary to expectations, there was no effect on access to credit.

Overall, the pilot was sufﬁ ciently successful that it is being expanded nationwide, to 10 million land parcels, at a cost of US$5 a parcel.

Environmental management also depends on land data.

Since the 1970s, Brazil has used satellites to monitor deforestation in the Amazon.
In 2003 the government made a landmark decision to release the raw data.

This enabled NGOs such as IMAZON to develop their own analyses, improving the informa- tion base and raising public awareness and pressure for environmental action.
Starting in 2004, the Brazil- ian government began using monthly data to guide enforcement of forest and agricultural policy, with demonstrable impacts on reducing deforestation.38 More recently, Brazil embarked on an ambitious program to precisely map every rural property and use satellite observations to monitor compliance with forest conservation regulations.
By September 2015, it had registered 2.1 million properties cover- ing 2.6 million square kilometers.39 Registry in this environmental cadastre is a condition for credit and other services, motivating compliance.

It also sets up a framework for trading forest conservation obliga- tions, which reduces the cost and increases the ben- eﬁ ts of conservation.

Disaster risk management inherently demands a great deal of timely and location-speciﬁ c information.
Over just the past few years, internet-enabled infor- mation has begun to change the way in which donors respond to emergencies, and is helping to increase disaster preparedness and resilience (box 6.6).

For all these systems’ management challenges, big data offers plausible efﬁ ciency gains.

In many cases, realizing those gains involves overcoming not just technical obstacles, but also political ones.
312 WORLD DEVELOPMENT REPORT 2016 Box 6.6 Disaster risk management As climate becomes more volatile and populations swell in coastal, ﬂ oodplain, and earthquake-prone areas, disaster risk management (DRM) becomes ever more important.

Annual disaster losses now average US$200 billion globally, and large disasters can derail a country’s growth.
Information and com- munication technology (ICT) applications—especially those involving crowdsourced, open data and open-source soft- ware—are rapidly being incorporated in each aspect of DRM: Risk identiﬁ cation and mitigation.

The best way to deal with disasters is to build resilience in advance, so that when the storm or ﬂ ood or earthquake hits, lives are not lost and damage to property is minimized.

This requires extensive, geographically precise information and planning.
What locations are subject to natural disasters, with what proba- bility?

How sturdy are the buildings in those locations, and who occupies them?

Which ones need to be shored up and how much will that cost?

Detailed answers have typically not been available.

Map data have been inadequate, often inaccessible, and diffi cult to handle.

But with revolutions in geographic information systems, remote sensing, and crowdsourcing, that is changing.
In ﬂ ood-prone Jakarta, Indonesia, for instance, the Disaster Management Agency asked the heads of the city’s 267 wards to map the location of critical infrastructure using OpenStreetMaps, a tool that allows volunteers to cre- ate detailed digital maps that can be used without restric- tion.

More than 1 million buildings have been mapped.

InaSAFE, an open-source software program, was then used to analyze potential impacts of ﬂ oods, and helped in the response to the 2013 and 2014 ﬂ oods.
More recently, peta- jakarta.org exploited the city’s high rate of Twitter usage to crowd-map ﬂ ood locations in real time during the 2014–15 monsoon season, helping citizens navigate the ﬂ ooded city and augmenting the DRM agency’s information base.

Early warning.

Many lives have been lost for lack of adequate warning of impending disaster.

Now, widespread access to mobile phones, combined with weather monitor- ing systems, allows for timely and near-universal warnings.
For instance, the Philippines’s Project NOAH (Nationwide Operational Assessment of Hazards) uses real-time data from rain gauges, water sensors, and radar to provide evac- uation alarms.

Damage assessment and response.

In the chaos following a disaster, it has been diffi cult to match relief supplies with need, and then to inventory damage and prioritize recovery operations.

Here again, crowdsourcing has revolutionized response.
After the devastating 2010 Haiti earthquake, a spontaneous volunteer eff ort used the Ushahidi platform to aggregate and map status reports and requests for help from social media and text messages.

Over 1,000 Haitian volun- teers living abroad translated and geolocated the messages.

And more than 700 volunteers used OpenStreetMaps to create new maps.

These were subsequently updated, by more volunteers, with satellite and aerial imagery, to form the basis for the postdisaster needs assessment.
Technological progress continues: after Vanuatu’s 2015 cyclone, drones were used to survey damage, providing much more detailed damage information than is possible with aerial photography.

The move of these methods to open-source software and open data is noteworthy, and has implications beyond DRM.

For capacity- and cash-constrained agencies in devel- oping countries, open-source software is much cheaper to acquire than proprietary software, and avoids dependency on a single supplier.
It allows high levels of customization and, because it often adheres to open standards, easier integration with other software.

It encourages cross- fertilization, community building, and code sharing with others around the world; for an example, see geonode.org.

These advantages need to be weighed against the poten- tially (but not necessarily) higher level of support off ered by proprietary software.

Similar considerations apply to open data.


By opening data, it is easier to ﬁ nd and assemble the multiple layers of information—land cover, topography, population, infra- structure, hydrology—necessary for DRM.

And, of course, open data can be distributed to users free of charge.

Crowdsourced data are not without diffi culties.

Accuracy and completeness are issues.

Both Haiti and Jakarta developed systems for conﬁ rming the accuracy of reports.
Sustainability of volunteer engagement is a challenge, since DRM data need constant updating.

Feeding back the information to communities is one way to encourage this.

Of course, crowds are just one data source.

A key to DRM is the integration of many diff erent kinds of information.

Rio de Janeiro’s Center of Operations prepares the city to deal with its many risks, including ﬂ oods and landslides, by combining real-time information on rain, tides, transport, and city services with 560 video cameras.
It also serves to coordinate the diverse government departments, and to feed information to the public and the media.

Sources: WDR 2016 team based on inputs from the Global Facility for Disaster Reduction and Recovery; Haklay and others 2014; Heinzelman and Waters 2010; Holderness and Turpin 2014; Matheus and Ribeiro 2014.

Powerful interest groups may stand to lose from sys- tems efﬁ ciency.
These include consumers and utility employees who beneﬁ t from electricity theft, oper- ators of unregulated minibuses, land-grabbers, and ﬂ outers of environmental regulations.

Disaster risk management and climate adaptation require exten- sive coordination among ministries used to working independently.

Donors may be able to play a role in supporting the complementary reforms necessary to overcome these obstacles.
Information as an input to poverty reduction eff orts In ﬁ ghting poverty, as in any strategic endeavor, it is useful to diagnose challenges and track progress.

Timely, disaggregated poverty indicators could pro- mote accountability, boost motivation, and provide the kind of relevant feedback described earlier in this chapter, at the policy level.

For instance, many proposed policy reforms have potentially large and poorly understood distributional impacts, sometimes leading to contentious gridlock.
The ability to predict those impacts and then to verify them in practice could help to accelerate reforms.

Up-to-date informa- tion on the location, health status, and consumption patterns of poor people could help design and target programs more efﬁ ciently.

For these reasons, a panel commissioned by the United Nations40 sees better data as an indispensable tool for achieving the Sustainable Development Goals (SDGs) (see spotlight 5, “The data revolution”).
To date, however, development decisions and priorities have often been made while ﬂ ying blind.

For instance, energy subsidy reform—a trillion- dollar-a-year issue with huge poverty and environ- mental implications—is contentious in many coun- tries.
Yet an authoritative global analysis of the pov- erty impacts of reform was forced to use household data that were, on average, more than eight years old.41 Consider this sobering picture of the state of knowl- edge about African growth and poverty.42 Just half of African countries compute GDP using current stan- dards; when Ghana adopted those standards, national income was found to be nearly two-thirds higher than previously thought.
Only one-third of countries have two comparable measures of poverty over time, and even then the latest estimate is often years out of date.

To make things worse, basic civil registra- tion systems cover only 45 percent of births in Sub- Saharan Africa, making it difﬁ cult to track child mor- tality (one of the starkest measures of poverty) or to get an accurate measure of population.
Thus it is dif- ﬁ cult to track progress even at the national level, let GLOBAL COOPERATION 313 alone at the ﬁ ne-grained level relevant to provinces or communities.

However, many countries lack the money to fund basic information systems, the organizational incen- tives to share information, and the human skills to supply and use data.

International actors can help on all counts.


Donors have supported keystone house- hold surveys, including the Living Standards Mea- surement Surveys and the Demographic and Health Surveys.

These have provided crucial information for decision making, with the added beneﬁ t of facilitat- ing international comparisons, thanks to standard- ized deﬁ nitions.

Donors have also supported capacity building at national statistical organizations.

But as noted, coverage is far from complete and timely.
A comprehensive program of statistical gap-ﬁ lling for the 77 low-income countries that belong to the World Bank’s International Development Association (IDA) is estimated to cost about US$1 billion a year.43 Current ofﬁ cial development assistance runs around US$350 million, according to the report, while domes- tic spending is not known.

Costs may be reduced, or effectiveness improved, through new technologies.
For instance, computer- aided surveying can reduce the cost of traditional household surveys by 60 percent.44 New opportuni- ties are arising to complement traditional censuses and surveys with big data that can provide up-to-date information at a ﬁ ne geographical level.

For instance, cellphone call detail records are being used to impute real-time measures of poverty—and internet data, to construct real-time inﬂ ation or even GDP measures.
These techniques are not likely to replace traditional statistical sources.

Quite the contrary: high-quality censuses and surveys become even more valuable because they can adjust for biases in big data (see box 6.7).

Mustering information for global public goods Many problems—climate change, ozone depletion, air pollution, epidemics, ﬁ nancial crises—are features of globally interconnected environmental, economic, and social systems.

Addressing them requires coordi- nated global actions.
Setting priorities and targeting actions require global information.

That information is itself a global public good.

As such, it is subject to the scale effects described earlier in this Report.

is the immensely valuable data on weather, water ﬂ ows, and climate.
One estimate of the beneﬁ ts of upgrad- ing developing country weather systems to devel- oped country standards is between US$4 billion the quintessential example Perhaps 314 WORLD DEVELOPMENT REPORT 2016 Box 6.7 Can “big data” provide real-time, geographically detailed information on poverty?

Traditional surveys and newfangled big data sources have complementary strengths and weaknesses.
Surveys work very hard at being accurate—for instance, precisely tallying the value of everything a household buys or produces— and making sure that everyone in the target population, especially poor people, are covered.

This makes it possible to accurately measure changes over time.

But even with tablet-assisted surveying, traditional household survey data will be months old before they are published.
And sample sizes of a few thousand do not allow much insight into what is happening with subgroups or at particular locations.

So researchers are trying to estimate income with cellphone use data, which cover a large proportion of the population, are literally up to the minute, and can provide a snapshot of activity at the level of a village or urban ward.

The estimates use information such as how often the user buys airtime, in what denominations, and the frequency of international calls.
Hurdles include ﬁ nding ways to ensure data anonymity and convincing phone companies to share data.

But the big disadvantage, from a monitoring per- spective, is that the data do not accurately represent the population.

Many poor people do not have phones.

And the relationship between income and airtime purchases will change over time as prices of service and phones change.

One possible solution is to use repeated small “gold standard” surveys to calibrate the cellphone data.
A hint of the possibilities is given by a study that successfully rep- licated the results of a populationwide opinion poll based on a survey of Xbox gamers—a predominantly young, male group.

The key was a sophisticated method of correcting for the skewed nature of the sample using information on the age and sex distribution of the general population.a a. Wang and others, forthcoming.
and US$36 billion a year.45 Data on river ﬂ ows are essential for disaster risk planning and for planning and operating hydropower and irrigation systems.

And detailed long-term data are essential for tracking and understanding climate change patterns.

These data are sorely underprovided.

Because weather is a global system, every observation of temperature and precipitation improves weather forecasts (and climate models) at the transnational and even global levels.
But poor countries do not have a dense enough network of observation stations even for their own purposes, let alone to contribute to the global good (see map 6.2).

Another 4,000 to 5,000 stations are needed in Africa alone.46 Part of the problem is a lack of funds and capacity to build and maintain stations.
Another is that many state-run hydrometeorological agencies refrain from the free distribution of globally valuable data to garner modest revenues from selling data points, not just in poor African countries but also in the majority of European countries.47 Once again, technology is making it easier to gather and analyze data of global signiﬁ cance.
For instance, tropical deforestation is a global concern, a major source of carbon emissions and biodiversity loss and an issue related in complex ways to rural poverty.

Yet until recently, data on tropical deforesta- tion were spotty, inconsistent among countries, and woefully outdated.

Now, Global Forest Watch publishes monthly deforestation maps that can spot clearings of as little as 25 hectares.48 On the horizon are satellite data that might enable daily monitoring at a level well below a hectare.
Similar advances are being made in transboundary air pollution (see sector focus 6, “Environmental management”) and surveil- lance of emergent zoonotic diseases.

So there is a role for global ﬁ nance in the supply of this kind of information, but that is only the begin- ning.

There is a need also to build the willingness to share information, and the capacity to use it.
The future of global development cooperation What’s the role of development agents and interna- tional organizations in a world where their ﬁ nancial heft is miniscule?

The answer set forth here is three- fold: in concentrated efforts in the poorest countries; in catalytic injections of ideas, backed with cash, everywhere; and in spearheading global collective action.
The data and technology revolutions are arriv- ing in time to bridge the gap between resources and ambition by amplifying the impacts of action and including more people in the formulation and execu- tion of plans.

But for this to work, development agents must tackle policy constraints, internal and external.

Start with the how of development operations.


With new technologies, development agencies can 315GLOBAL COOPERATIONReport 90–100 percent of the timeReport 45–89 percent of the timeReport < 45 percent of the timeSilent station3,678573193444tion.

These services have ﬁ xed setup costs in software and data assembly, but can have near zero costs for distributing information.
So the private sector will tend either to shy away from providing these services, or to price them at a level that shuts out poor people who could beneﬁ t.Donors can provide the funds and expertise to help get these services going.

They can, for instance, support the assembly of critical data and the creation of broadly applicable open-source software.

There is a real need, however, for coordination.


A DFID study found 70 unrelated mobile-for-health pilots in Uganda, and over 1,800 mobile apps worldwide.49 There’s another reason for development agents to get involved: to help address the policy issues that impede innovation, or to support complementary investments or capacity building.
Thus, for instance, making progress on urban transit could require a combination of information systems, investments in infrastructure, and investments that address opposition to regulation of minibuses or reduction in on-street parking.

be more inclusive by tapping the wisdom of beneﬁ -ciaries in designing interventions.
They can crank up their efﬁ ciency by using rapid feedback to reﬁ ne and improve their actions through trial and error, and use open-source evaluation to align performance management with learning.

But these approaches will not come easily in organizations that emphasize spending and outputs over results, have burdensome structures for accountability, and see any failures as damning rather than informative.
If traditional agencies cannot adapt, some of their business may be taken up by disruptive newcomers, such as Global-Giving, GiveDirectly, or development impact bonds (box 6.8).Next, the what.

Previous chapters have pointed to many areas where external agencies could catalyze development—for instance, in supporting policy reforms that would open up internet access or new approaches to service delivery in health.
In this chap-ter, the emphasis is on creating information services that help individuals and systems managers make better decisions in ways that promote poverty reduc-Map 6.2 Availability of reports from weather stationsProportion of time that weather stations report SYNOP (surface synoptic observations) data to the World Meteorological OrganizationSource: World Meteorological Organization SYNOP data for October 2013, https://www.wmo.int/pages/prog/www/ois/monitor/index_en.html.IBRD 42013 316 WORLD DEVELOPMENT REPORT 2016 Box 6.8 Disruptive approaches to development Some radical reimaginings of development assistance involve digital technologies to eliminate some of the over- head costs and procedures of traditional approaches.
Give- Directly uses satellite imagery, crowdsourced assistance, and machine learning to identify poor villages in Kenya.a The trick: using thatched roofs as an indicator of poverty.

Staff are dispatched to the villages to enroll the residents of the thatched houses.

GiveDirectly then sends US$300, by mobile phone, to the enrollees.

Overhead costs are just 8 percent (for staff and the cost of foreign exchange and money transfers).
A randomized controlled trial found a 42-percent reduction in the number of days children go without food, a 58-percent increase in assets, and a 38- percent increase in revenue from self-employment.b GlobalGiving’s internet platform allows nongovern- mental organizations (NGOs) to post development project proposals for funding by donors, large and small.

Thus it taps a more grassroots ﬁ eld of ideas and implementers than traditional agencies.
Its website keeps track of project performance and NGO credibility (such as whether NGOs regularly report audits), feeding this information back to donors.

GlobalGiving uses its platform to provide online capacity building to the grantees, and allows them to build a reputation based on performance and investments in learn- ing.

It plans to assist the grantees in tracking their results, ultimately fostering benchmarking and mutual learning.
GiveDirectly and GlobalGiving thus sidestep much of the traditional costly apparatus for project selection, appraisal, and supervision.

GiveDirectly achieves these effi ciencies by focusing on a logistically simple interven- tion.

This cannot substitute for interventions that involve externalities or require collective action or large invest- ments.

But it implicitly challenges interventions that have more “moving parts”—can they achieve equal impact at equal cost?
Global-Giving achieves effi ciencies by pushing project appraisal, quality assurance, ﬁ nancial controls, and safeguards to the funders and to the wisdom of crowds, informed by a growing stream of data.

Time will tell whether these are inherently niche operations, or the pio- neers of a new way of doing development business.

a. Abelson, Varshney, and Sun 2014. b. Haushofer and Shapiro 2013.

Finally, external agents and international organi- zations can encourage the unlocking of existing data.
Open data can be a powerful tool (see the discussion of open data in the context of disaster risk manage- ment in box 6.6).

But too often, socially beneﬁ cial data are kept under wraps.

Both the public and private sec- tor are culprits.

As noted, this is true of government- collected data on weather and river ﬂ ows.

In some transboundary river basins, upstream countries do not share river ﬂ ow data with downstream neighbors, crimping ﬂ ood preparedness and irrigation man- agement.
Basic data on poverty also suffer.

Among the Sub-Saharan household surveys that underpin poverty estimates and give insight into causes and correlates of income, education, and health out- comes, fewer than half are available online and free of charge.50 For East Asia and the Paciﬁ c, the proportion is less than 20 percent.

Private telecom companies closely hold, and use for commercial purposes, data on cellphone calling patterns useful for transport planning and poverty analysis.
Donors and development agencies can catalyze the potential for open data in several ways.

They could work with partners to expand the availability of open data.

The principle would be that all supported activities should generate open data by default, with exceptions on the grounds of privacy and other deﬁ ned concerns.
So, support for health and educa- tion systems should ensure that these systems track and disclose performance data to the extent possi- ble, while preserving conﬁ dentiality of individual records.

This also holds for public-private partner- ships (PPP), many of which currently do not furnish any data about their performance, and which may use client-generated data for commercial gain.
Agencies that advise on or ﬁ nance concessions in power, water, transit, telecom, and other services could demon- strate to public authorities the advantages of making performance data open.

Data could include public scrutiny of the concessionaire, informative new data “mash-ups,” and the capacity for open-source evaluation of options for improved equity and efﬁ - ciency.
Agencies could then help governments craft PPP contracts that recognize the rights of clients to their own information and of the public to ano- nymized performance data.

Donors, both traditional GLOBAL COOPERATION 317 and nontraditional, can set a good example by ensur- ing that their own data are open—particularly, mete- orological and hydrological data with transboundary beneﬁ ts.

They can support policy reforms in devel- oping countries that fund data-producing agencies, allowing them to reduce fees.
Agencies or international organizations could also explore the potential to create sectoral data standards.

Open data are more useful when they can be consis- tently compared and aggregated across units.

Data standards also make it easier to develop apps and programs for use and analysis.

The Group on Earth Observations, an international consortium, is doing this for remote sensing data.

Development agencies could work together to create standards for data on development impact or results.
A beginning would be to more thoroughly report results under the Interna- tional Aid Transparency Initiative standards.

Some agencies report ﬁ nancial transactions, but only 5 out of 68 agencies publish machine-readable information on project targets and results—which would allow benchmarking and comparison across providers.51 Finally, as noted, there are signiﬁ cant ﬁ nancing needs for building the data that could guide the pursuit of the SDGs, and the capacity to use those data.
There could be opportunities to build reusable, customizable open-source software and systems for monitoring the SDGs, reducing duplication of efforts, saving costs—and improving lives.

Notes 1.

David Clark’s often-quoted statement refers to the work of the Internet Engineering Task Force (IETF).

See https://www.ietf.org/tao.html.

2.

Wu 2010.

3.

World Summit on the Information Society 2005.

4.

Much of the discussion in this section is derived from Dutton (2015) for this Report.

5.
5.

Sadowsky 2014, 82; UNESCO 2015.

6.

Portions of this section are adapted from Satola and Kelly (2014).

7.

See http://www.itu.int/wsis/index.html.

8.

Dutton 2015 for this Report.

9.

Dutton 2015 for this Report.

10.

See, for example, Judy and Satola (2014).

11.


In May 2011, UN Human Rights Council Special Rap- porteur Frank La Rue issued his report on the right to freedom of expression on the internet, saying that states are increasingly censoring information online through arbitrary blocking or ﬁ ltering of con- tent, criminalizing legitimate expression, imposing intermediary liability, disconnecting users from the internet, and not providing adequate protec- tions to privacy and data.
See http://www2.ohchr .org/english/bodies/hrcouncil/docs/17session/A.HRC .17.27_en.pdf.

The UN Human Rights Council issued a second report in April 2013 suggesting that nations’ laws on surveillance were overbearing and recommending that states revise and align their surveillance laws to comply with international human rights.

See http:// www.ohchr.org/Documents/HRBodies/HRCouncil /RegularSession/Session23/A.HRC.23.40_EN.pdf.
In June 2012, the UN Human Rights Council adopted a resolution preserving human rights on the internet, afﬁ rming that people have the same rights online that they have ofﬂ ine—in particular, freedom of expression (A/HRC/20/L.13) (June 29, 2012).

12.

The WCIT Final Acts are available at http://www.itu .int/en/wcit-12/Pages/default.aspx.
For an analysis of the outcome, see http://www.cullen-international .com/asset/?location=/content/assets/regulatory -intelligence/regulatory-news/wcit-12_post-mortem _culleninternational.pdf/wcit-12_post-mortem _culleninternational.pdf.

13.
13.

IANA, a subsidiary of ICANN, has traditionally per- formed certain technical functions essential for the smooth and secure running of the internet, includ- ing control of the internet protocol (IP) addressing system (numbering resources, including IPv4 and IPv6), managing IP protocols, and managing the root zone database for domain names (domain name management).
The U.S. government, through the National Telecommunications and Informa- tion Administration (NTIA), a branch of the U.S. Department of Commerce, has had oversight over these functions through a series of agreements with ICANN, ﬁ rst formalized in 1998 under what was called a memorandum of understanding.

The memorandum went through several iterations and morphed into what was then called the Joint Project Agreement, which itself underwent one amend- ment.
In 2009, it was replaced by a document called the Afﬁ rmation of Commitments.

In each iteration of the agreement between NTIA and ICANN, and over time, NTIA has “loosened” its oversight of the performance of these IANA functions by ICANN.

This latest move by NTIA can be seen as part of a continuing evolution away from NTIA’s control and oversight of IANA functions.

14.

In August 2015, NTIA announced it would defer the deadline for considering a transition proposal for at least a year.

15.
15.

In addition to endorsement of the MSM by the UN’s World Summit on the Information Society, both the Organisation for Economic Co-operation and Devel- opment and the European Commission have recon- ﬁ rmed their support.

See European Commission (EC 2014) and OECD (2014b).

16.

See European Commission (EC 2014).

17.

It is important to note that the sale of music ﬁ les does not necessarily take place across borders.
In 318 WORLD DEVELOPMENT REPORT 2016 many cases, the sale of digital goods across borders is blocked by geographically limited IP regimes.

This applies to other digital goods like e-books and videos.

Instead, one should think about these cross-border transactions as transactions between ﬁ rms in differ- ent countries for the license to sell the content.

See Nicholson and Noonan (2014) for a discussion.

18.

Mandel 2013.

19.

Bauer and others 2014.

20.


Bauer and others (2014) calculate the percentage changes to GDP, investment, and total exports as a result of the proposed legislation in a Global Trade Analysis Project (GTAP) model.

The effects of the data regulations are included in the model as an increase in business costs, an increase in costs for data-driven services trade, a decrease in invest- ments, and a decrease in the effectiveness of data-re- lated research and development.

21.
21.

National Board of Trade 2015.

22.

For example, in October 2015, the European Court of Justice declared invalid the EU-U.S. “safe har- bor” rules regulating internet ﬁ rms’ retention of Europeans’ data in the United States.

An ongoing case between Microsoft and the U.S. Department of Justice seeks to clarify whether U.S. government agencies can access e-mail messages stored in Microsoft servers in Europe.

23.
23.

For example, the EU’s Binding Corporate Rules (BCRs) require ﬁ rms to set up internal company pol- icies and appoint personnel to handle cross-border data transfers.

These ﬁ rms must go through a certi- ﬁ cation process overseen by a data protection ofﬁ ce, which involves audits and company visits.

As of May 2015, only 66 companies had obtained BCRs, and most of them are large multinational companies.

24.

IATA 2015.

25.


A study by Aguiar and Martens (2013) ﬁ nds that illegal music downloads do not displace legal music sales.

The individuals in the study would not have purchased the music they downloaded illegally if it was not available on the illegal downloading website.

26. van Pottelsberghe de la Potterie and Mejer 2010.

27.

See Easterly 2006, 2014; Andrews, Pritchett, and Woolcock 2013; Ramalingam 2013; Whittle 2013; Booth and Unsworth 2014.

28.
28.

Andrews, Pritchett, and Woolcock 2013; Whittle 2013.

29.

The correlation shown in ﬁ gure 6.8 could potentially have a spurious component, if the ex post M&E rating inﬂ uences the outcome rating.

However, the correlation holds when the independent M&E rating is related to the self-rating of outcome.

Moreover, a review of 195 in-depth project evaluations looked at positive and negative mentions of the speciﬁ c roles of problem-solving, frequency of supervisory visits, and M&E design quality.
It found them to be highly associated, in magnitude and statistical signiﬁ cance, with better and worse project outcomes.

30.

OECD 2014a.

31.

IEG 2011.

32.

OECD 2014a, 22.

33.

Lobell, Cassman, and Field 2009.

34.

Nakasone, Torero, and Minten 2014.

35.

Nakasone 2013.

36.

World Bank 2015.

37.

Ali, Deininger, and Goldstein 2014.

38.

Assunção, Gandour, and Rocha 2013; Assunção and others 2013.

39.

Government of Brazil 2015.

40.

See UN 2013.

41. del Granado, Coady, and Gillingham 2012.


42.

Devarajan 2013.

43.

Espey 2015.

44.

Espey 2015.

45.

Hallegatte 2012.

46.

Rogers and Tsirkunov 2013.

47.

Rogers and Tsirkunov 2013.

48.

See http://www.globalforestwatch.org.

49.

Ranger, Chandler, and Arscott 2015.

50.

Demombynes and Sandefur 2014.

51.

Aid Transparency Index 2014. http://ati.publish whatyoufund.org/ﬁ ndingapproaches-to-publishing -results-information/.

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322 WORLD DEVELOPMENT REPORT 2016 SECTOR FOCUS 6 Environmental management The internet is transforming how policy makers and citizens meet the challenge of environmental man- agement.
New technologies have greatly improved monitoring of environmental quality and helped free data from the obscurity of closed government ofﬁ ces, instead making them instantly accessible.

This is hav- ing profound effects.

Not only are these technologies improving the ability of public authorities to monitor pollution, but they are also pushing the boundaries for civic engagement.
This is happening in many areas of environmental policy making, including forest mon- itoring, water quality assessments, identiﬁ cation of natural hazard risk, and air quality management—the emphasis of this sector focus.

Air pollution is a growing threat to health the world over.

Exposure to particulates with a diameter of less than 2.5 micrometers (PM2.5 )—which are capable of penetrating deep into the lungs—increased in all regions between 1998 and 2012, with the exception of North America and Europe.
Health risks include heart disease, stroke, lung cancer, and respiratory infec- tions.

Exposure to outdoor PM2.5 pollution was the ninth leading cause of death and disability worldwide in 2010, accounting for 3.2 million deaths (6 percent of global mortality).

There is also growing evidence that PM2.5 pollution could harm cognitive functions and contribute to diseases such as Alzheimer’s and Parkinson’s.
The economic costs of deaths and debili- tating illnesses related to PM pollution, measured by reduced labor productivity, amount to 4 percent of GDP for some developing countries.1 This sector focus was contributed by Chris Sall and Urvashi Narain.

The beneﬁ ts of the internet in managing air quality Enabling comprehensive monitoring Countries now have new tools to monitor the con- centration of ambient pollutants, the ﬁ rst critical step in devising an air quality management plan.
Ground-level monitoring is common in high-income countries and some middle-income countries such as China, but there are large parts of the globe where monitoring of PM2.5 is rare.

Barriers include the high cost of installing and maintaining monitoring net- works and a shortage of technicians and experts with specialized skills.
New satellite-based sensors measure pollution concentrations from space.2 In combination with models of particulate movement through the atmo- sphere, satellite data supplement information pro- vided by sparse ground-level monitors to produce estimates of pollution concentrations over larger areas (map F6.1).

In the United States, public agencies are investigating using satellite-based measurements to enhance air quality forecasts for areas where gaps exist in the monitoring network.
Remotely sensed data will prove especially helpful for regions where there is currently very little on-the-ground monitor- ing, such as in Africa.

Personal mobile technologies could also improve pollution monitoring.

One California startup has created a wearable monitor primarily intended for developing countries such as China, India, and Mexico.
The keychain-size device, called Clarity and costing between US$50 and US$75, uses an optical sensor to measure concentrations of PM2.5, nitrogen 323ENVIRONMENTAL MANAGEMENT323oxides, ammonia, and volatile organic compounds.
Data will be gathered and analyzed in the cloud so that users can view real-time, crowdsourced maps of pollution in their neighborhood or city.Improving policy designSingapore is one of the ﬁ rst cities to pioneer the use of “big data” to help ﬁ ght congestion and thus reduce pollution from idling vehicles.

The city is testing new satellite positioning technologies to improve its existing Electronic Road Pricing (ERP) scheme.
The system tracks the exact locations of vehicles and measures their distance traveled on congested road-ways.

By pinpointing trafﬁ c congestion, ERP tariffs can be automatically adjusted to individual driving behavior, providing drivers with incentives to ﬁ nd less congested routes.Empowering regulatorsNew, lower-cost sensors and information technolo-gies are reducing the cost to regulators of enforcing limits on emissions from sources such as factories, farms, and energy producers.
Sensors can be placed within facilities, at fence lines, or in downwind communities to continuously monitor emissions and transmit data via the internet to regulators.

This makes it possible to gauge actual pollution loads (such as kilograms of PM emitted) over time, instead of occasionally sampling gases in smokestacks.

Such data support emissions trading schemes and other market-based policies to reduce pollution.
An example is the successful sulfur dioxide (SO2) permit trading system in the United States, which nearly halved SO2 emissions within a year and saved industries at least US$255 million in annual compliance costs.

In India, regulators in the states of Gujarat, Maharashtra, and Tamil Nadu are installing low-cost sensor technol-ogies at industrial facilities for a new pilot trading scheme for PM pollution.
Empowering citizensPublicly accessible data on pollution concentration levels enable citizens to take preventive measures to reduce their personal risk of exposure and pressure governments to enforce existing emission standards.

The AIRNow program of the U.S. Environmental Protection Agency (U.S. EPA) provides hourly, real-time maps and forecasts of air quality.

The program illustrates recent changes in data policies.
In the early 1990s, local, state, and federal agencies collected air quality data from monitoring stations and sent the data to the U.S. EPA for processing.

Concerns over data quality, potential misuse of data, and limited technical capabilities meant that data were released with long delays.
Today, AIRNow gathers real-time data from 1,300 ozone and 300 PM monitoring sites, performs Map F6.1 Satellite estimates of average PM2.5 concentrations provide global coverage, 2010Source: Data from Brauer and others 2012 for the Global Burden of Disease study (Lim and others 2012).Note: Includes only anthropogenic emissions; concentrations of dust and sea salt are not shown.
PM2.5 = particulates with a diameter of less than 2.5 micrometers.ew YorkChicagoWWashington, D.C.MiiCaracLos AngelesMexico Coo CCityBogotáio deJaneiroSãoPaulouenoAireCapeTownSantiagoJohaeburirobiLagoCasablancaMaddidddomeAAthestanbuCaiCairoRiyadhhhDbbDiBudadaapeststpestMoscowlikiOsloiParisLondLoLondLdewwDelhiiMbiBeBeijBeBeijingiSeouTokyoOOsakaShanghaihMilBangkokKuala LumpurmpupurSinggaporeJakartaSydSydneyMelbourneNew YorkChicagoWashington, D.C.MiamiCaracasLos AngelesMexico CityBogotáRio deJaneiroSãoPauloBuenosAiresCapeTownSantiagoJohannesburgNairobiLagosCasablancaMadridRomeAthensIstanbulCairoRiyadhDubaiBudapestMoscowHelsinkiOsloBerlinParisLondonNewDelhiMumbaiBeijingSeoulTokyoOsakaShanghaiManilaBangkokKuala LumpurSingaporeJakartaSydneyMelbourne0–1011–1516–2526–3536–50Above 50Mean annual PM2.5micrograms/cubic meterIBRD 42014 324 WORLD DEVELOPMENT REPORT 2016 automated data quality checks, and provides hourly maps and forecasts of local, regional, and national air quality.
Cloud-based computing and mapping, combined with new mobile platforms, make local air quality reports and forecasts accessible to everyone, everywhere.

And open data standards allow devel- opers and public interest groups to pull information from AIRNow into their own web services.

Public information disclosure programs that mon- itor and publicize the environmental performance of ﬁ rms empower communities to pressure otherwise weak regulatory institutions to enforce environ- mental standards.
These programs now rely on the internet to improve the free ﬂ ow of information and reduce the cost of data collection and dissemination.

Online registries that compile information on pollut- ant releases by industrial facilities and other sources have been set up in at least 20 nations, including in Japan, the Republic of Korea, Mexico, the United States, and the countries of the European Union.
Dis- closure programs that rate the environmental perfor- mance of ﬁ rms have also been implemented in about 60 countries.

Ratings programs in countries such as India and Indonesia have had a signiﬁ cant, mea- surable impact in reducing pollution by the worst- performing plants.
China offers an example of how information tech- nologies can leverage mandatory public disclosure programs and expand citizen engagement.3 Public disclosure of environmental monitoring data in China has expanded rapidly in the last few years in what could be characterized as a virtuous cycle made pos- sible by information technologies.
The attention gen- erated by Tweets of air quality data from unofﬁ cial monitoring sites in Beijing and other cities prompted programs by public agencies to build ofﬁ cial moni- toring systems and make the data publicly available in real time.

In 2013, the Ministry of Environmental Protection issued rules mandating the disclosure of real-time pollution data by key enterprises and local authorities.
The next year, the Institute of Public and Environ- mental Affairs (IPE) in Beijing, a public advocacy group, released a free mobile app to put these data directly in the hands of the public.

Users of the Pollution Map (wuran ditu) app can see current emission levels of local factories and other entities and ascertain whether the readings exceed legal limits.

They can share this information on popular social media apps and submit reports and photos of companies that are violating emission limits.
According to IPE’s founder, Ma Jun, the app gives citizens the hard data they need to put pressure on enterprises and local authorities when environmental standards are being violated.

There are already some signs of success.

On several occasions in 2014, authorities in the city of Yantai, Shandong Province, publicly responded to social media posts that enterprises in the area were violating emissions limits and resolved the complaints within a few days.
Smart public policy can help make the most of new technologies for monitoring and reducing pollution.

Apart from stronger requirements for public disclosure of monitoring data, governments play an important role in setting standards for data collection, reporting, and sharing; offering guidance on best practices for use of technologies; and rating the performance of devices used by consumers.
To keep up with the pace of technological change, it is vital for governments to regularly review policies and standards in recognition of new data services.

Such policies for encouraging the innovative use of infor- mation technology may form an important part of a broader air quality management strategy.

Notes 1.

Global Commission on the Economy and Climate 2014.

2. van Donkelaar and others 2015.

3.

Li 2011.


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326 WORLD DEVELOPMENT REPORT 2016 ENABLING DIGITAL DEVELOPMENT Six digital technologies to watch 6 T H G I L T O P S This Report looks at what countries can do to get more out of the internet and other digital technolo- gies.

Although it looks ahead to a world in which the internet is universally available and affordable, the analysis largely takes the technology for granted.

But technological change is continuous and frequently disruptive.
This spotlight examines a range of tech- nologies, identiﬁ ed in the technology forecasting lit- erature that promise to be far-reaching in their impact on development.

1 They are at different stages of the “hype” cycle (ﬁ gure S6.1).
Like the internet, they are likely to be encountered ﬁ rst in the developed world, but will spread quickly to the developing world, where their impact may be even greater.2 Fifth-generation (5G) mobile phones The development of cellular mobile phones from the earliest incarnation of commercial service in the late 1970s has proceeded in generations.
First-generation (1G) analog cellphones were replaced with 2G digital phones, starting in Finland in 1991, while 3G phones, which provide faster internet access, were launched at the opening match of the 2002 FIFA World Cup in the Republic of Korea.

By the end of June 2015, there were 2.33 billion 3G mobile subscriptions worldwide, and a further 757 million subscribers to data-optimized 4G, or Long Term Evolution (LTE), technology.3 5G wireless networks are the next generation of mobile networks.
5G networks are expected to out- Contributed by Wajeeha Ahmad, Hallie Applebaum, Naomi Halewood, Arturo Muente-Kunigami, Marcela Sabino, Randeep Sudan, and Darshan Yadunath.

perform current 4G networks by providing data at a speed several hundred gigabits per second (Gbit/s).
In 2015, researchers at the University of Surrey’s 5G Innovation Centre (5GIC) managed one terabit per second (Tbit/s) during their speed tests—many thou- sands of times faster than current data connections.4 Accommodating 5G will require using parts of the spectrum that have not previously been considered commercially useful, in particular above 3 gigahertz (GHz), and in the millimeter band that stretches from 30–300 GHz.
It will also require new kinds of anten- nae.5 Developments in smartphones have increased capabilities about 25 percent per year in the past ﬁ ve years.

Even though mobile itself is hardly a new technology, it is its combination with the internet that makes it a disruptive force and one of the tech- nologies with potentially the greatest impact for the developing world.

Developing countries will need to closely follow developments taking place in 5G and start preparing for its eventual rollout.
Artiﬁ cial intelligence intelligence Deﬁ nitions of artiﬁ cial (AI) differ widely, but generally refer to computer systems that can perform tasks that normally require human intel- ligence—including visual and speech recognition, decision making, and language translation.
Faster computing, “big data,” and better algorithms have helped propel recent breakthroughs in AI.6 Algo- rithms are now better able to recognize language and images, for example, thanks to the availability of huge torrents of data from interconnected phones, tablets, and computers.

Firms like Narrative Science have automated the writing of ﬁ nancial reports using AI.
Figure S6.1 Gartner “hype” cycle applied to selected digital technologies SIX DIGITAL TECHNOLOGIES TO WATCH 327 327 Internet of things Autonomous vehicles Consumer 3D printing s n o i t a t c e p x e g n i s i R Robotics Artificial intelligence 5G mobile Business 3D printing 6 6 T T H H G G I I L L T T O O P P S S Innovation trigger Peak of inflated expectations Trough of disillusionment Slope of enlightenment Plateau of productivity Source: WDR 2016 team, adapted from Gartner 2015.
Time IBM’s Watson computer uses AI to provide diagnostic assistance to doctors, providing customized medical advice.

Virtual assistants with voice recognition capa- bilities like Apple’s Siri and Microsoft’s Cortana are increasingly used in personal and business contexts.
A venture capital fund based in Hong Kong SAR, China, Deep Knowledge Ventures, has even appointed an algorithm to its board of directors!7 Rapid advances in AI have also resulted in con- cerns about machine intelligence overtaking human intelligence, and becoming a threat to the future of humanity itself.
An example is Nick Bostrom’s 2014 book on superintelligence, which considers AI to be potentially an “existential risk” for mankind.8 Lumi- naries like Elon Musk, Stephen Hawking, and Bill Gates have weighed in on the dangers of AI.

While rec- ognizing the potential risks of AI, such technologies can provide important insights and generate value in virtually every sector relevant to development.
The beneﬁ ts of AI are beginning to be seen in education, with personalized learning; in health, with deep diag- nostics; in agriculture, with crop planning, precision farming, and optimized resource application; and in banking and insurance, in areas like customer service, risk management, and compliance.
reporters, online marketers, anesthesiologists, diag- nosticians, and ﬁ nancial analysts.9 Similarly, a large number of call centers previously offshored to devel- oping countries could be affected by increasingly sophisticated natural language processing systems that can substitute for human workers.
The Span- ish Bank BBVA, for example, has introduced Lola, a virtual assistant capable of handling many routine customer requests previously handled by call center agents.10 Robotics Robotics, which refers to machines or mechanical systems that can automatically handle tasks, can be generally divided into industrial robots (automo- tive, chemical, rubber, plastics, and food industries) and service robots (logistics, medicine, assisting the elderly, agriculture, ﬂ oor-cleaning, civil construc- tion, and exoskeletons).
Robots can provide beneﬁ ts through their computing power, precision, strength, and sensing capabilities.
The worldwide stock of operational industrial robots at the end of 2014 was up to 1.5 million, with around 4.7 million service robots sold for personal and domestic use.11 Advances in AI will prove to be disruptive, result- ing in new opportunities for collaboration between humans and machines, as well as a loss of traditional jobs such as legal analysts, ﬁ nancial and sports While robots have been primarily used in physi- cally difﬁ cult or dangerous jobs, they are now becom- ing more advanced and gaining senses, dexterity, and intelligence.
They are more compact, adaptable, and 328 WORLD DEVELOPMENT REPORT 2016 6 T H G I L T O P S intelligent, have manipulation capabilities, and are increasingly able to work alongside humans.
Eventu- ally they may displace or augment humans, primarily in low-skilled areas like manufacturing, cleaning, and maintenance, but also in high-tech ﬁ elds, like surgery and prosthetics.12 A number of leading information technology (IT) companies have made investments in robotics and are driving development of smart robots.

Amazon acquired Kiva Systems and is using Kiva robots for order fulﬁ llment.

Google acquired Boston Dynamics and several other robotics companies.
Demand for industrial robotics is driven by the desire to reduce labor costs and by the need for accu- racy in undertaking repetitive processes.

Robots are not paid, they do not get sick, and they can work as long as there is power.

They can also take on danger- ous or risky tasks, such as detecting landmines.

The take-up of robots is expected to rise as a function of their falling costs and growing intelligence, including in developing countries.
China is the world’s biggest importer of industrial robots.

Guangdong province recently announced a program to automate 80 per- cent of its factories by 2020, by substituting human labor with robots.13 Robots have been deployed in the Democratic Republic of Congo, in Kinshasa, to man- age trafﬁ c.14 Autonomous vehicles Autonomous vehicles (AV), or self-driving cars, attract major research spending from car companies as well as internet ﬁ rms.
Their proponents argue that they will reduce road accidents (for instance, through lane-keeping systems, auto-parking, and cruise control), ease congestion, reduce fuel consumption, improve the mobility of the elderly and disabled, and free up commuting time for other tasks.15 But they also threaten the jobs of millions of people currently employed as drivers.

They also raise complex legal issues, including for liability insurance, and onboard networked computers would be at risk of hacking.
The European project SARTRE is piloting the concept of “autonomous car platoons,” which allows multiple vehicles to drive autonomously within meters of one another at highway speeds, guided by a professional pilot vehicle.

This approach is expected to reduce fuel consumption and emissions by up to 20 percent, improve road safety, and reduce trafﬁ c congestion.

Drones (unmanned aerial vehicles, and a special- ized type of AV) are growing in popularity as prices fall.
They have many potential applications, including police work, assisting the disabled, home delivery, farming, entertainment, safety, wildlife conservation, and even providing internet service in remote areas.
Rwanda plans to be home to the world’s ﬁ rst drone airport, or “droneport,” to facilitate the delivery of medical and emergency supplies, quickly and cost- effectively, across geographical barriers.16 The introduction of AVs is likely to be gradual, with many cars and planes already incorporating ele- ments of assistive technology.
The impact on jobs will ultimately be a function of price (self-driving cars are currently prohibitively expensive), legislation (will they always require a human with manual override?

), and time.

Internet of things The “internet of things” (IoT) refers to the intercon- nection of objects to internet infrastructure through embedded computing devices, such as radio fre- quency identiﬁ cation (RFID) chips and sensors.
IoT products can be classiﬁ ed into ﬁ ve broad categories: wearable devices, smart homes, smart cities, envi- ronmental sensors, and business applications.17 Cisco estimates that by 2020, 50 billion devices and objects will be connected to the internet.

IoT is quickly redeﬁ ning service delivery and unlocking opportunities in multiple areas.

Smart ﬁ tness sensors and trackers are transforming health care and improving personal ﬁ tness and health.
Embedded sensors accurately relay moisture, air and water pollution levels, and resource levels, allowing for closer monitoring of environmental problems.

Factories and supply chains use smart sensors to improve the efﬁ ciency of manufacturing and dis- tribution of goods.

Globally, there has been a rise in spaces where people can gather to build and learn with electronics, software, and digital fabrication.
Known as makerspaces, these spaces have democra- tized access to tools and empowered participants to build and learn on their own.

One of the key applications of IoT is in combating climate change and its effects.

Farms in developing countries can use intelligent sensors to monitor soil conditions and guide autonomous irrigation systems.

Smart trafﬁ c synchronization systems in cities save on travel time and fuel consumption.
Countries such as Singapore are deploying smart networks that use global positioning systems (GPS), sensor informa- tion from monitoring cameras, and other sources to sense population movement, ease trafﬁ c congestion, and re-route trafﬁ c in the case of special events and emergencies.
Some experts believe that the IoT will mark a new stage of the internet’s development, since it has the SIX DIGITAL TECHNOLOGIES TO WATCH 329 Box S6.1 Using cellphones for medical diagnosis, thanks to 3D printing Doctors in developing countries often lack the necessary equipment to diagnose diseases, but they do have smart- phones.
Dr. Aydogan Ozcan, an engineering professor at the University of California Los Angeles (UCLA), has created software and hardware that can convert smart- phones into microscopes and diagnostic machines.

He uses 3D printing to create a ﬂ uorescent microscope device that can be attached to the phone.
The device includes an app that connects the smartphone to a server at UCLA and transmits raw images of DNA molecules to detect and diagnose cancer, nervous system disorders such as Alzheimer’s disease, and drug resistance to infectious diseases.a Similarly, a 15-year-old girl from Cupertino, California, has designed a spirometer, a device that can diagnose respiratory illnesses such as chronic obstructive pulmonary disease and asthma.
She designed this tool using open hardware and 3D printing, at a fraction of the cost of a commercial spirometer.b a. http://newsroom.ucla.edu/releases/ucla-engineers-ﬁ rst-to-detect-and-measure-individual-dna-molecules-using-smartphone-microscope.

b. https://cogito.cty.jhu.edu/43295/maya-varma-ﬁ nal-device-and-app-design/.

potential to revolutionize the way people live, work, interact, and learn.
However, there are still signiﬁ cant barriers to full commercialization of IoT, such as the fragmented landscape of standardization, which is preventing interoperability; and the relatively high cost of embedded devices.

The maker movement offers a possible solution for the standardization chal- lenge, empowering individuals to adjust devices to ﬁ t the local context.

There are also signiﬁ cant privacy and security concerns.
As more devices are connected to networks, hacking unsecure devices could have repercussions that far exceed the damage posed by conventional security threats.

3D printing 3D printing, a process whereby machines can print objects from digital ﬁ les or scans, consists of adding successive layers of material to make a three- dimensional (3D) object.
This technology has transfor- mational potential for manufacturing, since it enables users to create smaller batches of highly customizable products at declining prices.
In recent years, 3D print- ing has advanced to printing of body parts (titanium jaws, spines), exoskeletons, rocket parts, and even food.18 As prices have fallen, consumer-oriented devices have appeared on the market in recent years, allowing individuals to make three-dimensional solid objects locally, often using a computer-assisted design (CAD) ﬁ le that can be downloaded from the internet.
The “ink” used in the printer is usually plastic, but other materials—including epoxy resins, silver, titanium, steel, and wax—are also available.

The revolutionary aspect of 3D printing lies in its digital nature: physical objects become digital infor- mation that can be remixed, reformulated, improved, and shared.

However, desktop 3D printers are still rel- atively expensive, and use between 50 and 100 times more energy per unit of weight than conventional injection molding.
Other concerns include potentially negative uses such as gun and drug printing, and infringement of intellectual property.19 However, as the performance improves and the cost of the printers and their inputs decline, 3D printers could be adopted more widely (box S6.1).

The most relevant immediate progress may be in industrial printers for highly cus- tomizable objects that are relatively expensive and require replicable results.
This is most suited to the construction industry, where 3D printed buildings can provide lower-cost housing solutions.

3D printing is expanding in developing countries.

In Uganda, for example, the technology is used to create 3D-printed prosthetic limbs.

The startup Proto- print, a social enterprise in Pune, India, helps waste pickers turn the waste plastics they collect into 3D printer ﬁ lament.
iLab Haiti has used 3D printing to design basic medical supplies for local clinics (such as umbilical clamps, ﬁ nger splints, and casts) and pro- duce them using on-demand manufacturing.20 Notes 1.

Sources used in the analysis of technology trends include Gens and IDC Predictions 2015 Team; Deloitte Consulting 2015; McKinsey Global Institute 2013; and Meeker 2015.

2.

Muente-Kunigami and others 2015.

6 T H G I L T O P S 330 WORLD DEVELOPMENT REPORT 2016 3.

GSMA databases, https://gsmaintelligence.com/.


4. http://www.bbc.com/news/technology-31622297.

5.

One gigahertz represents 1 billion cycles per second; see http://spectrum.ieee.org/telecom/wireless/smart -antennas-could-open-up-new-spectrum-for-5g.

6. http://www.wired.com/2014/10/future-of-artiﬁ cial -intelligence/.

7. http://www.bbc.com/news/technology-27426942.

8.

Bostrom 2014.

9. http://fortune.com/2015/02/25/5-jobs-that-robots -already-are-taking/.
10. http://cloudlendinginc.com/lending-blog/will-banks -survive-the-era-of-digital-disruption/.

11. International Federation of Robotics 2015.

12.

Bugmann, Siegel, and Burcin 2011.

13. http://www.china-briefing.com/news/2015/04/22 /automation-chinas-labor-force.html.

14. http://www.theguardian.com/travel/2015/mar/05 / r o b o c o p s - b e i n g - u s e d - a s - t r a f f i c - p o l i c e - i n -democratic-republic-of-congo.
15. http://www.economist.com/blogs/economist -explains/2013/04/economist-explains-how-self -driving-car-works-driverless.

16. http://www.theguardian.com/technology/2015/sep /30/rwanda-chosen-for-worlds-first-drone-port-to -deliver-medical-supplies.

17.

Perera, Liu, and Jayawardena 2015.

18. http://www.digitaltrends.com/cool-tech/3d-food -printers-how-they-could-change-what-you-eat/.

19. http://www.techrepublic.com/article/the-dark-side -of-3d-printing-10-things-to-watch/, accessed March 2014.

20.
20.

Dotz 2015.

References Bostrom, Nick.

2014.

Superintelligence: Paths, Dangers, Strat- egies.

Oxford, U.K.: Oxford University Press.

Bugmann, Guido, Mel Siegel, and Rachel Burcin.

2011.

“A Role for Robotics in Sustainable Development?” IEEE (Institute of Electrical and Electronics Engineers) Africon 2011, September 13–15, Livingstone, Zambia.

http://www.tech.plym.ac.uk/soc/staff/GuidBugm /pub/SustainableRobotics_Africon_2011.pdf.

Deloitte Consulting.

2015.


“Tech Trends 2015: The Fusion of Business and IT.” http://www2.deloitte.com/global /en/pages/technology/articles/tech-trends.html.

Dotz, Dara A.

2015.

“A Pilot of Printing 3D Medical Devices in Haiti.” In Technologies for Development: What Is Essential?

edited by Silvia Hostetller, Eileen Hazboun, and Jean-Claude Bolay, chapter 4.

Springer International Publishing.

Gartner.

2015.

“Hype Cycle for Emerging Technologies.” https://www.gartner.com/doc/3100227.
Gens, Frank, and IDC Predictions 2015 Team.

2015.

“IDC Predictions 2015: Accelerating Innovation and Growth on the Third Platform.” http://www.idc.com /getdoc.jsp?containerId=252700.

International Federation of Robotics.

2015.

“World Robot- ics: Industrial Robotics 2015 and Service Robotics 2015.” http://www.ifr.org/service-robots/statistics/.

McKinsey Global Institute.

2013.

“Disruptive Technolo- gies: Advances That Will Transform Life, Business, and the Global Economy.” McKinsey & Company.
http://www.mckinsey.com/insights/business _technology/disruptive_technologies.

Meeker, Mary.

2015.

“Internet Trends 2015.” http://www .kpcb.com/internet-trends.

Muente-Kunigami, Arturo, Naomi Halewood, Marcel Sabino, and Hallie Applebaum.

2015.

“The Future of Digital Technologies.” Background paper for the World Development Report 2016.

World Bank, Washing- ton, DC.

Perera, Charith, Chi Harold Liu, and Srimal Jayawardena.

2015.
2015.

“The Emerging Internet of Things Marketplace from an Industrial Perspective: A Survey.” IEEE Trans- actions on Emerging Topics in Computing.

doi: 10.1109 /TETC.2015.2390034.

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