COVER STORY • 5

A

sia in the Global Dynamics of Embracing
the Digital Revolution: Performance &Strategic Priorities for Policy Action
Author Khuong Vu

By Khuong Vu
Asia’s Efforts in Embracing the Digital Revolution
Asia is a major contributor to the rapid progress and penetrationof the digital revolution.

Contributions to frontier technology innovation
Four Asian economies – Japan, South Korea, China, and Taiwan –are among the leading nations that are at the forefront of the digital
revolution. According to the Statista online database (2021), thesefour economies are in the list of top 10 countries by patenting
activities in at least one of three frontier technologies: 5G, Artificial
Intelligence (AI), and the Internet of Things (IoT).
In addition, statistics from the European Patent Office (EPO) showthat China, Japan, and South Korea together with their companies
are among leading innovators in the two fundamental drivers of thedigital revolution – computer technology and digital communication(Table 1). Furthermore, the number of worldwide patent applications
grew from 2018 to 2019 at two-digit rates, which were faster for

TABLE 1Patent applications in 2019 in European office by country &company in fields of Computer Technology & Digital
Communication
Country

Rank

2019

2019
vs
2018

Share

Company

Rank

2019

Share

Computer Technology
US

1

4,866

+13.6%

38.1%

Alphabet

1

673

5.3%

China

2

1,356

+18.7%

10.6%

Microsoft

2

673

5.3%

Japan

3

1,212

-0.9%

9.5%

Samsung

3

630

4.9%

Germany4

1,130+13.8%

8.8%

Huawei

4

382

3.0%

South Korea

5

830

+6.4%

6.5%

Intel

5

339

2.7%

OEPO2*

6

824

+3.5%

6.5%

Siemens

6

324

2.5%

France

7

587

-3.0%

4.6%

Sony

7

284

2.2%

UK

8

467

+24.5%

3.7%

Philips

8

215

1.7%

Netherlands

9

411

+5.7%

3.2%

Alibaba

9

173

1.4%

Sweden10

252+24.8%

2.0%

Apple

10

167

1.3%

8,914

69.8%

15.9%

Others

Total

–

–

839

12,774+4.9%+10.2%

6.6%

100%

Others

Total

Digital Communication––

12,774

100%

China

1

3,736

+64.6%

26.4%

Huawei

1

2,260

US

2

3,684

+14.6%

26.0%

Ericsson

2

1,227

8.7%

Sweden3

1,301+11.8%

9.2%

Qualcomm

3

1,061

7.5%

Japan

4

1,270

-5.6%

9.0%

Samsung

4

567

4.0%

South Korea

5

1,230

+36.1%

8.7%

LG

5

545

3.8%

Germany6744+12.9%

5.2%

OPPO

6

496

3.5%

OEPO1*

7

558

-6.5%

3.9%

Sony

7

424

3.0%

France8403-18.3%

2.8%

Nokia

8

388

2.7%

Finland

9

347

0.0%

2.4%

ZTE

9

287

2.0%

UK

10

240

+7.1%

1.7%

Intel

10

236

1.7%

Others

–

662

+4.4%

4.7%

Others

–

6,684

47.2%

Total

–

14,175+19.6%

100%

Total

–

14,175100%

Note: *EPO states consist of 38 member states of the European Patent Organisation, including the 28 states of the EU at the time; OEPO1 are the EPO
states other than Germany, France, Finland, and UK; OEPO2 are the EPO states other than Germany, France, UK, the Netherlands, and Sweden.

Source: Author’s compilation using data from European Patent Office (EPO), Patent Index 2019; available athttps://www.epo.org/about-us/annual-reports-statistics/statistics/2019.html

https://www.jef.or.jp/journal/

Japan SPOTLIGHT • November / December 2021

23

digital communication (19.6%) than for computer technology(10.2%). In this global innovation vibrancy, China far outperformed
the world aggregate, growing at 64.6% in digital communication and18.7% in computer technology, while South Korea grew faster than
the world in the former (36.1%) but slower in the latter (6.4%).
Table 1 also shows that Asian companies hold leading positions indigital innovation in the business sector. In the list of the world’s top
10 companies in computer technology innovation, four are from Asia
(Samsung, Huawei, Sony, and Alibaba); while in the list for digitalcommunication, six are from Asia (Huawei, Samsung, LG, OPPO,
Sony, and ZTE).

ICT development and adoption
Regarding development and adoption of Information andCommunications Technology (ICT), Asia has made remarkableachievements in both scale and speed. As shown in Table 2, theAsia-Pacific accounts for more than 50% of the world’s total in most
key indicators on ICT adoption, including mobile phone (55.3%),
mobile broadband (56.6%), and fixed broadband (54.7%). In termsof speed, the compound average growth rate (CAGR) over 20002018 for the Asia-Pacific is higher than the world average across ICT
adoption indicators: 27.7% vs 21.7% for mobile broadband; 11.7%
vs 8.4% for fixed broadband; 18.8% vs 15.6% of population coveredby 4G networks; and 41.9% vs 34.0% for international bandwidth.

The fact that Asia’s share in the world’s population covered by 4G
networks (61.7%) is larger than that by 3G networks (57.2%)
supports the claim that Asia has tended to move faster than theworld average in embracing new mobile technologies.
Asia is also a leading player in adopting digital applications. For
example, Asia handled a total online purchase of $2,448 billion in
2020, accounting for 57% of the world total value of retaile-commerce. For comparison, these respective figures are $749 billion(18%) for North America and $498 billion (12%) for Western Europe.

Investment in frontier digital technologies
Investment in frontier digital technologies is an important measureof efforts to advance in the digital age. Three noteworthy
observations are salient in Table 3.
First, the Asia-Pacific accounts for more than one-fifth of the
global market in each of the core frontier digital technologies, which
is 23.2% for Cloud Computing, 22.0% for Big Data and Analytics,
23.5% for Mobility/Social Media, 22.5% for Cybersecurity, 23.9% for
AI, and 22.4% for IoT. In addition, from 2014 to 2019 the region
grew faster than the world in the total investment in all the core
digital technologies (21.2% vs 18.4%) and in five of them the figures
were: Cloud Computing (18.6% vs 15.0%), Big Data & Analytics(23.5% vs 18.7%), Mobility/Social Media (24.7% vs 19.3%), Cyber
Security (21.7% vs 19.0%), and IoT (19.1% vs 17.7%).

TABLE 2

Key ICT development & adoption indicators by region in 2020
RegionMobileMobileBroadband

Fixed
Broadband

3G

International
Bandwidth(Tbit/s)

4G

Total subscribers/users/covered population (million)
Africa

882

354

6

829

475

11

Arab States

427

261

35

396

270

35

Asia-Pacific

301

4,503

3,296

644

4,139

4,057

CIS

360

213

47

215

196

19

Europe

847

689

227

679

671

153

1,129

1,010

The Americas
WORLD

8,148

5,823

1,177

218

7,230

972

6,571

903

141

1.7%

World share

660

Africa

10.8%

6.1%

0.5%

11.5%

7.2%

Arab States

5.2%

4.5%

3.0%

5.5%

4.1%

5.3%

Asia-Pacific

55.3%

56.6%

54.7%

57.2%

61.7%

45.6%

CIS

4.4%

3.7%

4.0%

3.0%

3.0%

2.9%

Europe

10.4%

11.8%

19.3%

9.4%

10.2%

23.2%

The Americas

13.9%

17.3%

WORLD

100.0%

100.0%

Africa9.2%

Arab States

18.5%

13.4%

13.7%

21.3%

100.0%

100.0%

100.0%

100.0%

37.8%

16.1%

11.5%

39.9%

45.8%

3.2%

25.0%

17.0%

6.0%

29.6%

43.2%

Asia-Pacific

5.5%

27.7%

11.7%

4.8%

18.8%

41.9%

CIS

1.2%

13.6%

9.4%

5.5%

14.3%

31.0%

Europe

1.1%

13.7%

4.1%

1.2%

6.1%

25.6%

The Americas

2.5%

15.6%

5.0%

1.8%

4.9%

29.4%

WORLD

4.5%

21.7%

CAGR (2010-2020) *

8.4%

4.7%

15.6%

34.0%

Notes: CIS=Commonwealth of Independent States; * the period of compound average growth rate (CAGR) is 2015-2020 for population covered by LTE/
WiMAX networks and International Bandwidth.

Source: ITU

24 Japan SPOTLIGHT • November / December 2021

TABLE 3

Digital transformation market size & growth by region
World

North
America

EuropeAsia-Pacific

Latin
America

MEA

Market size in 2020 (US$ million)
Cloud Computing

129,589

44,94431,55530,015

13,787

9,288

Big Data and Analytics

83,01528,893

21,846

18,224

8,082

5,971

Mobility/Social Media

104,901

35,31426,70024,655

10,935

7,297

Cybersecurity

61,811

20,867

16,991

13,936

5,705

4,312

AI

49,265

16,052

13,35011,792

4,754

3,317

IoT

23,965

8,026

6,068

5,360

2,853

1,659

Others*17,244

6,421

4,855

3,216

1,426

Total

469,790

1,327

160,517

121,365

107,198

47,542

33,171Market share in 2020 (%)

Cloud Computing

100.0

34.7

24.4

23.2

10.6

7.2

Big Data and Analytics

100.0

34.8

26.3

22.0

9.7

7.2

Mobility/Social Media

100.0

33.7

25.5

23.5

10.4

7.0

Cybersecurity

100.0

33.8

27.5

22.5

9.2

7.0

AI

100.0

32.6

27.1

23.9

9.6

6.7

IoT

100.0

33.5

25.3

22.4

11.9

6.9

Others*

100.0

37.2

28.2

18.6

22.8

8.3

10.1

7.7

Total

100.0

34.2

25.8

2014-19 growth, CARG (%)

7.1

Cloud Computing

15.0%

11.2%

13.8%

18.6%

17.3%

18.0%

Big Data and Analytics

18.7%

17.8%

15.8%

23.5%

20.4%

18.2%

Mobility/Social Media

19.3%

17.2%

16.6%

24.7%

22.1%

19.0%

Cybersecurity

19.0%

15.2%

20.7%

21.7%

19.4%

22.4%

AI

22.7%

24.7%

24.5%

18.1%

15.7%

25.8%

IoT

17.7%

16.1%

19.4%

19.1%

17.2%

21.1%

Others*

17.5%

18.1%

19.1%

13.6%

11.4%

21.2%

Total

18.4%

16.8%

17.6%

21.2%

19.0%

20.0%

Notes: MEA=Middle East and Africa; * Others include blockchain and robotics.

Source: M&M (2020)

Exports of ICT goods and services
Asia is a major player in the global supply of ICT goods and asignificant contributor to the world’s ICT services exports. From
Table 4, the following observations stand out.
First, East Asia and the Pacific (EAP) accounts for more than 70%of the world’s total ICT goods exports, with a total value of US$1,608
billion in 2019. The main contributors to this performance are China($662 billion; 30% of the world’s total), South Korea ($140 billion;6.3%), Singapore ($115 billion; 5.2%), Vietnam ($93 billion; 4.2%),
and Malaysia ($77 billion; 3.5%), Japan ($56 billion; 2.6%), Thailand($35 billion; 1.6%), and Philippines ($35 billion; 1.6%). It should be
noted, however, the world share of EAP in this measure slightly
declined from 2017 to 2019 as the world’s total grew faster (from$1,992.4 billion to $2,207.9 billion or 5.3% per year) than EAP (from$1,493.8 billion to $1,607.7 billion or 3.7% per year). This trend isalso observed for most EAP countries, with the exception ofVietnam, the Philippines, and Malaysia.
On ICT services exports, India stands out as the noteworthy outlier
with a total value of $78.5 billion, accounting for 14.6% of the world
total in 2017. Other significant Asian players in this front are China($27 billion, 5%), Singapore ($11.3 billion, 2.1%), the Philippines($5.8 billion, 1.1%), Japan ($5 billion, 0.9%), South Korea ($4.3
billion, 0.8%), and Malaysia ($2.7 billion, 0.5%). In total, Asia claims
more than a quarter of the world ICT services exports, with a total
value exceeding $134 billion.

Asian Countries in the Global Dynamics
of Digital Evolution
To capture a nation’s position in the global dynamics of digital
evolution, the Digital Evolution Scorecard developed by scholars at
Tufts University’s Fletcher School in partnership with Mastercard
provides valuable insights. This approach (“Which Economies
Showed the Most Digital Progress in 2020” by Bhaskar Chakravorti,
Ravi Shankar Chaturvedi, and Ajay Bhalla, Harvard Business Review,Dec. 18, 2020; https://hbr.org/2020/12/which-economies-showedthe-most-digital-progress-in-2020) assesses the digital evolution of
90 economies along two dimensions: digital evolution state (DES)
and digital evolution momentum (DEM). While the DES indicates thedigital state of an economy, the DEM captures the country’s progresson this measure over the past 12 years. Based on the DES in 2019
and the DEM over 2008-2019, Chakravorti et al. classify the 90
Japan SPOTLIGHT • November / December 2021

25

TABLE 4

Asia’s ICT goods & services exports
ICT goods exports
EconomyValue(US$ Bil.)
2019

2017

ICT services exports% of goods exports

Share in world (%)

2019

2019

2017

2017

Value
(US$ Bil.)% ofservices
exports

Share in
world
(%)

2017

2017

2017

China

662.4

612.7

26.5

27.1

30.0

30.8

27.0

12.7

5.0

India

6.5

2.6

2.0

0.9

0.3

0.1

78.5

42.4

14.6

Indonesia

4.7

5.0

2.8

3.0

0.2

0.3

1.0

4.0

0.2

Japan

56.4

58.3

8.0

8.4

2.6

2.9

5.0

2.7

0.9

South Korea

139.7

141.9

25.8

24.7

6.3

7.1

4.3

4.8

0.8

Malaysia

77.4

67.7

32.5

31.0

3.5

3.4

2.7

7.2

0.5
1.1

Philippines

34.8

24.6

49.0

35.9

1.6

1.2

5.8

16.5

Singapore

114.5

119.6

29.3

32.0

5.2

6.0

11.3

6.6

2.1

Thailand

35.3

38.1

14.4

16.1

1.6

1.9

0.5

0.6

0.1

Vietnam

EAP*

EAP & India

Memorandums

92.5

1,607.7

1,614.2

71.9

35.0

1,493.8

25.2

1,496.4

–

33.5

24.9

4.2

72.8

3.6

75.0

–

>54

–

73.1

75.1

>134

–

>10%

69.0

–

OECD members

754.8

726.2

6.8

7.0

34.2

36.4

370.1

9.5

US

143.6

146.6

8.7

9.5

6.5

7.4

42.2

5.1

World

2,207.9

1,992.4

11.5

11.2

100.0

100.0

536.0

–

6.4

10.4

>25%

7.9

100.0

Notes: data on ICT goods exports are for 2019 and on ICT services exports are for 2017; data for Taiwan is not available. *EAP= East Asia & Pacific.

Source: WDI (2021)
CHART

Digital Evolution Score

Asia in the global dynamics of digital evolution
economies into four groups: Stand-Out,
Stall-Out, Break-Out, and Watch-Out
100.0
Singapore(Chart).
Stall-OutStand-OutThe Stand-Out group includes economies
90.0
USHong Kong
with both high levels of digital evolution
TaiwanUK
South Korea
and a strong momentum in making their
80.0
CanadaGermany
digital evolution advancement. Among 13
Japaneconomies in this group, five are from Asia:
FranceMalaysia
70.0
Singapore, Hong Kong, South Korea,
Taiwan, and Malaysia. Note that only two
China
Italy
60.0
G7 economies – the US and Germany –Thailandbelong to this group. The authors identify
Indonesia
50.0
six common features shared by the StandVietnam
Out economies:
India
Sri Lanka(i) Expanding adoption of digital
40.0
Philippines
consumer tools such as e-commerce
Pakistanand digital payments.
Bangladesh
30.0
Laos
Cambodia(ii) Attracting, training, and retaining
Break-Out
Watch-Outdigital talent.
20.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
(iii) Fostering digital entrepreneurial
ventures.
Digital Evolution Momentum(iv) Providing fast, universal, fixed andSource: Compiled by the author based on Bhaskar Chakravorti, Ravi Shankar Chaturvedi, and Ajay Bhalla
mobile broadband Internet access.
(v) Specializing in the export of digital
goods, services, or media.
The Break-Out group includes the economies that are limited in(vi) Coordinating innovation between universities, businesses, andexisting levels of digital evolution but are making rapid progress indigital authorities.
digital advancement. Among 32 economies in this group, seven arefrom Asia – China, India, Indonesia, Vietnam, Thailand, Bangladesh,and Cambodia. It is worth noting that China is a noteworthy outlier in
26 Japan SPOTLIGHT • November / December 2021

this group with far stronger performance in the digital advancing
momentum. According to the authors of this study, the countries inthis group share the following four characteristics in policy
prioritisation:(i) Improving mobile Internet access, affordability, and quality tofoster more widespread adoption.
(ii) Strengthening institutional environments and developing
digital regulations.
(iii) Generating investment in digital enterprises, funding digital
R&D, training digital talent, and leveraging digital applications
to create jobs.
(iv) Taking steps to reduce inequities in access to digital tools
across gender, class, ethnicity, and geographic boundaries(though many access gaps still remain).
The Stall-Out group comprises countries with high levels of digital
evolution but lacking vigour in making continuous digitaladvancement. Among 19 economies in this group only Japan is from
Asia. According to the authors of this study, to regain their digital
evolution momentum, the Stall-Out countries should take thefollowing four strategic policy priorities:(i) Safeguarding against “digital plateaus” by continuing to invest
in robust institutional foundations, regulatory environments,
and capital markets to support ongoing innovation.
(ii) Continuing to use policy tools and regulation to ensure
inclusive access to digital capabilities and to protect all
consumers from privacy violations, cyberattacks, and otherthreats.
(iii) Attracting, training, and retaining professionals with digitalskills, often through reforming immigration policies.
(iv) Identifying new technological niches and fostering
environments friendly to innovation in those areas.
The Watch-Out group consists of economies that face limitations
in both digital evolution and momentum to make digitaladvancement. Among 26 economies in this group, four are from
Asia: the Philippines, Sri Lanka, Laos, and Pakistan. According to theauthors of this study, the Watch-Out economies can look to BreakOut economies as role models, prioritizing the following policy
measures:(i) Making long-term investments to address basic infrastructuregaps.
(ii) Creating an institutional environment that supports safe,
widespread consumer adoption of digital products andservices, especially those that enable productivity and job
creation.
(iii) Promoting initiatives (particularly through public-private
cooperation) that invest in digital access to historicallydisadvantaged segments of the population.
(iv) Promoting applications that solve pressing needs and could
therefore act as catalysts for widespread adoption of digital
tools.

To have a rough assessment of the dynamism of digital evolution
for a given geographic region in the global dynamics described inthis study, one can use the ratio of the number of its countries in theStand-Out and Break-Out groups to its total number of countries. For
Asia, this ratio is (5+7)/(5+7+1+4)=12/17=71%, which is muchhigher than the ratio for the world sample, which is (13+32)/(13+32+19+26)=45/90=50%.

Contributions of ICT to Economic Growth in Asia
The channels through which ICT affects economic growth
As the ICT revolution has profoundly transformed the way people
communicate, work, and spend time, it has also significantly
contributed to economic growth in most nations. The ICT revolution
can affect economic growth through several channels, which include
the following.
First, ICT boosts learning and innovation. ICT evolution has enabledbillions of people to have unprecedented opportunities and capabilities
in accessing global knowledge, exchanging ideas, and distributing
their innovative products and services. This development, which
substantially reduces the costs of learning and innovation while
increasing their speed and potential rewards, is an important channel
for ICT to have long-term substantial effects on economic growth.
Second, the digital revolution fosters investment in digitaltechnologies, which improves operational efficiency and expansion
across sectors, especially in banking and finance, manufacturing,energy, and retail. Through this channel, ICT has a direct tangible
effect on economic growth.
Third, ICT bolsters the effectiveness of markets and institutions byfostering transparency and predictability, improving the quality ofinvestment decisions, and cultivating attitudes about embracingchange. These capabilities collectively enhance the quality andsustainability of growth.
Fourth, ICT fosters the creation of synergistic value throughcollaboration platforms and sharing economy models. Through thischannel, ICT enables individuals and companies to employ global
resources to meet global demand in real time. Uber, Grab, Airbnb,
Amazon, and Alibaba can serve as prominent examples.
Fifth and finally, the ICT revolution opens a new era, in which all
stakeholders – from governments to businesses, from academics toindustrial associations – have to rethink and reform their traditional
development models and approaches. As a result, not only existing
resources will be used more productively but many new resources
will surface for value creation. For example, smart city development
and green transformation are new areas of growth that many
countries are embracing in economic strategies.

Measuring the contribution of ICT to economic growth
One can quantitatively capture the contribution of ICT to economic
growth, using different approaches and assumptions, which may not
produce the same estimates. In the literature, growth accounting andmeasurement of the digital economy are the two main existing
methods.
Japan SPOTLIGHT • November / December 2021

27

TABLE 5

Asia’s ICT goods & services exports
2000-2010
Region/GroupGDP
Growth(%)

2010-2018

Sources of Growth (% point)
Capital input

Labor input

Total

ICT

NICT

Total

LQ

Hrw

TFP

GDP
Growth(%)

0.84

Sources of Growth (% point)
Capital input

Labor input

TFP

Total

ICT

NICT

Total

LQ

Hrw

3.57

2.14

0.37

1.77

0.86

0.30

0.56

0.57

World
(120 Economies)

3.83

2.26

0.51

1.75

0.73

0.35

0.38

G7 Economies (7)

1.56

1.30

0.48

0.81

0.18

0.31

-0.13

0.08

1.89

0.98

0.36

0.62

0.94

0.25

0.68

-0.03

Non-G7 (19)

1.98

1.78

0.52

1.26

0.73

0.26

0.47

-0.53

1.61

1.15

0.34

0.81

0.71

0.27

0.44

-0.25

Developing Asia (16)

7.61

3.92

0.64

3.28

1.00

0.38

0.62

2.69

6.42

3.50

0.41

3.09

0.75

0.35

0.40

2.17

Latin America (16)

3.09

1.76

0.34

1.42

1.53

0.57

0.96

-0.19

1.51

1.71

0.25

1.46

0.86

0.34

0.52

-1.06

Eastern Europe (27)

4.69

1.02

0.42

0.59

0.48

0.27

0.21

3.19

2.33

0.99

0.23

0.76

0.42

0.20

0.22

0.92

Sub-Saharan Africa
(20)

5.72

2.66

0.42

2.24

1.26

0.22

1.04

1.79

3.55

2.48

0.28

2.20

1.29

0.16

1.13

-0.22

North Africa & Middle
East (15)

4.34

3.94

0.56

3.38

1.89

0.48

1.42

-1.49

3.28

3.40

0.52

2.87

1.45

0.45

1.00

-1.57

Canada

1.84

1.73

0.56

1.17

0.76

0.17

0.59

-0.65

2.07

1.17

0.25

0.93

0.88

0.15

0.73

0.02

Germany

0.90

0.90

0.34

0.56

0.18

0.29

-0.11

-0.19

1.78

0.79

0.23

0.55

0.61

0.10

0.51

0.38

France

1.24

1.13

0.33

0.80

0.45

0.24

0.21

-0.33

1.27

0.85

0.34

0.51

0.44

0.31

0.12

-0.02

UK

1.60

1.36

0.42

0.94

0.53

0.35

0.18

-0.29

1.91

0.96

0.19

0.76

1.07

0.26

0.81

-0.11

Italy

0.31

1.09

0.26

0.83

0.40

0.23

0.17

-1.18

0.08

0.26

0.19

0.07

0.05

0.11

-0.06

-0.22

Japan

1.22

1.23

0.51

0.72

0.13

0.38

-0.25

-0.13

1.28

0.73

0.27

0.46

0.42

0.25

0.18

0.12

US

2.03

1.41

0.57

0.84

0.02

0.32

-0.30

0.60

2.40

1.19

0.47

0.71

1.33

0.31

1.02

-0.12

G7 economies

Source: Author’s calculation, using results from Dale Jorgenson and Khuong Vu ( 2021)

Growth accounting
The growth accounting method allows one to estimate thecontribution of investment in ICT assets as a source of economic
growth. Table 5, which is based on the data and method used by theG20 and the world economy (“The G20 and the world economy:
Performance and prospects” by Dale Jorgenson and Khuong Vu,
Journal of Policy Modeling, 2021; https://doi.org/10.1016/j.
jpolmod.2021.02.006), reports results of growth decomposition fordeveloping Asia and other groups of countries over two periods,
2000-2010 and 2010-2018. The sources of GDP growth over a
period for a given group are decomposed into the contributions ofcapital inputs, labor inputs, and total factor productivity (TFP). The
contributions of capital inputs, in turn, include those of ICT capitaland non-ICT (NICT) capital, while the contributions of the labor
inputs come from two sources: labor quality (LQ) and hours worked(Hrw). Table 5 also reports the growth decomposition results forJapan and other G7 economies for comparison. Several observations
are notable.
First, the contribution of ICT capital to economic growth indeveloping Asia, which is 0.64% points for 2000-2010 and 0.41%
for 2010-2018, is larger than that for other groups in each respective
period.
Second, developing Asia also outperformed other groups on TFP
growth in both the periods, which may imply that the regions’ strong
efforts to embrace the digital revolution as presented above haveenhanced its economic growth not only through the direct
28 Japan SPOTLIGHT • November / December 2021

contribution of ICT investment but also by increasing the efficiencyof resources allocation and use.
Third, developing Asia was also stronger than other groups in thecontributions of NICT capital and labor quality, which implies thatcreating a favorable environment to promote investments in analog
assets and human capital development are also needed to enable a
country to benefit more from investment in digital assets. This, to acertain extent, explains the high GDP growth of developing Asia inboth periods.
Table 5 shows that the contribution of ICT to GDP growth is larger
for Japan (0.51% points in 2000-2010 and 0.27% points in 20102018) than for most G7 economies, with the exception of the US (inboth periods), Canada (2000-2010) and France (2010-2018).
Furthermore, Japan’s growth in the second period (2010-2018) wasstronger than in the first period (2000-2010), with significant
improvements in both HrW and TFP growth, which tends to suggest
overall effects of ICT investments in Japan’s economy.

Measurement of the digital economy
Examining the digital economy is an increasingly important
approach to capture the effect of ICT to economic performance.
“Defining and Measuring the Digital Economy” by Kevin Barefoot,Dave Curtis, William Jolliff, Jessica R. Nicholson, and Robert
Omohundro (US Bureau of Economic Analysis (BEA), 2018; ★★★
https://www.bea.gov/sites/default/files/papers/defining-andmeasuring-the-digital-economy.pdf) introduces a framework formeasuring the digital economy, which is based on the OECD’s digital
economy measurement work. This framework estimates the digital
economy in its three major components: (i) the digital-enabling
infrastructure, which include communication and computer
hardware, Internet-enabled devices, computer software, cloudcomputing services, and other ICT support services; (ii) the digitaltransactions (e-commerce), which include economic gains fromonline trade and sharing economy transactions; and (iii) the content
that digital economy users create and access (“digital media”), which
include online education and entertainment, social media, and big
data. It should be noted that this approach is a low-end estimate of
the size of the digital economy given the fact that digital technologies
have penetrated across economic sectors and activities.
According to the estimates provided by the authors, the US digital
economy totaled $1,209.2 billion in 2016, which accounts for 6.5%of total US GDP ($18,624.5 billion). Furthermore, during the period
from 2006 to 2016, the US digital economy grew (in real terms) at
an average annual rate of 5.6%, which is much faster than thegrowth rate of 1.5% observed for the overall economy.
While this method is a good start, it appears to underestimate thesize of the digital economy. Dr. Sun Ke, who is from the China
Academy of Information and Communication Technology (CAICT),
combined the growth accounting and the study by Kevin Barefoot
and others (“A CAICT Approach to Measuring Digital Economy:
Definition, Methodology and Key Findings”, 2018; http://www.stats.
gov.cn/english/pdf/202011/P020201103357050683304.pdf) to seeka more comprehensive measurement of the digital economy.
According to him, in 2014 the digital economy was estimated at$7,490 billion (accounting for 44.7% of GDP) for the US, $2,180
billion (26.1%) for China, $1,580 billion (32.3%) for Japan, and $764
billion (30.3%) for the United Kingdom. In addition, China’s digital
economy increased at two-digit growth rates, amounting to $3,600(32.9% of GDP) in 2017. Although the method used by Dr. Ke may
have overestimated the size of the digital economy, it suggests that
China and Japan are among the world’s largest digital economies
and that the growth rate of the digital economy has been much fasterthan that of the overall economy.

Impacts of the Covid-19 pandemic on Asian economies
The Covid-19 pandemic has forced people, businesses, andgovernments across countries to take a quantum leap in digital
adoption. The pandemic has also posed strategic challenges tomultinational companies in strategies for supply change deployment
and management, which requires the companies to give a higher
priority to resilience and sustainability in addition to the traditional
objectives of efficiency and competitiveness. The Covid-19
pandemic, therefore, is expected to have more substantial impacts
on Asia, where the momentum of ICT adoption is relatively stronger
and the share of global manufacturing activity is larger incomparison to other parts of the word.
Thanks to the stronger momentum of Asian economies in thedigital revolution, the surge in digital adoption triggered by the
Covid-19 crisis is expected to be more sustained. That is, ICTdevelopment and digital transformation in Asia is expected toadvance faster in the post-pandemic era.
As a hub of exports of ICT goods and services, the rapid
expansion of markets for digital goods and services during the
pandemic has also benefited ICT-exporting Asian economies. In fact,
FDI inflows to the ICT industry in developing Asia, which ranges
from M&A to green field investment projects in data centers and ICT
production, increased in 2020 amid the global slowdown in FDI
activity. In the long term, however, many multinational companies
may consider reshoring, nearshoring, and diversification of theirproduction facilities to enhance the resilience of their global supply
chains, which will affect the FDI-reliant Asian economies.
The practice of work from home (WFH) and work from anywhere(WFA), which has become increasingly accepted since the Covid
crisis, is expected to work in favor of Asia’s abundance of skilledlabor supply. WFA will allow high-skilled workers from Asia tovirtually join the workforce of developed nations, which foster theregion’s employment, learning, and productivity growth.

Strategic Priorities for Policy Action
The digital revolution has profoundly changed the world and its
transformative effects are expected to be even more revolutionary inthe decades to come in every nation. As one of the most proactive
and dynamic places in embracing the digital revolution for economic
advancement, Asia has been reaping tremendous benefits from ICTdevelopment and digital transformation. However, the opportunities
and challenges will be much greater and more unpredictable in thetime ahead, which requires governments to promote the embrace ofthe digital revolution with a more effective digital strategy for policy
action. In this endeavor, governments need to work closely withrepresentatives from business, academia, and society to discuss anddecide the key issues concerning the six components of an effective
strategy: strategic objectives, global mega trends, core challenges,
strategic positioning, coordination, and continuous renewal.

Strategic objectives
These objectives are based on a comprehensive and integrated setof measures, which include quality of life, productivity, efficiency,
sustainability, and resilience. Note that while quality of life should be
the ultimate goal of the strategy, sustainability and resilience are
becoming important strategic priorities in addition to the traditional
strategic objectives – efficiency and productivity.

Global megatrends
Policy makers must deeply understand and appreciate the global
megatrends, which are shaping the world, to make their digitalstrategy and policy initiatives to best leverage the forces of change in
responding to development challenges. These global megatrends
include the following:

Japan SPOTLIGHT • November / December 2021

29

(i)

The VUCA: volatile (V), uncertain (U), complex (C), andambiguous (A), the trend globally observed in the digital
economy(ii) Globalization(iii) The rise of Asia(iv) Urbanization(v) Population aging(vi) The imperative of sustainable development(vii) Corporate social responsibility as the norm
(viii) The 4th industrial transformation.

Core challenges
Identifying the core challenges facing a country in its endeavor to
make leapfrogging advancements in the digital age is a criticalcomponent of digital strategy. For a typical country, these core
challenges are the old-fashioned mindset and cybersecurity. They
would pose insurmountable problems if not fundamentally
addressed. If governments are saddled by an old-fashioned mindset,
they would tend to rely on established assumptions and traditional
approaches, which would not be most effective in the digital age. For
example, the traditional approach of deregulation to promoteeconomic growth may not work best for the development of thedigital economy. Instead, governments need to work closely withbusiness, creating a sandbox for policy experimentations, toformulate the most effective regulatory framework that is critical todigital transformation.
Similarly, fostering competition and supporting infant industries
also require fundamental changes in conceptual thinking. Building
digital ecosystems and standing on the shoulders of tech giants toaddress the most challenging problems, ranging from climatechange and the Covid-19 pandemic to cybersecurity and terrorism,
may be far more meaningful than imposing heavy fines on the“monopoly behaviors” of some tech firms.
To develop a mindset most suited for the digital age, governments
should embrace three strategic shifts in their strategy and policy
action. The first shift is in positioning, which changes agovernment’s role from a regulator to a convener, who brings all
social stakeholders, especially tech firms and users, together to findthe most effective and forward-looking solutions to the mostdaunting shared problems. The second shift is in the way agovernment supports the digital sector and digital transformation,
which changes from subsidizing selected groups to enabling them tocreate more value from digital transformation. The third shift is in therole of government in managing change, which should shift frompromoting to pioneering. As a pioneering embracer of the digitaltransformation, a government will be far more effective in inspiring
the nation to advance faster in the digital era.
While the old-fashioned mindset will phase out over time,
cybersecurity is the core problem that will be persistent, extensive,
and increasingly formidable. The most effective way to deal with thiscore challenge is to give it the utmost priority in strategy
formulation, resource allocation, and operational and preparatory
activity. If the world, from governments and businesses to
30 Japan SPOTLIGHT • November / December 2021

academics and ordinary people, consider cybersecurity threats as a
type of Covid-19 pandemic or a looming terrorist attack, it will work
together most vigorously and innovatively to develop an effective
defense system to minimize losses caused by this problem.

Strategic positioning
While making substantial investments in digital infrastructure isessential, an effective digital strategy needs to establish a wise
strategic positioning to best leverage a country’s strengths and turnits physical vulnerabilities/limitations to new advantages in the digitalage. For example, Japan’s strengths in innovation and technologicalcapabilities should be leveraged to promote Industry 4.0
transformation worldwide. At the same time, Japan can turn its
constraints in labor immigration to vigorous efforts to make thecountry virtually borderless in engaging skilled labor around theworld to work with local businesses.

Guiding principles
An effective digital strategy establishes a clear set of guiding
principles for policy formulation and action. Among them, thefollowing seven principles are essential:(i) All strategic plans or actions should start with a clear
reimagination of the future with robust foresight.
(ii) Knowledge acquisition and innovation are the most powerfuldrivers of digital advancement.
(iii) People must be at the center of digital transformation.
(iv) Market mechanisms, competition, and incentives are
essential forces to promote development.
(v) Embracing globalization and digital partnerships provide astrategic move necessary for making leapfrogging progress.
(vi) Enhancing transparency and good governance is afoundational priority.
(vii) Promoting synergistic value creation should be of top priority.

Coordination, learning, and continuous renewal
This component requires the government to establish a national
steering committee or an agency in charge of coordinating
nationwide efforts in embracing the digital revolution and monitoring
the country’s progress in this endeavor. The government also needs
to work closely with the ICT sector, especially global tech giants,businesses, academics, and experts to build a robust digital
ecosystem for ICT development and digital transformation. Vigorous
efforts to reflect on past experiences, learn from international bestpractices, and develop foresights into the future are essential for thecountry to make continual strategic renewals for rapid advancementsin the digital age.

Dr. Khuong Vu is an associate professor at the Lee Kuan Yew School of
Public Policy, National University of Singapore.