average country contributed to a 1-percentage-point increase in annual export growth in the late 1990s, with stronger effects for poor countries than for rich countries. This finding is echoed in a subsequent study of the effect of internet penetration in developing economies on exports to developed economies (Clarke and Wallsten 2006). Osnago and Tan (2016) find that the extent of internet adoption in the exporter’s country matters more; a 10 percent increase in an exporter’s rate of internet adoption led to a 1.9 percent rise in bilateral exports, while a 10 percent increase in the importer’s internet adoption leads to a 0.6 percent increase in bilateral exports. The diffusion of digital technologies has also enabled international trade in services, such as business and intellectual services, that were previously non-tradeable (Freund and Weinhold 2002).

Further, cross-country evidence including developing economies suggests that e-commerce platforms have allowed firms in more remote locations to access international markets by matching physically distant buyers and sellers (Hortaçsu et al. 2009; Lendle et al. 2016). Improvements in ICT have also facilitated the fragmentation of production processes across geographical locations, thereby enabling firms to specialize in a narrower set of activities and outsource the remaining tasks. Fort (2017) shows that the adoption of communication technologies (such as the internet, electronic data interchange, e-mail, extranet, or other online systems) by U.S. firms increased their likelihood of fragmenting production to other countries. There is also evidence of a positive relationship between internet usage and exports across African countries, attributable to the former reducing market entry costs associated with exporting (Hinson and Adjasi 2009).

The emergence of digital labor market platforms has catalyzed online outsourcing of IT and ITenabled business services, a shift that has been found to disproportionately benefit workers from developing economies (Agrawal, Lacetera, and Lyons 2016). Whether developing economies can benefit from online freelancing platforms at the beginning of the digitalization process largely depends on their human capital endowment. As of 2021, around half of the world’s online freelancers were based in India, Bangladesh, and Pakistan because of their workforces’ strong English language and technology skills (Baldwin 2019). This pool of online freelancers may expand geographically, however, if English language dominance diminishes with the diffusion of AI-enabled machine translation (Brynjolfsson, Hui, and Liu 2019).

There is also evidence of the efficiency gains from online labor market matching in developing economies. Experimental evidence from India shows that a combination of advertising and applicant verification increased portal-based hiring by 68 percent (Fernando et al. 2023). Similarly, evidence from Ethiopia shows that lowering job application costs, by using the internet and precluding the need to apply in person, has enabled employers to attract higher-ability applicants (Abebe, Caria, and OrtizOspina 2021).

# **_2.2. Does digitalization increase the efficiency of business processes?_**

Evidence from advanced economies shows that the use of digital technologies during the first wave of digitalization reduced the cost of computing across internal business functions. Based on data from 20 European countries and 22 industries between 2010 and 2015, Gal et al. (2019) find that greater adoption of enterprise resource planning (ERP) software, customer relationship management (CRM) software, and cloud computing in an industry is associated with higher multifactor productivity growth in the average firm. In the United Kingdom, DeStefano, Kneller, 8