in the presence of asymmetric information about their quality and reliability. Rating systems that signal product quality on these platforms further enhance buyers’ trust in unfamiliar suppliers. For example, evidence from advanced economies shows that better-rated sellers on eBay have higher prices and higher revenues (Livingston, 2005; Lucking-Reiley et al. 2007; Melnik and Alm 2002), and that sellers on eBay are more likely to exit the platform as their ratings fall (Cabral and Hortacsu 2010). Similarly, cloud computing disproportionately benefits small firms by eliminating upfront capital expenditures associated with hardware needs for file storage, data backup, and software programs. Using data from the United Kingdom, DeStefano et al. (2023) find that cloud computing was associated with a 13 percent annual increase in employment in young firms between 2008 and 2015.

There is direct evidence of digitalization spurring market entry in developing economies. In South Africa, around a quarter of the increase in jobs associated with the staggered arrival of submarine cables and the subsequent rollout of terrestrial fiber networks is explained by net firm entry (Hjort and Poulsen 2019). This arrival of faster internet across Africa is also associated with internetinduced entrepreneurship. In areas with internet availability, the probability of a household establishing a nonfarm business is 17 percentage points higher compared to areas without availability (Houngbonon, Mensah, and Traore 2022). Further, experimental evidence from Africa showing that smaller firms taking part in a training program about how to sell to bigger corporations, governments, and other large buyers win about three times as many contracts as nonparticipants, but only if they have internet access (Hjort, Iyer, and de Rochambeau 2020). In rural China, e-commerce platform adopters obtain significantly higher income than non-adopters, as their sales income increases significantly (Liu et al. 2021; Li and Qin 2022).

However, there are concerns around large firms benefiting more as many digital technologies require significant capital investment. Based on data from Belgium, Dhyne et al. (2018) find that large firms experience higher returns to their investment in IT-related capital investments than small firms. Similarly, using data across European countries, Gal et al. (2019) find that small firms benefit most from adopting cloud computing, while large firms benefit most from the adoption of enterprise resource planning (ERP) software. There are also concerns about competition with digital platforms, where a few dominant players can emerge with very low costs of expanding production. This means that their services can be consumed by one person without reducing the amount or quality available to others. These competition concerns are only likely to be heightened during the second wave of digitalization, as AI-related analytics are likely to disproportionately benefit large firms with access to massive amounts of accumulated user data (Acemoglu 2023; Goldfarb and Trefler 2018).

# **_4.3. Does digitalization expand financial inclusion?_**

The digitalization of finance, or fintech, provides opportunities for households and businesses that are excluded by traditional financial intermediaries to access financial services (Ahmad et al. 2020; Bollaert et al. 2021; Jagtiani and Lemieux 2018; Maskara 2021). Mobile money services, in particular, have proven to have significant benefits for the unbanked poor in developing economies by addressing the cost and institutional constraints related to expanding the reach of conventional 16