<mark>multinational companies. However, the emergence of private sector–led trade platforms raises concerns about powerful digital companies taking on the responsibility of global rule making and cross-border governance. Governments should better engage with the private sector to shape the rules.</mark>

# Conclusion

There is a growing division in the global digital economy between the countries in which digital platform businesses were born and are marching globally and the countries that are lagging behind and passively using products and services offered by foreign digital companies. China and United States are the key players in the first group, whereas other developing countries and even some developed countries in Europe fall into the second group.

Countries begin to diverge in achieving digitization. They tend to embark on two different trajectories. Many high-income European countries are leaning toward the inward course of action by setting various barriers to foreign digital platform businesses. For example, digital service taxes are often imposed only on foreign digital firms so that domestic digital businesses have more room to grow. The majority of developing countries seem to be following the outward model by enhancing connectivity and integration with foreign digital giants. They are investing heavily in digital infrastructure and catching up on human capital investment so that domestic firms and individuals can leverage the existing digital giants to better participate in the global digital economy.

The two different approaches to some degree resemble the two paths countries adopted historically for industrialization —import substitution and export promotion. Latin American countries advocated replacing foreign imports with domestic products, which looks like European countries’ current approach of slamming some foreign digital businesses while offering subsidies to domestic digital businesses. China’s integration into global trade in the 1990s is similar to many African countries’ ongoing endeavors to participate in the global digital economy through investments in digital infrastructure. Distortions of import substitution policies as well as overreliance on foreign demand caused by export promotion policies imply that both strategies are not perfect on their own. A delicate combination of both could prove to be more efficient.

The combined approach may still apply in the digital economy. Countries should create an enabling environment for domestic firms to reap the digital dividends from other digitally advanced countries. Advanced digital infrastructure, as well as transparent and supportive rules associated with digital transactions, are important pillars of such an enabling environment. On the other hand, governments need to adapt policies to mobilize fiscal revenue to support those investments and ensure a competitive market to nurture innovation and the possible bourgeoning of domestic superstar digital businesses in the long run.

Building on this note, the Digital Business Indicators project will refine its methodology for measuring the regulatory environment to promote the digital economy. Key regulatory issues such as competition and taxation not included in the pilot round need to be further studied for future indicator development. Assessing and comparing countries’ performance vis-à-vis their peers through standardized indicators and yearly flagship reports will engage World Bank clients in a lively discussion and, it is hoped, encourage positive reforms.

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