Using a Digitization Index to measure the Economic and ... · Using a Digitization Index to measure...

Using a Digitization Index to measure the Economic and Social Impact of Digital Agendas (*)

Euro CPR 2013 A Digital Agenda in search of evidence:

Issues and Trends Brussels, Belgium March 21, 2013

Dr. Raúl L. Katz, Adjunct Professor, Division of Finance and Economics, and Director, Business Strategy Research, Columbia Institute of Tele-information

(*) This presentation is based on a research jointly developed with Dr. Pantelis Koutroumpis.

Agenda

● Measuring digitization

● Assessing digitization’s economic impact

● Digitization in Europe

● Elements of a future agenda

2

3

Digitization is the capacity to use digital technologies to generate, process, share and transact information

●  At the most basic level, digi2za2on is the process of conver2ng analog informa2on into a digital format

●  In a broader context, digi2za2on is defined as the social transforma2on triggered by the massive adop2on of digital technologies to generate, process, share and transact informa2on

●  Digi2za2on builds on the evolu2on of network access technologies, semiconductor technologies, and so@ware engineering

●  Leverages the spillover effects resul2ng from their use (common plaDorms for applica2on development, e-‐government services, e-‐commerce, social networks, and availability of online informa2on)

To achieve a significant impact, digitization has to be widely diffused within the economic and social fabric of a given nation

●  Adopted at three levels –  U2lized by individuals, economic enterprises and socie2es –  Embedded in processes of delivery of goods and services –  Relied upon to deliver public services

●  For this condi2on to occur, digi2za2on has to fulfill several condi2ons –  Affordable to allow scalable impact –  Ubiquitous reaching most popula2on of a na2onal territory –  Accessible by mul2ple fixed and mobile voice and data devices –  Reliable, providing sufficient capacity to deliver vast amounts of

informa2on at speeds that do not hinder their effec2ve use

4

5

The purpose of this research was to develop a digitization index and measure its contribution to economic and social development

●  Star2ng premise: most research measuring social and economic impact of ICT focuses on discrete technology plaDorms, such as mobile penetra2on, access to the Internet and broadband adop2on

●  Holis2c adop2on and usage of ICT results in enhanced effects that go

beyond the contribu2on of specific plaDorms

●  The transi2on to digitally-‐intensive socie2es should be assessed across a mul2ple set of metrics, capturing not only penetra'on, but also usage of these technologies in order to capture the full impact of digi2za2on

6

A composite index comprising 23 indicators was developed to measure the level of digitization of a given country

DIGITIZATION INDEX

Data to develop the index was compiled from multiple sources

7

NAME OF INDICATOR SOURCE

Residential fixed line tariff adjusted for GDP per capita ITU Residential fixed line connection fee adjusted for GDP per capita ITU Mobile cellular prepaid tariff adjusted for GDP/capita ITU Mobile cellular prepaid connection fee adjusted for GDP per capita ITU Fixed broadband Internet access tariff adjusted for GDP per capita ITU Investment per telecom subscriber (mobile, broadband and fixed) World Bank Fixed Broadband penetration ITU Mobile Phone penetration (2010) ITU Population covered by mobile cellular network ITU Percentage of population using a PC (2010) ITU 3G Penetration (2Q 11) Wireless Intelligence International Internet bandwidth (bits/second/internet user) ITU Broadband speeds (% above 2 Mbps) Akamai Internet retail (Retail internet as percentage of total retail) Euromonitor E-government Web measure index UN Percentage of individuals (users) using the internet (2010)` ITU Data as a percentage of wireless ARPU (4Q10) Wireless Intelligence Dominant Social Network Unique Visitors per month Per Capita Internet World Stats SMS Usage (Average SMS sent by consumers) Wireless Intelligence Engineers (Engineers as a percentage of total population) World Bank Skilled Labor (Labor force with more than a secondary education as a percentage of the total labor force) World Bank

8

The index was constructed following a typical methodology for composite index validity assessment

●  Define the theore2cal framework of the index and select variables ●  Each sub-‐index was normalized, by using the mean and one standard

devia2on, and cropping the extremes –  Affordability sub-‐index: the inverse of the maximum is used to cap

it –  Mobile penetra2on: was capped at a maximum of 100% to prevent

over-‐weigh2ng ●  For each of the six components a minimum of subcomponents is

assigned depending on the scarcity of the available informa2on ●  For the Index calcula2on, a minimum of four components is required ●  Correla2ons were ini2ally run between the digi2za2on index and other

technology indices to test its ranking value –  Network Readiness Index (WEF) –  ICT Opportunity Index (ITU) –  Digital Opportunity Index (ITU)

Finally, the Kaiser-Meyer-Olkin measure of sampling adequacy was ran, indicating that the index is statistically sound

9

Scale reliability coefficient: 0.9416Number of items in the scale: 23Average interitem covariance: 234.5332

Reversed items: a1 a2 a3 a4 a5Test scale = mean(unstandardized items)

Overall 0.8202 human 0.8311 usage 0.8394 capacity 0.8154 networkacc~s 0.7530 infrastruc~e 0.8741 affordabil~y 0.8854 Variable kmo

Kaiser-Meyer-Olkin measure of sampling adequacyScale reliability coefficient: 0.8640Number of items in the scale: 6Average interitem covariance: 198.3664

Reversed item: affordabilityTest scale = mean(unstandardized items)

The es2mated sta2s2cs derive from factor analysis: •  KMO measures how dis2nct the factors (components of the

index) are so that they do not over-‐iden2fy latent phenomena. All factor es2mates need to be higher than 0.60 and the overall KMO>0.8

•  The Cronbach coefficient alpha is the most common es2mate of internal consistency of items in a model or survey. It assesses how well a set of sub-‐indicators measures a single one-‐dimensional object. Reliable A-‐threshold >0.8

•  With KMO=0.82 and Alpha23=0.94 Alpha6=0.86 the Digi2za2on Index is sta2s2cally sound

10

The 2011 Digitization Index was calculated for 150 countries, revealing four developmental stages

●  Index computed for 150 countries and the period 2004-‐2011

●  Four clusters iden2fied:

–  Advanced (Index>50) –  Transi'onal (Index>35&<50) –  Emerging (Index>20&<35) –  Constrained (Index<20)

•  Barbados((•  Georgia((•  Philippines(•  Macao(•  Seychelles(•  Bosnia(and(Herzegovina(

•  Ecuador(•  Azerbaijan(•  Venezuela(•  Botswana(•  Peru(•  South(Africa(•  Algeria(•  China(•  Lebanon(•  Sudan((

•  Somalia(•  Uganda((•  Afghanistan((•  Burkina(Faso((•  Zimbabwe((•  Ethiopia((•  Mozambique((•  Solomon(Islands((

•  Madagascar((•  Comoros((•  D.((R.(Congo(•  Malawi((•  Lesotho((•  S(Tome(&(Principe((

•  C.A.(Republic((•  Mali((•  Burundi((•  Niger((

0

10

20

30

40

50

60

70

TRANSITIONAL(

•  Aruba •  Malta •  St. Lucia •  Greece •  Serbia •  Poland •  Bulgaria •  Saudi

Arabia •  Cyprus •  Slovak

Republic •  Kuwait •  Latvia •  Qatar •  Taiwan •  Chile ((

•  Liechtenstein •  Estonia •  Puerto Rico •  Malaysia •  Panama •  Hungary •  St. Vincent

and the Grenadines

•  Mauritius •  Mongolia •  Uruguay •  Croatia •  Argentina •  Kazakhstan •  Ukraine •  Turkey

ADVANCED(

•  Norway(•  Denmark(•  Switzerland(•  United(Kingdom(

•  Luxembourg(•  Iceland(•  Finland(•  Sweden(•  Korea(•  Hong(Kong((•  United(States(•  Canada(•  Belgium(•  France(•  Singapore(•  Australia(•  Japan((

EMERGING(CONSTRAINED(

•  Portugal(•  Austria(•  Germany(•  Israel(•  Ireland(•  New(Zealand(

•  Netherlands(•  Slovenia(•  Czech(Republic(

•  Spain(•  Romania(•  Italy(•  Belarus(•  Lithuania(•  UAE(•  Russia((

•  Dominican(Republic((

•  Indonesia((•  Maldives((•  Tunisia((•  El(Salvador((•  Gabon((•  Jordan((•  Trinidad(&(Tobago((

•  Albania((•  Armenia((•  Paraguay((•  Thailand((•  Jamaica((•  Egypt((•  Libya((•  Vietnam((

•  Kyrgyz(Republic((

•  Cuba((•  Bolivia((•  Tonga((((•  Iraq((•  Bangladesh(•  Cote(d'Ivoire(•  Swaziland(•  Nicaragua(•  Cambodia(•  Kenya((•  DjibouU((•  Yemen((•  Nigeria((•  Ghana(•  Tajikistan(•  Benin(•  Tuvalu((•  Angola(

•  Mauritania((•  TimorWLeste((•  Guinea((•  Lao((•  Cameroon((•  Zambia((•  Nepal((•  Turkmenistan((•  Eritrea((•  Rwanda((•  Chad((•  The(Gambia((•  Papua(New(Guinea((

•  Togo((•  Tanzania((•  Senegal((•  Vanuatu(•  Myanmar(•  Congo(

•  India((•  Morocco((•  Sri(Lanka((•  Cape(Verde((•  Bhutan((•  Uzbekistan((•  Pakistan((•  Syrian(Arab(Republic((

•  Honduras((•  Guyana((•  Belize((•  New(Caledonia((

•  Namibia((•  Fiji((•  Guatemala((•  Virgin(Islands((

•  Bermuda •  Moldova •  Brunei •  San Marino •  Oman •  Colombia •  Iran •  Antigua and

Barbuda •  Bahrain •  Costa Rica •  Montenegro •  Mexico •  Andorra •  Brazil •  Macedonia

When ranking countries for each of the six sub-components, we determined that access and affordability are less of a world problem

11

•  For all countries, normalized usage sub-‐index never matches the levels of access sub-‐indices, which indicate a big challenge across the world

•  For all OECD and middle income countries, the sub-‐indices affordability and network access tend to be consistently above the digi2za2on index indica2ng that countries have addressed the access challenge

•  The affordability and capacity sub-‐indices tend to rapidly drop at low GDP levels, indica2ng a big gap between mature and low income countries

0

20

40

60

80

100

120No

rway

Luxembo

urg

United

France

Spain

Greece

Macao, China

Mauritius

Croatia

Antigua an

d

Mexico

Serbia

T.F.Y.R.

Ecuado

r

Mald

ives

Gabo

n

Mon

golia

Pakis

tan

Thailand

Kyrgyzsta

n

Cambo

dia

Zambia

Tanzania

Cuba

Cameroo

n

Eritrea

Ethiop

ia

AFFORDABILITY INFRASTRUCTURE RELIABILITY NETWORK ACCESS

CAPACITY USAGE HUMAN CAPITAL

TOTAL

In addition to assessing digitization development paths, we tracked its evolution over time for selected countries

●  Constructed a 2me series of digi2za2on for 18 countries between 1995 and 2011

●  Assessed the evolu2on of the index akemp2ng to determine idiosyncra2c country paths to digi2za2on –  Emerging countries undergo quantum leap changes in digi2za2on

triggered by key policy ini2a2ves –  Mature countries exhibit a consistent, yet gradual, change in digi2za2on

performance

●  Analyzed changes in the index in an akempt to iden2fy specific events or policies that have triggered a change at a specific point in 2me

12

0

10

20

30

40

50

60

70

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

U.S.

13

Most industrialized countries have consistently increased their digitization level over the past fifteen years, albeit at different rates

13 13

USA leading in 1997(pre dot com bubble) and now gradually making again its

way to the top

DIGITIZATION INDEX (1995-2011)

0

10

20

30

40

50

60

70

80

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

U.S. Norway Sweden

14

Scandinavian countries have significantly changed their digitization development path

14 14

Norway and Sweden leapfrogging through

systematic adoption and timely launch of network

access, skills and services


0

10

20

30

40

50

60

70

80

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Japan S. Korea U.S. Norway Sweden

15

In Asia, Korea achieved the same leapfrogging move in the late nineties

15 15

S. Korea government intervention for 100% broadband coverage


0

10

20

30

40

50

60

70

80

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Japan Singapore S. Korea Australia U.S. U.K. Germany Norway Sweden

16

Most industrialized countries have been converging over the past fifteen years

16 16


0

5

10

15

20

25

30

35

40

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Brazil Egypt China India

The digitization development path of emerging countries depends on specific public policies

India very slow after 2007-08 rise, now trailing most emerging countries

China consistently improving based on

infrastructure deployment plans

17 17 17

Brazil leapfrogs after privatization/

liberalization

Brazil rebounds based on income

redistribution policies


In sum, data indicates different development paths towards digitization

●  Mature countries follow a gradual progression towards digi2za2on –  Ac2ve government interven2on accelerates development (Korea,

Norway)

●  Some emerging countries undergo quantum leap changes (25 points in five years) in digi2za2on triggered by specific policy ini2a2ves –  Telecom market liberaliza2on with spill-‐over impact on the ICT eco-‐

system –  A combina2on of ac2ve government involvement and private sector

par2cipa2on –  Centralized state planning

18

Agenda





19

To understand the economic impact of digitization, a correlational view of the index and individual income was first developed

20

Albania

Albania

AlbaniaAngola

Angola

AngolaArgentina

Argentina

ArgentinaAustralia

Australia

AustraliaAustria

Austria

AustriaAzerbaijan

Azerbaijan

AzerbaijanBangladesh

Bangladesh

BangladeshBarbados

Barbados

BarbadosBelarus

Belarus

BelarusBelgium

Belgium

BelgiumBelize

Belize

BelizeBenin

Benin

BeninBhutan

Bhutan

BhutanBolivia

Bolivia

BoliviaBosnia and Herzegovina

Bosnia and Herzegovina

Bosnia and HerzegovinaBrazil

Brazil

BrazilBrunei Darussalam

Brunei Darussalam

Brunei DarussalamBulgaria

Bulgaria

BulgariaBurkina Faso

Burkina Faso

Burkina FasoCameroon

Cameroon

CameroonCanada

Canada

CanadaChina

China

ChinaColombia

Colombia

ColombiaComoros

Comoros

ComorosCosta Rica

Costa Rica

Costa RicaCote d'Ivoire

Cote d'Ivoire

Cote d'IvoireCyprus

Cyprus

CyprusCzech Republic

Czech Republic

Czech RepublicDenmark

Denmark

DenmarkDjibouti

Djibouti

DjiboutiDominican Rep.

Dominican Rep.

Dominican Rep.Ecuador

Ecuador

EcuadorEgypt

Egypt

EgyptEl Salvador

El Salvador

El SalvadorEstonia

Estonia

EstoniaGermany

Germany

GermanyGreece

Greece

GreeceGuatemala

Guatemala

GuatemalaGuyana

Guyana

GuyanaHong Kong, China

Hong Kong, China

Hong Kong, ChinaHungary

Hungary

HungaryIndia

India

IndiaIndonesia

Indonesia

IndonesiaIran (Islamic Rep. of)

Iran (Islamic Rep. of)

Iran (Islamic Rep. of)Italy

Italy

ItalyJapan

Japan

JapanJordan

Jordan

JordanKazakhstan

Kazakhstan

KazakhstanKenya

Kenya

KenyaKorea (Rep. of)

Korea (Rep. of)

Korea (Rep. of)Kyrgyzstan

Kyrgyzstan

KyrgyzstanLao P.D.R.

Lao P.D.R.

Lao P.D.R.Latvia

Latvia

LatviaLebanon

Lebanon

LebanonLesotho

Lesotho

LesothoLithuania

Lithuania

LithuaniaLuxembourg

Luxembourg

LuxembourgMacao, China

Macao, China

Macao, ChinaMadagascar

Madagascar

MadagascarMalaysia

Malaysia

MalaysiaMali

Mali

MaliMalta

Malta

MaltaMauritania

Mauritania

MauritaniaMexico

Mexico

MexicoMoldova

Moldova

MoldovaMongolia

Mongolia

MongoliaMontenegro

Montenegro

MontenegroMorocco

Morocco

MoroccoMozambique

Mozambique

MozambiqueNamibia

Namibia

NamibiaNepal

Nepal

NepalNew Zealand

New Zealand

New ZealandNiger

Niger

NigerNorway

Norway

NorwayOman

Oman

OmanPakistan

Pakistan

PakistanPanama

Panama

PanamaParaguay

Paraguay

ParaguayPeru

Peru

PeruPhilippines

Philippines

PhilippinesPoland

Poland

PolandQatar

Qatar

QatarRomania

Romania

RomaniaRussia

Russia

RussiaRwanda

Rwanda

RwandaSaudi Arabia

Saudi Arabia

Saudi ArabiaSenegal

Senegal

SenegalSerbia

Serbia

SerbiaSeychelles

Seychelles

SeychellesSlovak Republic

Slovak Republic

Slovak RepublicSlovenia

Slovenia

SloveniaSpain

Spain

SpainSri Lanka

Sri Lanka

Sri LankaSudan

Sudan

SudanSweden

Sweden

SwedenSwitzerland

Switzerland

SwitzerlandSyria

Syria

SyriaT.F.Y.R. Macedonia

T.F.Y.R. Macedonia

T.F.Y.R. MacedoniaThailand

Thailand

ThailandTogo

Togo

TogoTunisia

Tunisia

TunisiaTurkey

Turkey

TurkeyUganda

Uganda

UgandaUkraine

Ukraine

UkraineUnited States

United States

United StatesUruguay

Uruguay

UruguayUzbekistan

Uzbekistan

UzbekistanVenezuela

Venezuela

VenezuelaYemen

Yemen

Yemen00

02020

204040

406060

60Digitization IndexDi

gitiza

tion

Index

Digitization Index20000

20000

2000040000

40000

4000080000

80000

80000log of GDP per Capita (USD, 2000 constant)

log of GDP per Capita (USD, 2000 constant)

log of GDP per Capita (USD, 2000 constant)

21

Extending this hypothesis, an econometric model was built to test the contribution of GDP to economic growth

●  Simple Cobb-‐Douglas form:

Y=A(t)K1+BL1 where: ● A(t) represents the level of technology progress (in our case the Digi2za2on Index)

●  K corresponds to the fixed capital forma2on

●  L to the labor force

log(GDPit)=a1log(Kit)+a2log(Lit)+a3log(Dit)+εit

Digitization is found to have a positive and significant effect on economic output

●  The model states that 10 point increase on digi2za2on increases GDP per capita by 0.76%

●  The index is a weighted average of different indicators that might be endongenous to GDP, like broadband and wireless penetra2on; however, given their overall impact of these on the metric is insignificant (5%)

●  Furthermore, by controlling for country and year fixed effects, some poten2al endogeneity problems are mi2gated

●  Capital forma2on and labor contribu2on are posi2ve and significant, while digi2za2on is found to have a posi2ve and significant effect at the 1% level, indica2ng a strong effect on economic output, confirming the correla2onal view

●  Annual Growth Rate (CAGR) akributed to digi2za2on is derived from the following formula:

●  A ten point increase in the Digi2za2on Index has approximately a 2.84% impact on GDP for the period 2004-‐2011 resul2ng in an annualized effect of 0.40%

22

23

Furthermore, digitization has a larger contribution to GDP than stand-alone technologies

23

0.23

0.14

0.08

0.26 0.24

0.16

0.08 0.09

0.17

0.11

0.20

0.76

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

Contribu'on to GDP

growth of 10 point increase in variable

Broadband Studies

10 POINT INCREASE IN DIGITIZATION YIELDS 0.76%

INCREASE IN GDP PER CAPITA

DIGITIZATION AND ECONOMIC DEVELOPMENT

§  This s2pulates that full economic impact ICT is achieved through the cumula2ve adop2on of all technologies, in addi2on to the assimila2on and usage in the produc2on and social fabric

§  Achieving broadband penetra2on is only one aspect of required policies; maximiza2on of economic impact can only be achieved through a holis2c set of policies ranging from telecoms to compu2ng to adop2on of internet and eCommerce

Mobile Studies

Additionally, digitization exhibits increasing returns to scale, where returns increase after an index score of 30

24

0

0

020000

2000

0

2000040000

4000

0

4000060000

6000

0

6000080000

8000

0

800000

0

020000

2000

0

2000040000

4000

0

4000060000

6000

0

6000080000

8000

0

800000

0

020000

2000

0

2000040000

4000

0

4000060000

6000

0

6000080000

8000

0

800000

0

020

20

2040

40

4060

60

600

0

020

20

2040

40

4060

60

600

0

020

20

2040

40

4060

60

602004

2004

20042005

2005

20052006

2006

20062007

2007

20072008

2008

20082009

2009

20092010

2010

2010Digitization Index

Digitization Index

Digitization IndexGDP per capita

GDP

per c

apita

GDP per capitaGraphs by Year

Graphs by Year

Graphs by Year

Countries with lower scores are o@en the ones that lack basic access, skills and usage that would prevent them from experiencing important effects on their economies

25

The increasing returns to scale hypothesis was also proven econometrically at lower levels of digitization (*)

25

•  Advanced: 2.26% compound impact on GDP for the period 2004-‐2011 resul2ng on an annualized effect of 0.32%

•  Transi2onal: 2.59% compound impact on GDP for the period 2004-‐2011 resul2ng on an annualized effect of 0.37%

•  Constrained: 2.66% compound impact on GDP for the period 2004-‐2011 resul2ng on an annualized effect of 0.37%

•  Emerging: 2.44% compound impact on GDP for the period 2004-‐2011 resul2ng on an annualized effect of 0.34%

(*) The sample is broken into four different equally populated clusters. Four dummy variables are created (high, medium, low and very low) that take the value of 1 if the country is within the Digitization scores of interest or 0 if not. For the advanced cluster the threshold is 50, for the transitional 35-50, for the emerging 20-35 and for the constrained 0-20.

26

Beyond its contribution to economic output, digitization also has a positive impact on employment creation

●  Simple model links unemployment rates with exis2ng infrastructure, income, educa2on levels, total exports as a percent of GDP and the credit performance:

Uit=b1Dit+b2Kit+b3Eduit+b4GDPCit

+b5Expit+b6Crit+εit ● Model controls for country and year fixed effects

The econometric impact model on job creation is also quite robust

● All control variables have the right sign ● All canonical variables are sta2s2cally significant ●  The model is very stable, meaning that signs and sta2s2cal significance of each of the coefficients are stable even when the specifica2ons are changed

●  By including GDP per capita in the variables, we negate the possibility that the index is working as a proxy for level of development

● As in the case of GDP growth, digi2za2on has a higher impact on job crea2on than broadband –  Full deployment and assimila2on of ICT has a much larger impact on employment because it contributes to more jobs in the ICT sector (so@ware development, Business Process Outsourcing, equipment manufacturing and parts supplies)

–  In addi2on, the impact of assimila2on of ICT through enhanced usage has spill-‐over impact on other sectors of the economy (in par2cular, trade, financial services, health care)

27

One of the most interesting and yet unexplored parameters of Digitization is the link to overall societal welfare

●  This suggests a hypothesis that Digi2za2on has a direct effect on the overall happiness and life sa2sfac2on that people earn from the capaci2es and capabili2es of engaging in digital technology plaDorms

●  A classic counter-‐argument stems from the causal link between the life sa2sfac2on and Digi2za2on, manifes2ng that people might self-‐select to be in a country or regional context with higher provisions of digital services rather than being the subjects of various offerings

●  Nevertheless for the vast majority of popula2on, one would infer that people would not migrate for an abundance of Digi2za2on services and technologies

●  For this purpose we choose not to model this rela2onship in a strict quan2ta2ve manner but prefer to highlight it in a correla2ve approach

28

Digitization appears to be correlated with life satisfaction and well being

10

10

1020

20

2030

30

3040

40

4050

50

5010

10

1020

20

2030

30

3040

40

4050

50

502

2

22.5

2.5

2.53

3

33.5

3.5

3.52

2

22.5

2.5

2.53

3

33.5

3.5

3.52

2

22.5

2.5

2.53

3

33.5

3.5

3.52005

2005

20052006

2006

20062007

2007

20072008

2008

20082009

2009

20092010

2010

2010Digitization Index

Digitiz

ation

Inde

x

Digitization IndexLife Satisfaction

Life Satisfaction

Life SatisfactionGraphs by Year

Graphs by Year

Graphs by Year •  Digi2za2on & Life sa2sfac2on: limited effects from 20 to 40, consistent improvement from 40 to 60

•  At lower levels of development is more related to the sa2sfac2on of basic needs (such as food and shelter in the Maslow Scale), while at higher levels of development, once these needs are addressed, digi2za2on becomes more relevant

29 29 29

Agenda





30

The Europe 27 countries are, in aggregate, at an advanced digitization level, only below North America and Western Europe

31

62 59

55

45

33 31 35

12

42

25 32

0

10

20

30

40

50

60

70

DIGITIZATION BY REGIONS (2011)

Source: Katz, Koutroumpis, Callorda (2012) * Europe 27 countries, without Malta because lack of information

Furthermore, these countries have made progress in some areas of their digitization index in the last eight years

32

0

10

20

30

40

50

60

70

80

90

100

2004 2005 2006 2007 2008 2009 2010 2011

Index Affordability Infrastructure Network Capacity Usage Human Capital

Index CAGR (%)

Digitization 5.16%

Affordability 0.80%

Infrastructure 0.38%

Network Access 6.44%

Capacity 16.84%

Usage 4.30%

Human Capital 1.93%

EUROPE 27: DIGITIZATION INDEX(2004-2011)

When disaggregated, half of the countries in Europe 27 are at an advanced stage, while the remainder is in a transitional situation

33

68 66 65 64 63 60 59 58 58 57 56 55 55 55 54 54 54 54 53

48 48 48 48 47 46 45 44

0

10

20

30

40

50

60

70

80

Denm

ark

Unite

d Ki

ngdo

m

Luxe

mbo

urg

Finla

nd

Swed

en

Belgi

um

Fran

ce

Portu

gal

Austr

ia G

erm

any

Irelan

d Ne

ther

lands

Eu

rope

27

Mea

n Sl

oven

ia Cz

ech

Repu

blic

Rom

ania

Spain

Ita

ly Lit

huan

ia G

reec

e Po

land

Bulga

ria

Cypr

us

Slov

ak R

ep.

Latvi

a Es

tonia

Hu

ngar

y

EUROPE 27: DIGITIZATION INDEX (2011)

Source: Katz, Koutroumpis, Callorda (2012)

Each group of countries exhibit different sub-indices and challenges

34

95

26

71

88

56

32

0

20

40

60

80

100

Affordability Infrastructure Network Access

Capacity Usage Human Capital

90

16

60 63

39 32

Affordability Infrastructure Network Access

Capacity Usage Human Capital

EUROPE 27: COMPONENTES OF THE DIGITIZATION INDEX (2011) ADVANCED COUNTRIES (*) TRANSITIONAL

COUNTRIES (*)

(*) Denmark, United Kingdom, Luxembourg, Finland, Sweden, Belgium, France, Portugal, Austria, Germany, Ireland, Netherlands

(*) Slovenia, Czech Republic, Romania, Spain, Italy, Lithuania, Greece, Poland, Bulgaria, Cyprus, Slovak Republic, Latvia, Estonia, Hungary Source: Katz, Koutroumpis, Callorda (2012)

Digitization in the Europe 27 countries has generated USD 343 B in new GDP over the last 8 years

35

2004 2005 2006 2007 2008 2009 2010 2011 Total Digitization Index 38.6 39.7 41.7 43.8 46.7 49.0 52.6 54.9 -

GDP Impact (´000 000 000 USD) - $24.03 $46.53 $53.21 $67.21 $50.23 $61.48 $40.87 $343.57

Employment Impact (job/years) (´000) - 265 512 544 655 541 760 480 3,759

EUROPE 27: ECONOMIC IMPACT OF THE DIGITIZATION (2004-2011)

Europe 27 countries have made progress on affordability, network and capacity components, but still have limitations in infrastructure and usage

36

0

20

40

60

80

100 Affordability

Infrastructure

Network

Capacity

Usage

Human Capital

EUROPE 27: COMPONENTS OF DIGITIZATION (2011)


When compared with Norway, the country with the highest index, the challenges for the Europe 27 countries are highlighted

37

0

20

40

60

80

100 Affordability

Infrastructure

Network

Capacity

Usage

Human Capital

COMPARATIVE ANALYSIS OF THE COMPONENTS OF THE DIGITIZATION (2011) EUROPE 27 = 54.9 NORWAY = 72.3


0

20

40

60

80

100 Affordability

Infrastructure

Network

Capacity

Usage

Human Capital

The usage, infrastructure and capacity metrics help assessing the gap specifics

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Component Indicator Definition Europe 27 Norway U.K. Greece

Usage Internet Retail Retail internet as percentage of total retail 2.90 % 2.13 % 7.74 % 0.69 %

E-‐Government Web measure index 0.69 0.86 0.97 0.58 Internet usage Percentage of individuals

(users) using the internet 72.10 % 93.97 % 82.00 % 53.00 %

Spend in data Data as a percentage of wireless ARPU 31 % 44 % 45 % 26 %

Access to social networks

Dominant Social Network Unique Visitors per month per capita

25.34 % 49.80 % 44.60 % 14.68 %

SMS usage Average SMS sent by consumers 212 312 572 94

Infrastructure Investment Investment per telecom subscriber 103.16 549.97 151.14 109.48

Capacity Interna2onal Internet Bandwidth

Interna2onal Internet Bandwidth (kbps/user) 86,420 151,257 166,073 26,008

If the Europe 27 countries were to reach the benchmark index (Norway), it would yield significant economic impact

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Index 2011 Actual (Europe 27) 2011 Norway Scenario Digitization 54.9 72.3

Affordability * 92.0 96.0

Infrastructure 20.2 100.0

Network 65 67.0

Capacity 74.6 91.6

Usage 47.0 62.0

Human Capital 32.0 32.0

GDP Impact (2011) (´000 000 000 USD) 40.87 355.84

* With the same level of human capital index of Europe 27

Agenda





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The component analysis allows identifying the challenges facing Europe’s Digital Agenda

●  Europe has improved 5.16% annually in terms of its digi2za2on in the past eight years

●  While affordability has barely improved (0.80%), Europe was at the highest level of all industrialized countries

●  The principal improvement areas have been capacity (interna2onal connec2vity and broadband connec2ons >2 mbps) (16.84%) and network access (broadband, mobile and PC penetra2on) (6.44%)

●  However, three areas remain with significant challenges: infrastructure (investment) (0.38%), usage (e-‐Commerce, e-‐Government, Data ARPU, social network usage) (4.30%), and human capital (1.93%)

●  In sum, public policy focus should be promo2on of investment, s2mulate demand through applica2ons development, and grow human capital

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As a starting point, Europe might need to address inefficiencies in the supply and demand side of digitization

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Demand for digital goods

Digital Technology Firms

DEMAND SIDE INEFFICIENCIES

Production Factors

SUPPLY SIDE INEFFICIENCIES

•  Consumers •  Enterprises •  Government

• Demand production factors (capital, labor, technology)

• Supply digital goods

•  Capital •  Human capital •  Technology

infrastructure

FRAMEWORK FOR ADDRESSING THE

DEMAND GAP

FRAMEWORK FOR ADDRESSING THE

SUPPLY GAP

Conclusion

●  Digi2za2on is a global concept, with significant heterogeneity within and across regions

●  Digi2za2on index builds on six pillars: affordability, reliability, capacity, access, usage and skills

●  Index linked to higher growth, and employment with increasing returns to scale ●  Significant finding since it s2pulates that full economic impact of ICT

is achieved through the cumula2ve adop2on of all technologies, in addi2on to the assimila2on and usage in the produc2on and social fabric

●  The policy implica2on is that achieving broadband penetra2on is only one aspect of required policies; maximiza2on of economic impact can only be achieved through a holis2c set of policies ranging from telecoms to compu2ng to adop2on of internet and Ecommerce

●  At higher levels of its development, digi2za2on contributes to welfare, thereby improving human development

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