The data revolution of the past decade has transformed how businesses reach out to prospective customers, manage supply chains and provide services. But just as businesses become more reliant on data, governments have started to regulate the use and flow of data. While these policies might be critical for privacy protection and ensuring national security, they can create substantial costs for businesses, finds a new study by Martina Francesca Ferracane of Hamburg University and others.

The authors argue that in today’s economy sectors such as management consultancy and financial services rely heavily on data. Therefore, policies that restrict the use and cross-border transfer of data are likely to reduce the efficiency of these sectors. Such costs and inefficiencies are passed on to other businesses and then to consumers.

They compare the evolution of data-related policies with firm-level productivity in the 28 European Union (EU) countries, Japan and South Korea from 2006 to 2016. They find that stricter data norms have a negative impact on the productivity and performance of downstream firms in sectors more reliant on data. They also find that restrictions on domestic use of data generally hurt efficiency more than restrictions on movement of data across borders. The trade-off between prudence and efficiency needs greater attention as data-related policies are becoming stricter globally. To strike the right balance, the authors suggest that the economic impact of restrictive data policies on local business and consumers should be carefully measured and weighed against objectives such as privacy and security.

Also Read: Do Data Policy Restrictions Impact the Productivity Performance of Firms and Industries? (bit.ly/2PsHS3H)

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