Innovative digital technologies are integral to modern businesses. They allow companies to scale up and access new markets. But the benefits of digital technologies could be hindered by restrictive data policies, suggests new research.
Martina Francesca Ferracane and Erik van der Marel of the European Centre for International Political Economy examine how restrictive data policies affect digital innovation in 10 East Asian economies. They construct an index that captures restrictions in different aspects of the digital economy, including intellectual property rights (IPR), cross-border data flows, content access and telecom in 2009-19. They then use firm-level data from the World Bank Enterprise survey database to examine how these restrictions affect digital innovations in these countries.
Among the East Asian countries, China was the most restrictive in terms of data policies, followed by Vietnam. Hong Kong and Japan were the least restrictive. Overall, higher restrictions on data are associated with lower levels of innovation, especially in data-intensive sectors (such as computer-service related fields).
Firms in countries with higher restrictions are also less likely to use digital technology licensed from a foreign company and have a lower share of digital services imports. This can obstruct firm-level innovation in data-intensive sectors. Country-level analysis of Malaysia, China and Vietnam show that restrictive data policies can inhibit firms from using intangible assets such as patents and goodwill for innovations. Moreover, restrictions can limit the scope of research and development that can pave the way for new products.
As countries shift from economies based on goods and commodities to services and data, they need to have open digital markets. These markets will help firms make use of the technologies for further innovation, conclude the authors.
Also read: Digital Innovation in East Asia: Restrictive Data Policies Matter?
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