Digitization for Economic Growth and Job Creation: Regional and Industry Perspectives

Abstract

KARIM SABBAGH ROMAN FRIEDRICH BAHJAT EL-DARWICHE MILIND SINGH ALEX KOSTER Booz & Company Digitization—the mass adoption of connected digital services by consumers, enterprises, and governments— has emerged in recent years as a key economic driver that accelerates growth and facilitates job creation. In the current environment of a sluggish global economy, digitization can play an important role in assisting policymakers to spur economic growth and employment. Booz & Company’s econometric analysis estimates that, despite the unfavorable global economic climate, digitization provided a US$193 billion boost to world economic output and created 6 million jobs globally in 2011.1 However, the impact of digitization by country and by sector is uneven. Developed economies enjoy higher economic growth benefits by a factor of almost 25 percent, although they tend to lag behind emerging economies in job creation by a similar margin. The main reason for the differing effects of digitization is the economic structures of developed and emerging economies. Developed countries rely chiefly on domestic consumption, which makes nontradable sectors important. Across developed economies, digitization improves productivity and has a measurable effect on growth. However, the result can be job losses because lower-skill, lower-value-added work is sent abroad to emerging markets, where labor is cheaper. By contrast, emerging markets are more export-oriented and driven by tradable sectors. They tend to gain more from digitization’s effect on employment than from its influence on growth. Policymakers can harness these varying effects of digitization through three main measures, which go beyond their current roles of setting policy and regulations. First, they should create digitization plans for targeted sectors in which they wish to maximize the impact of digitization. Second, they should encourage the development of the necessary capabilities and enablers to achieve these digitization plans. Finally, policymakers should work in concert with industry, consumers, and government agencies to establish an inclusive information and communication technologies (ICT) ecosystem that encourages greater uptake and usage of digital services.

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