The Digital Divide: A Hindrance to Economic Growth
In a connected world, digital technology and access to the internet are becoming increasingly important to economic growth and development. Accompanying this, there is an ongoing disparity in access to digital resources serving as a major obstacle to global economic growth. The article delves into the severe effects of the digital divide on economies around the world and illustrates the situation on the economic impact of limited digital integration.
The digital divide is a problem of scale. According to the International Telecommunications Union (ITU), nearly half of the world's population, about 3.7 billion people, still do not have internet access. This dismal statistic highlights the 46% of people impacted by the digital divide and its subsequent impact on economic development.
Barriers to entry globally hinder equitable technological access. Access to digital technology is a catalyst for innovation and entrepreneurship. However, limited access impedes the ability of entrepreneurs and businesses to use digital platforms for growth. According to an ITU report, in the developed world the internet penetration rate is 87% but just 47% in developing countries and 19% in the least developed countries. At the end of 2021, 71 percent of the world’s younger population aged 15-24 was using the internet, compared with 57 percent of all other age groups.
In the United States, there is a significant digital divide, with lower-income households having less access to technology than higher-income households. Black and Hispanic respondents report being underprepared with digital skills, affecting their employability. Access to reliable internet is also a strong predictor of economic opportunity. More than 21 million people in the United States do not have access to broadband internet, including 40% of schools and 60% of healthcare facilities outside metropolitan areas.
Limited employment opportunities for non-digitally skilled workers are becoming scarce. Digital skills are in high demand in the modern job market. However, the digital divide exacerbates existing employment inequalities and impedes economic mobility. A 10% increase in internet access could increase a country's GDP by 1.4%, according to a World Bank study. Conversely, lack of digital integration leads to missed opportunities, lower productivity, and lower economic output. In developing countries, the digital divide limits individuals' access to and digital skills training, impeding their ability to participate in the global labor market. According to a report by the National Skills Coalition (NSC) in partnership with the Federal Reserve Bank of Atlanta, 92% of jobs analyzed require digital skills. Workers that qualify for jobs that require even one digital skill can earn an average of 23 percent more than in a job requiring no digital skills. Moving from a job requiring no digital skills to one requiring at least three can increase pay by an average of 45%.
Slowing SME Growth
Small and medium enterprises (SMEs) play an important role in driving economic growth and job creation. However, limited digital access limits the growth potential of these companies. The World Bank estimates that SMEs with a digital presence grow faster and are more productive than those without a digital presence. However, many SMEs in low-income countries lack the digital infrastructure and skills necessary to use digital platforms for marketing, e-commerce, and global market access. For example, according to Khazanah Research Institute, digital adoption by SMEs in Malaysia is most concentrated in front-end computing devices and connectivity (below 85%), and least prevalent in back-end business processes such as inventory management (14%) and order fulfillment software (11%). By bridging the digital divide and providing SMEs with digital tools and resources, the economy can foster entrepreneurship, boost economic activity, and create employment opportunities.
E-Commerce & Digital Transaction Impact
E-commerce and digital commerce have grown rapidly in recent years and have become a major driver of economic activity. However, the digital divide is a barrier to participation in this burgeoning sector. The United Nations Conference on Trade and Development (UNCTAD) reported that only 32% of the population in developing countries had access to the internet in 2020, hindering their ability to engage in digital trade and benefit from its potential economic gains. Recent estimates show that global internet protocol (IP) traffic – a proxy for data flows – will more than triple between 2017 and 2022. The reduced reach, diminished competitive advantage, and lowered cost efficiency plunder smaller lenders internationally.
Future of The Digital Divide
The digital divide is not only a matter of social inequality but also a pressing economic concern. Its impact on global economies is undeniable, stifling innovation, limiting employment opportunities, hindering SME growth, perpetuating disparities, and impeding digital trade. Bridging the digital divide is crucial for fostering inclusive and sustainable economic development worldwide.
Governments, organizations, and stakeholders must prioritize policies and initiatives that promote digital inclusion. This includes investing in digital infrastructure, expanding broadband connectivity, providing affordable access to digital technologies, and fostering digital literacy programs. By narrowing the digital divide, the full economic potential of individuals and nations, fostering innovation, boosting employment, and creating a more equitable and prosperous global economy.
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