Digital connectivity as an enabling factor in Asian resurgence

In the post pandemic world, Asia could exploit the growing digital connectivity to overcome the hassles of conventional trade and ratchet up its economic growth

There is little debate about Asia’s increasing economic and political significance. The COVID-19 pandemic that originated in the Asian land mass has retarded, but not reversed, the progress made in taking millions out of poverty and in moving the centre of gravity of the world economy back to Asia, where it was until the 16th century.

Because of the increase in the purchasing power of the burgeoning middle classes of Asia, all eyes are on Asia’s markets. It is natural that the goods and services produced in Asia will increasingly be consumed in Asia as well, leading to a growth in intra-Asian trade. For this to occur, it is necessary that barriers to trade be lowered; and that collective action is taken to provide the multi-faceted connectivity that is an essential precondition for inclusive trade that benefits more segments in society.

Connectivity

The most robust research conclusions are derived from systematic reviews. Here, rigorous procedures that include the registering of research protocols, the systematic collection of research articles, their screening and filtering by teams of researchers, are followed. A recent systematic review of research conclusively established that the extension of mobile communication networks improved economic and productive outcomes in rural areas in low- and middle-income countries.

Greater digital connectivity amongst countries, including by means of global trading platforms, is providing the necessary conditions for integration that would yield positive economic outcomes.

The causal mechanism was the improved coordination between buyers and sellers in hitherto separate markets, in effect merging them into a bigger market. However, enabling conditions had to exist. If transportation facilities were unavailable or institutional factors did not permit trade, the benefits would not be realised.

The research that was synthesised was on the positive outcomes of trade within countries. However, it is reasonable to extrapolate the findings to trade across borders as well. Greater digital connectivity amongst countries, including by means of global trading platforms, is providing the necessary conditions for integration that would yield positive economic outcomes. However, the positive outcomes cannot be realised without the sufficient conditions which are more complex than in domestic contexts.

For trade in goods, transport, and logistics, facilities must be present. Tariff and non-tariff barriers (NTBs) must not be excessive. Trading of services such as online freelancing is made much easier by platforms but can be hindered by difficulties in making cross-border payments.

To realise the benefits of intra-Asian integration, it is necessary to improve intra-Asian connectivity in all forms, enhancing the ability to move goods, people, and bits seamlessly and at low cost. Ports, airports, railways, and highways must be improved so that goods and people can be moved efficiently across and within countries. Regional efforts such as the Asian Highway and Trans Asian Railway Network commenced many decades ago under the United Nations Economic and Social Commission for the Asia Pacific (ESCAP) and are being supplemented by various bilateral initiatives.

In the case of digital connectivity, remedial actions commenced more recently. Ten years ago, Bangladesh was connected to the world by only one undersea cable: SEA-ME-WE4; 20 years ago by none. Despite being surrounded by India on three sides, it was not directly connected to India until 2010. The lack of adequate terrestrial connectivity as a contributor to high prices and low reliability was identified by UN ESCAP around this time and an Asia Pacific Information Superhighway was prioritised in its work programmes.

What was sought to be achieved was the laying on open-access, high-bandwidth fiber optic cables along the Asian Highway and the Trans Asian Railway Network and other traces connecting major population centers so that the growing submarine cable networks would be integrated into a continent-wide mesh network that would provide much-needed redundancy paths in the events of human-made or natural disasters, and would also bring down prices and increase quality. The hope that the resulting increase in the salience of these issues would influence the design of private cables was realised.

Regional efforts such as the Asian Highway and Trans Asian Railway Network commenced many decades ago under the United Nations Economic and Social Commission for the Asia Pacific (ESCAP) and are being supplemented by various bilateral initiatives.

Robust digital connectivity by itself is inadequate. The deployment of applications such as the United Nations Conference on Trade and Development (UNCTAD) supported Automated Systems for Customs Data (ASYCUDA) customs information system over the improved digital network, when supplemented by trade agreements can serve to integrate markets and yield positive outcomes. But even the deployment of such information systems is not enough. The lowering of tariffs and non-tariff barriers (NTBs), usually made possible through trade agreements, is necessary in a region that is less integrated than Europe and North America.

Integration

The problems may be illustrated by contrasting one of the least integrated regions in the world, South Asia, with Southeast Asia. The United States is India’s largest merchandise export destination (16.79 percent). None of its immediate neighbors from South Asia feature in its top five. Dependence on markets outside Asia is greater amongst the other South Asian countries. More than 50 percent of Bangladesh’s exports go to the US and Europe. No Asian country is amongst its top five. Sri Lanka’s principal export market is the US, with 43 percent of merchandise exports going to the US and Europe. India is amongst the top five, but considerably small.

ASEAN is a more integrated economic grouping. With the coming into effect of Regional Comprehensive Economic Partnership (RCEP) on 1 January 2022, trade will increase, and it will become even more integrated. ASEAN had entered into a significant number of trade agreements and was also moving toward a single market. The RCEP, which is the world’s largest trade agreement, is essentially a consolidation of ASEAN’s bilateral trade agreements.

Lower tariffs and reduced NTBs result from trade agreements. Had India joined RCEP as was widely expected, the pace of integrating Asian markets would have accelerated. But even in the current circumstances, it is to be expected that the process of integrating the hitherto Europe and North America connected markets into a single Asian market will continue apace, facilitated by increasing digital connectivity.

Business to Consumer (B2C ) e-commerce in goods and services is where impacts will be most evident. Most B2C e-commerce is based on global platforms that connect a multitude of suppliers, large and small, to an even larger number of individuals or commercial customers in multiple countries.

Such platforms allow buyers and sellers to discover each other, using algorithms and advertising; they provide the facilities for the buyers and sellers to enter into purchase agreements; payment engines and delivery systems permit completion of transactions. In many cases, the platforms also provide consumer redressal mechanisms. The above functions are visible to the buyers. They do not see the massive logistics operations that make all the above possible and the measures taken to facilitate cross-border movement of goods.

Online freelancing markets are an example of cross-border trade in services made possible by specialised platforms. Here, buyers of services make their requirements known to sellers of services who are made visible by platform providers. Contracts can be entered into; payments made, and services delivered. But here, the customs chokepoints do not exist. Even where convenient payment options such as inward remittances via PayPal are not available (as is the case for India’s neighbours), various workarounds can be used. Compared to platforms that facilitate trade in goods, platforms that support trade in services provide fewer services. Both charge for platform services.

Conventional international trade occurred before digital connectivity. It is true that electronic documentation, approvals, and payments have made conventional trade that much more efficient. But the digital connectivity needed for modern conventional trade need not be ubiquitous. This is not the case with B2C electronic commerce in goods and services. It is simply impossible to imagine how these forms of trade could occur without significant numbers of firms and consumers being connected to digital networks and the platforms provided over them.

To the extent that Asian decision-makers in government and in the private sectors choose to enable international and domestic B2C e-commerce, Asia emerging from the pandemic will realise the positive economic outcomes promised by digital connectivity.

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