Asia’s Productivity Needs a Boost That Digitalization Can Provide

IMF Blog, January 10, 2023

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Asia’s strong economic rebound from the pandemic is losing steam due to tightening financial conditions, reduced export demand, and China’s sharp and uncharacteristic slowdown.
Deep economic scars from the pandemic and the lackluster productivity growth that preceded it weigh on the region’s longer-term growth prospects.
Digitalization is identified as a promising path to boost aggregate productivity and economic output.

Digital technologies can:
- increase the efficiency of the public and private sectors;
- expand financial inclusion;
- improve access to education;
- open new markets by allowing companies to serve distant customers.
During the pandemic, digitalization:
- improved allocation of resources for health and social benefits, enabling prompt relief while controlling leakages of public spending;
- supported resilience when combined with large fiscal support, with remote work and online sales protecting workers, students, and businesses.

The region accounted for 60 percent of patents in digital and computer technologies right before the pandemic, up from 40 percent two decades earlier.
Asia accounts for nearly 60 percent of the world’s online retail sales.
E-commerce revenues grew by 40–50 percent in Vietnam, Indonesia, and India in 2020.
China is the single biggest robot user, accounting for some 30 percent of the market.
Examples of major digital players in the region include Japan’s Rakuten, China’s Alibaba Group, Indonesia’s GoTo Group, and India’s digital infrastructure "stacks" that combine digital payments and identification to expand access to finance.
Growing youth populations in Bangladesh, Indonesia, and Vietnam have rapidly adopted new technologies, creating a sizable potential customer base for the digital economy.
Patent applications for remote work and e-commerce technologies surged during the pandemic; spending on e-commerce increased sharply as cash payments gave way to digital alternatives (e-wallets and prepaid cards).

Access to cutting-edge digital technologies is highly uneven within countries and across firms.
Financing constraints and adoption barriers:
- nearly half of SMEs in emerging and developing Asia report difficulty in obtaining financing as a major barrier to technology adoption;
- about a third of large firms report difficulty in obtaining financing as a major barrier to technology adoption.
Low levels of digitalization and difficulties in accessing and adopting new technologies limited firms’ ability to telework or sell online during the pandemic.
Slow diffusion of technology between leading and lagging firms is driven by:
- scarcity of a digital-savvy workforce;
- unequal access to digital infrastructure;
- weaknesses in the legal environment, including lack of adequate legislation on data protection and intellectual property rights, which hinder information sharing and confidence in technological adoption.
Digital gaps limit workers’ ability to benefit from the new economy:
- Indonesia has one of the lowest internet penetration rates in Southeast Asia, with only a quarter of the overall population using the internet;
- while access is affordable in Vietnam and Bangladesh, internet connections are often slow.

Enhance countries’ digital infrastructure to improve access to information and technology.
Upgrade digital literacy and upskill the young workforce to meet employers’ demand.
Alleviate financing constraints faced by SMEs to help them adopt new technologies; greater access to finance would help innovators introduce new products.
Facilitate adoption of new technologies by:
- streamlining regulations in line with the evolving digital industry;
- enhancing the legal environment, including on data and intellectual property rights protection;
- facilitating digital trade.

Asia is poised to continue leading digital innovation.
Facilitating equal access to technologies across firms, industries, and workers will help the region fully benefit from the economic boost that digitization offers.

Antoinette M. Sayeh, Era Dabla-Norris, Tidiane Kinda — January 10, 2023