Measuring Socio-Economic Digitization: A Paradigm Shift

Abstract

Digitization is defined as the social transformation triggered by the massive adoption of digital technologies to generate, process, share and transact information. Unlike other technological innovations, digitization builds on the evolution of network access technologies, semiconductor technologies, software engineering and the spillover effects resulting from their use. This paper presents a methodology followed to calculate the Digitization Index, a measure of country level of digitization, a concept originally developed by Booz & Company, the global management consulting firm. This index consists of six elements capturing Ubiquity, Affordability, Reliability, Speed, Usability and Skill and 23 sub-indicators measuring tangible parameters of perceived digitization metrics. The sample spans across 150 countries from 2004 to 2010. Countries are clustered as Digitally Constrained, Emerging, Transitional or Advanced. Once the index is defined, hypotheses regarding the contribution of digitization to economic growth, job creation and welfare are tested. In addition, a critical mass hypothesis is also tested as additional returns might derive from network externalities and spillover effects. The results provide strong support for the effect of digitization across all growth generating metrics.

Keywords: digitization, economic growth, unemployment, welfare

JEL Classification: L96, L52, O38