STEG Working Paper Series Research Theme 1: Firms, Frictions and Spillovers, and Industrial Policy

The Great Upgrade

WP061 RagoussisTimmis TheGreatUpgrade.pdf

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The Great Upgrade

Research on the diffusion of digital technologies, particularly in developing countries, is constrained by the lack of data. While there has been some evidence on growing digital technology use in particular contexts, little is known about the relative pace of the transition online across countries, and the impact of the COVID-19 pandemic on these trajectories. This study uses high-frequency data on the technologies embedded in the near universe of websites across the world to address these questions. Descriptive trends show that while many countries experienced rapid diffusion of e-commerce, online payments and digital advertising technologies, absolute gaps in website technology use across countries widened during 2020. Our identification strategy uses the differential timing of the onset of COVID-19 across countries in Spring 2020 and employs the latest event-study methodologies, accounting for staggered treatment effects, to measure how COVID affected the use of online transaction technologies across countries. Our analysis shows that COVID-19 lockdowns strongly predict increased use of e-commerce and online payment technologies, accounting for about a quarter of the overall growth in their usage over 2020. However, the shock also magnified gaps in technology use across countries. Frontier countries with higher initial levels of technology use experience significantly faster diffusion than laggard countries after the shock. While much of the recent debate has focused on the potential dividends to firms or households from a COVID-induced adoption of digital technologies, this study suggests that any dividend may be spread increasingly unequally across countries at different levels of development. The COVID-19 shock has brought to surface persistent failures in enabling conditions for online market growth in a large number of developing countries.

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