The issue of digital revolution is particularly important for Asia because the region is home to seven of the world’s top 10 economies in terms of the information and communication technology share of gross domestic product. It has been examined in a latest ADB Institute’s working paper titled ‘Digital Revolution in Asia and its Macroeconomic Effects’. It has found that the outcome of digital revolutions, both utopian and dystopian, will depend on policies to be adopted. Since the digital revolution is inevitable, policy response will need to strike the right balance between enabling digital innovation and addressing digitalization-linked risks.

Digitalization and automation have accelerated in recent years. A new wave of innovation has been triggered by advances in artificial intelligence, robotics, computing power, and cryptography, as well as the explosion of big data. It is now reshaping the global economy by affecting all sectors, with far-reaching social and economic impact. The new technologies have the potential to transform the global economy, boost productivity, and fundamentally alter the way we live and work, but may also cause substantial risks of disruption and dislocation.

Asia has been at the forefront of the digital revolution. Some of the Asian economies are leading nearly every aspect of digitalization. The region’s economies have the highest dispersion in terms of adoption of digital technologies, since Asia covers the entire income spectrum.

Automation via industrial robots is one area in which Asia is clearly at the forefront, although it is limited to a few Asian economies. With Asia being the “factory to the world”, a full two-thirds of the world’s industrial robots are employed in the region, which has been accelerating since 2010. China is now the single biggest user accounting for some 30 per cent of the market. By 2016, China, Japan, and the Republic of Korea each employed more robots than the US. Robot density per thousand workers is high and rising fast in several Asian economies. Republic of Korea and Singapore have become the global leaders in robot density, followed by Germany and Japan. Not only in deployment, but also in production of robots, Asia has become the leader. Japan and Republic of Korea are the world’s top two producers with market shares of 52 and 12 per cent respectively.

Asia also leads in e-commerce and fintech. China’s share in global retail has grown to over 40 per cent, and penetration of e-commerce as percentage of total retail sales now stands at 15 per cent compared to 10 per cent in the US. E-commerce penetration is lower in the rest of Asia, but it is growing fast, particularly in India, Indonesia, and Viet Nam. Significant progress has been made in fintech, in many cases leapfrogging into new types of technology. In 2016, mobile payments made by individuals for consumption purchases totalled $790 billion in China, which is 11 times the size of such payments in the US. Asia has also been leader in cryptoassets, including initial coin offerings. Investors are approaching smaller countries in the regions to entice them to adopt cryptoassets as the legal tender, raising serious legal and regulatory concerns.

The diffusion of technological innovation has been the key driver of growth in GDP in Asia over the past two decades, with digital innovation alone accounting for nearly 30 per cent. The digital component in DGP, proxied most narrowly by the share of ICT sector, is relatively large in many Asian economies. The sector has been growing substantially faster than overall GDP – twice as fast in India and Thailand, and nearly four times in Japan. Digitalization has also boosted the productivity of non-ICT sectors.

E-commerce has the potential to support growth and rebalance economies. The econometric analysis shows that participation in online commerce is associated with a more than 30 per cent increase in total factor productivity at the firm level in Asia. Innovation, human capital, and to some extent, access to finance seem to be behind online firms’ stronger performance. Firms engaged in e-commerce also export 50 per cent more. E-commerce seems to be especially beneficial for small firms in Asia.

Digitalization presents opportunities for improving public finance in Asia. The analysis indicates that if Asian economies were to move halfway to the global frontier, import-VAT revenue could rise to 0.6 per cent of GDP. It can also improve public financial management system, such as targeting of social assistance.

Impact of robots on employment depends on country-specific conditions. There is a slight negative impact on overall manufacturing employment, and particularly so in certain heavily automated sectors like electronics and automobiles. Workers with medium-level education are more vulnerable to displacement than those with either low or high education levels. However, the economies with ageing population, such as Japan, Korea, China, or Thailand can be benefited from automation. The economies tend to see declining traditional financial infrastructure, particularly bank branches, with increasing digitalization.

In this backdrop, comprehensive policies and fresh thinking are needed to realized the potential and avoid the risks of digitalization. It should include revamping education to meet the demand for more flexible skill sets and lifelong learning, as well as new training, especially for the most adversely affected workers; reducing skill mismatches between workers and jobs; investing in physical and regulatory infrastructure that spurs competition and innovation; and addressing labour market and social challenges, including income redistribution and safety net. Global and regional cooperation is also required to develop effective policy responses, since it has inherent global reach. With right policies digital revolution could be a new engine of growth. (IPA Service)