6.1 Specific Barriers to the Use of Digital Platforms

BOX 6.1 Specific Barriers to the Use of Digital Platforms

Despite the benefits that digital platforms can bring to the economy in developing countries, there are also important adoption challenges. Cusolito (2021) summarizes these technology adoption challenges in five categories: (1) coordination problems; (2) lack of trust; (3) weak standard compliance and enforcement; (4) self-deregulation; and (5) regulatory loopholes. Coordination problems and regulatory issues are very common in developing countries. Coordination problems happen in the presence of network effects, given that the benefits that adoption of a digital platform brings to a potential user depend primarily on the size of the network effects, which are a function of the adoption decisions of other firms. To address coordination problems, many digital platforms try to subsidize or help firms (or service providers) with the initial investments they need to boost connection. This has significant implications for public policy given that the platform, rather than government, could solve the coordination problem. Indeed, several e-commerce platforms provide business support services to vendors. For example, the e-commerce platform Jumia has created Jumia University to train vendors to help them deliver the best shopping experience to their customers.a

Regulatory barriers can play an important role in delaying adoption. Platforms often face outdated regulations applied to activities that have been primarily provided offline in the past (such as ride-sharing or accommodation). Regulatory bottlenecks are especially present in the area of e-commerce. Enabling regulations are needed regarding electronic documentation and signatures, financial law related to e-payments, consumer protection, intellectual property, cybersecurity, personal privacy, and data protection, Daza Jaller, Gaillard, and Molinuevo (2020) emphasize. But many countries lack a well-designed regulatory framework that can enable online intermediation while protecting consumers. These regulatory bottlenecks apply not only to digital platforms but also to technologies more generally. For example, in Brazil, taxes on microchips and SIM cards, which were taxed individually, were impeding the diffusion of agricultural technologies connected to the Internet of Things.

Source: Cusolito 2021. a. Jin and Sun (2020) evaluate training provided by a platform operator and find that it increases new sellers’ likelihood of being found by consumers, improving the matching quality between consumers and sellers.

Access to international markets and competition in the domestic market are important drivers of adoption. About 40 percent of firms report “competition” as a key driver (see figure 6.2). Access to international markets has large effects on productivity via competition and learning, and these channels can also result in the use of more sophisticated technologies.12 Panel a of figure 6.6 shows the relationship between exporting status and the technology index, while panel c shows the results of a similar exercise with importing status. Both exporting and importing activities have a significant correlation with technology use. Panels b and d also show that larger firms are significantly more likely to export and import, which is consistent with the behavior observed by the trade literature (Wagner 1995).