figure 36. The COVID-induced digital diffusion is changing the structure of services trade

The rapid adoption of technology presents an opportunity to unlock productivity growth–particularly for advanced technologies. Use of more sophisticated technologies, such as data analytics, have previously been found to be important for data driven decision making, organizational change and productivity gains (Brynjolfsson and McElheran 2019; Koning et al., 2019). However, adoption of these advanced technologies is concentrated in the best firms and richer countries, suggesting the productivity gains may not be widespread. in addition, more productive firms are better able to reorganize their business models to take advantage of new technologies, with access to more data and complementary skills, and embed them more fully across their business (Cirera et al. 2020). so, the best firms are both more likely to adopt the technologies that matter most for productivity and better able to transform these technologies into growth.

The pandemic is changing the structure of services trade. While tourism and travel have been disrupted, trade in data-intensive services has grown (figure 36). irreversible investments in digital delivery made by firms and consumers during the pandemic are durably reducing the costs of international trade relative to domestic transactions. The result will be increased opportunities for trade in digitized services even as tourism and travel recover more slowly.

While the pandemic affected the structure of services trade, the war in Ukraine is likely to affect the energy transition. Oil and gas prices have soared due to the supply disruption and sanctions, as countries start diversifying away from Russia, a major exporter of oil and gas. These price increases may catalyze the competitiveness of renewable energy. In the past decade, renewable power generation has become substantially cheaper, thanks to steady improvements in technologies, economies of scale, competitive supply chains, and developers’ increased experience. Producing energy from utility-scale solar photovoltaics (PV) has become 85 percent cheaper than in 2010 (figure 37). Before the war, the variable costs of energy from either solar PV or onshore wind were already below the cheapest new fossil fuel-fired project, and recent prices increase may widen this cost differential.

Figure 36. The COVID-induced digital diffusion is changing the structure of services trade

Export growth over corresponding quarter in 2019

Percent 250 200 150 100 50 0 –50 –100 –150 –200 2020q1 2020q2 2020q3 2020q4 2021q1 2021q2 2021q3

China 2020q1 2020q2 2020q3 2020q4 2021q1 2021q2 2021q3

Germany 2020q1 2020q2 2020q3 2020q4 2021q1 2021q2 2021q3

Japan 2020q1 2020q2 2020q3 2020q4 2021q1 2021q2 2021q3

USA

Financial & Insurance ICT Other business services Other services Transport Travel

Source: International Monetary Fund.