Published on January 3rd, 2017 | by Andrew Kitchel and Daniel Castro0
Better Measures of the Data Economy Are Needed to Show the High Costs of Cross-Border Data Restrictions
Even though the free flow of information across borders is crucial to nearly every sector of the digital economy, many countries have adopted protectionist data policies. Such policies are an impediment to business growth, digital communications, and online collaboration, and they reduce economic efficiency by increasing data costs, disrupting trade between nations, and creating a web of regulation that stalls efforts to conduct business across borders. Unfortunately, the negative effects of these policies often go unobserved because the government does not properly measure the data economy. However, the U.S. Department of Commerce is trying to change this. It recently published a report identifying five main challenges to accurately measuring the economic effects of cross-border data flows and offered specific steps its agencies could take to address each of them.
First, the government has difficulty measuring the effects of cross-border data flows on productivity because there is not enough information about how exactly firms use data. One reason for the lack of data is that since trade in services does not pass through a traditional customs process like with trade in goods, data is more difficult to collect. To improve government statistics on the service sector, the Department of Commerce says it should expand sample sizes, collect data more often, and provide more specific industry detail.
Second, there is a lack of standard definitions for terms used by researchers, such as “digital economy” and “digitally intensive.” While there has been relatively little study of cross-border data flows, the literature that does exist is uses differing terms and definitions that make it difficult to compare one study to another. To address this, the Department of Commerce should continue its current efforts to develop a standard nomenclature for terms related to the digital economy. In addition, the Department of Commerce recommends that it continue to collaborate with international organizations to stay current with the development of definitions and methodologies in the international community.
Third, the Department of Commerce collects little data specifically on cross-border data flows, so much of the relevant information is from datasets collected for other purposes. To address this lack of specificity, the Department of Commerce suggests that it should improve statistics used to measure data flows and the digital economy. Some initiatives are in place within the Department of Commerce to improve these statistics already, but there is still a need for more detailed data to best measure how the digital economy contributes to GDP, job growth, and productivity. The Department is exploring ideas such as treating data as a third commodity separate from goods and services, measuring the economic activity of digital platforms, and looking at measures other than GDP, such as consumer surplus.
Fourth, past government surveys on cross-border data flows have only covered a small subset of firms, have not had specific enough questions, and have mostly focused on the technology sector even though data flows affect almost every industry. To address this limitation, the Department of Commerce says it should broaden its efforts to investigate how all firms use data flows, for both internal operations and external interactions. The Department of Commerce also recommends it use both survey methods and case studies for its research, and consider how data-sharing partnerships with the private sector and international stakeholders may help it obtain the data it needs to understand global data flows.
Finally, some of the government statistics produced about cross border data flows are not published regularly or do not use transparent methodologies. The Department of Commerce has begun to address this problem by collecting information more often and with greater detail, as well as accelerating the publication of data. The Department of Commerce recommends that it ensure that its methods and models are public so that users can better understand how to interpret the data.
Policies that restrict the international flow of data negatively affect economic growth and productivity. More information about the economic impact of cross-border data flows is crucial to understanding the policies that impact the digital economy. While the Department of Commerce has identified a number of challenges to measuring cross-border data flows, it has also outlined a useful roadmap for how to move forward that should serve the next administration well.