Asia is embracing the digital revolution.

In Asia as elsewhere, the digital revolution is rippling across industries from retailing and banking to manufacturing and transportation.

Southeast Asia will face distinct challenges as the new technologies disrupt global value chains—the network of interlinked stages of production for the manufacture of goods and services—and undermine the model of labor-intensive, export-led manufacturing that has powered the region’s growth. But the new technologies will also open opportunities for small businesses and offer the potential of enhanced productivity, something that Southeast Asia will need in order to move beyond middle-income status. For frontier economies like Cambodia, Lao P.D.R., and Myanmar, digital technologies can be powerful new tools in the struggle to end poverty.

Digitalization is becoming a larger component of GDP in many Asian economies. Among the world’s top 10 economies with the largest ICT to GDP ratio, 7 are in Asia, including Malaysia, Thailand, and Singapore.

Asian players are in the lead in nearly every aspect of digitalization, but some economies lag significantly behind. Asian economies lie all along the income spectrum, and correspondingly, the region has the highest dispersion in terms of the adoption of digital technologies, with Japan, Korea, Hong Kong SAR, and Singapore being global trendsetters. But at any given income level, Asian economies are at the frontier relative to their global peers. Moreover, even for relatively poor Asian economies, such as Cambodia and Nepal, digitalization is accelerating.

Challenges

These new technologies are automating increasingly complex activities that could previously be performed only by people. Major transitions lie ahead that could match the scale of historical shifts out of agriculture and manufacturing, creating new challenges for policymakers. This new wave of creative destruction will transform jobs and skills, with old jobs and firms disappearing and new ones emerging.

Automation via industrial robots is one area in which Asia is clearly at the forefront, with fully two-thirds of the world’s industrial robots employed in the region. The new wave of automation also risks raising structural unemployment, especially for older and unskilled workers, if there are no new alternative opportunities for displaced labor with the potential to increase inequality.

Striking the right balance

While the digital revolution is inevitable, the outcome—utopian or dystopian—will depend on policies. Policy responses should strike the right balance between enabling digital progress and addressing risks. Policies to harness digital dividends 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 labor-market and social challenges, including income redistribution and safety nets.

Considering the inherent global reach of these technologies, regional and international cooperation will be key to developing effective policy responses. The more willing society is to support those who are left behind, the faster the pace of innovation that it can accommodate and still ensure that everyone ends up better off. With the right policies, the digital revolution could be a new engine of growth and prosperity for Asia and the world.

Source: IMF Finance & Development

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