The Economics of Cloud Infrastructure: Cost, Risk, and Comparative Advantage in a Commoditized Data Market

Luciano Charlita De Freitas, Michel Kerf, Priscila Honório Evangelista, Julian Najles, Luiz Alberto Esteves and Luis Alberto Andres

No 11391, Policy Research Working Paper Series from The World Bank

Abstract: The global data processing and storage industry is undergoing a structural transformation as cloud computing shifts from a differentiated, firm‑specific service toward a standardized and increasingly commoditized global market. International trade theory—specifically the Heckscher‑Ohlin factor proportions framework—is applied to analyze emerging patterns of specialization and comparative advantage in the provision of cloud services. Cloud output is conceptualized as a standardized data processing unit, produced under constant returns to scale using a globally uniform technology. Building on this definition, a conceptual multi‑factor unit cost model is developed that integrates traditional production factors—energy, capital and digital infrastructure, and skilled labor—with non‑factor costs distinctive to the digital economy, notably regulatory compliance costs and geopolitical and environmental risk premia. Comparative advantage is determined by the minimization of total structural data processing unit costs, inclusive of both factor and non‑factor components. This framework explains the observed concentration of data centers in locations characterized by low‑cost and reliable energy, robust connectivity infrastructure, deep pools of specialized human capital, and limited regulatory friction or systemic risk. The analysis suggests that cloud services constitute an emerging frontier of international factor‑endowment trade, where classical sources of comparative advantage interact closely with institutional quality, policy choices, and risk conditions to shape global patterns of specialization.

Date: 2026-05-20
References: Add references at CitEc
Citations:

Downloads: (external link)
https://documents.worldbank.org/curated/en/0995491 ... bb0-ed45830c3c1c.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wbk:wbrwps:11391

Access Statistics for this paper

More papers in Policy Research Working Paper Series from The World Bank 1818 H Street, N.W., Washington, DC 20433. Contact information at EDIRC.
Bibliographic data for series maintained by Roula I. Yazigi ().