Digitalization, Comparative Advantages, and Digital Divide

Chu-Ping Lo, Guang-Jong Fann and Su-Ying Hsu

A chapter in Competitiveness in the New Era from IntechOpen

Abstract: This study presents a simple model to elucidate the pivotal role of digital intensity in shaping a nation's competitiveness on the global stage. We introduce digitalization into Krugman's dynamic comparative advantage model, in which we suppose that technology development depends on an index of cumulative experiences and these experiences have to be conducted through digitalization. We argue that digitalization has the potential to trigger a positive feedback loop, particularly in countries characterized by elevated digital intensity. This phenomenon leads to heightened productivity, often translating to a competitive edge in tradable sectors and amplified income levels relative to other nations. Nevertheless, the widening divergence in digital intensity between developing (the South) and developed (the North) countries, referred to as the digital divide, poses a challenge by amplifying income inequality across these regions. This proposed model emphasizes the crucial role of the disparity in access to digital infrastructure in perpetuating the digital divide between developing and developed countries. The dynamic comparative advantage framework in this model further suggests that digitalization can lead to a virtuous circle in countries with a high level of digital intensity. However, for countries with low levels of digital intensity, the opposite may occur. This phenomenon thus exacerbates income inequality between developing and developed countries.

Keywords: digitalization; international trade; digital intensity; comparative advantage; digital divide (search for similar items in EconPapers)
JEL-codes: Q56 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:ito:pchaps:323867

DOI: 10.5772/intechopen.113349

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