The mystery of the missing research

COVID-19 has made reliable, affordable broadband a necessity for nearly every household. Some telecom operators report that data traffic on their networks is up by 60% compared to levels before the pandemic.

This is a global phenomenon. Traffic on Latin America’s largest online marketplace, Mercado Libre, increased by 49% between late February and late May 2020. Thailand saw downloads of shopping apps spike by 60% in just one week. Nearly half of all consumers in Indonesia did more online shopping, while digital payments and online banking flourished.

Just as the digital economy has cushioned many of the pandemic’s shocks, it should prove equally crucial in driving economic recovery as well.

That’s why I was puzzled to learn that until quite recently, there has been little empirical research on the role played by digital tech in mitigating economic losses caused by crises generally – and almost nothing about helping economies rebound from losses caused by pandemics.

Bounce back better?

What little research exists is listed by the International Telecommunications Union (ITU). But those studies look mostly at natural disasters, and focus mainly on how digital technology helps governments coordinate the provision of critical services during an emergency.

They don’t look at how digital tech helps economies bounce back from something like Covid.

So, in a spirit of investigation, I set out to study the relationship between two things: a country’s efforts to use technology to control and mitigate the effects of COVID-19; and its economic performance from 2020 to 2021.

Below are the details on my research methodology.  

How I did the research 

My study used the tools of econometrics, a branch of economics that uses statistical methods to observe, and then predict economic outcomes. In this case, my dependent variable was a series of estimates for net real GDP change from 2019 to 2021 across a wide range of advanced and developing countries (I used data from the Economist Intelligence Unit). Although GDP data for 2021 are still estimates for many countries, most of those data are already in, and we can be pretty certain of the overall growth numbers.

For the independent variables, I used Huawei’s Global Connectivity Index 2020, which ranks countries on the basis of their investment in, and adoption of, information and communications technology (ICT). The ranking provides a snapshot of each country’s overall digital development.

A second independent variable measured the sum of the stringency of COVID-19 measures of mitigation. A composite measure developed by Oxford University, the stringency measures are based on

nine response indicators including school closures, workplace closures, and travel bans – all important factors in controlling the spread of COVID-19.

For my third and final independent variable, I selected countries’ pre-pandemic GDP growth rates for 2019. These were meant to serve as an anchor to the 2020-2021 growth numbers, and to capture the momentum of national economic growth going into the pandemic.  

My research also tested a myriad of other cross-country comparable indicators that turned out not to be statistically significant.

These included the following:

• Fiscal balances for 2020-2021 (debt as a percentage of GDP)  
• Population density
• Percentage of total population living in cities
• Government effectiveness (figures from the World Bank)
• Openness to trade
• Full vaccination rates by year-end 2021
• Income inequality

Interestingly, that last item on the list, as measured by a country’s Gini coefficient (calculated by the World Bank) came closest to statistical significance alongside the original three indicators; however, it was not close enough. The best results from the simple cross-sectional regressions I performed are shown below:       

Table 1 – What influenced the change in national GDP across 2020 and 2021?

My research found that national digital economic development is strongly related to economic resilience. This finding might feel intuitive, even self-evident, since everyone’s doing Zoom calls and living life online.

But the relationship between connectivity and resilience is hard to prove. Covid may cause online food orders to spike – even as brick-and-mortar restaurants are getting killed. Do the two trends cancel each other out? Until now, it has been anyone’s guess.

But this study indicates that there is a significant relationship between a country’s level of national digital development – as measured by the Global Connectivity Index – and its economic growth. Indeed, it suggests that on average, a 10-point increase in a country’s GCI score would have boosted its GDP growth by 0.7% over the 2020-21 period.

My research isn’t conclusive, of course. But it’s a start.

And it agrees with a much more sophisticated study, published by the ITU in June 2021, across 139 countries. After controlling for a range of variables, the ITU research shows that countries with unique fixed and mobile broadband subscriber penetration rates above 75 percent can mitigate 19 percent of the economic damage faced by less-connected economies.

Many other factors would have determined a country’s economic performance over the last two years. This is illustrated in Chart 1, which shows predicted GDP growth over 2020-21 (based on the three-variable model above) and the actual growth rates from the Economist Intelligence Unit.

For example, Lebanon’s economy has shrunk by an astonishing 34% since 2019. But its dire slump is understood to have been caused by many other factors beyond digitization and COVID-19.

But across our sample set, just three variables, as outlined above, explain more than 75% of the total variation in net GDP growth rates from 2020 to 2021.

Digitization cannot solve all of the problems caused by the pandemic. But the evidence I can see so far suggests it’s of significant help.