Front Matter

Front Matter Page

MEASURING THE DIGITAL ECONOMY

February 2018

IMF staff regularly produces papers proposing new IMF policies, exploring options for reform, or reviewing existing IMF policies and operations. The following document(s) have been released and are included in this package:

  • The Staff Report prepared by IMF staff and completed on February 28, 2018.

The report prepared by IMF staff and presented to the Executive Board in an informal session on February 28, 2018. Such informal sessions are used to brief Executive Directors on policy issues. No decisions are taken at these informal sessions. The views expressed in this paper are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Board.

The IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents.

Electronic copies of IMF Policy Papers are available to the public from http://0-www-imf-org.library.svsu.edu/external/pp/ppindex.aspx

International Monetary Fund

Washington, D.C.

© 2018 International Monetary Fund

Front Matter Page

MEASURING THE DIGITAL ECONOMY

February 28, 2018

Executive Summary

Digitalization encompasses a wide range of new applications of information technology in business models and products that are transforming the economy and social interactions. Digitalization is both an enabler and a disruptor of businesses.

The lack of a generally agreed definition of the “digital economy” or “digital sector” and the lack of industry and product classification for Internet platforms and associated services are hurdles to measuring the digital economy. This paper distinguishes between the “digital sector” and the increasingly digitalized modern economy, often called the “digital economy,” and focuses on the measurement of the digital sector. The digital sector covers the core activities of digitalization, ICT goods and services, online platforms, and platform-enabled activities such as the sharing economy.

Available evidence suggests that the digital sector is still less than 10 percent of most economies if measured by valued added, income or employment.

Digitalization has penetrated many activities, and, indeed, almost the entire economy could be included in the “digital economy” broadly defined. However, it is more realistic to focus measurement efforts on a concrete range of economic activities at the core of digitalization. While the term “digital sector” refers to a concrete perimeter of economic activities, the term “digital economy” is often used to indicate that digitalization (e.g., the use of Internet) has spread across all sectors of the economy, from agriculture to warehousing.

Next, the paper considers the question of the measurement error in GDP growth and productivity statistics. Insufficient adjustment for quality change in constructing the deflators for digital products, and gaps in measuring the sharing economy and activities of online platforms are two sources of underestimation. The available research suggests that the effect of under-measurement of the digital sector on estimates of US labor productivity growth is no more than 0.3 percentage points, smaller than the post-2005 slowdown in the growth in productivity of 1–2 percentage points.

Largely symmetric effect on price statistics, yielding a slight overestimation of inflation. The implied understatement of growth and productivity has been widely discussed in the last years. However, a symmetric effect on the measurement of inflation has been notably overlooked. If growth has been understated due to insufficient downward adjustment of price indexes in the presence of high quality increases in digital products and services, inflation must generally have been overstated by a roughly similar amount. This implication is particularly relevant for the assessment of the monetary policy stance in economies that have suffered deflationary pressures while experiencing a rapid digital transformation.

Free digital services that are self-produced, volunteer-produced, or produced by platforms that sell advertising and collect users’ data, have been proposed for direct inclusion in the definition of GDP, but a change in the conceptual framework of GDP to directly include “free digital services” in consumption would not be warranted. GDP is a measure of market- and near-market production valued at market prices, and, as such, is well-suited to address key policy questions. However, some free services enabled by digital products represent quality improvements that could be captured in real consumption by quality-adjusting the deflator. Also, research on expanding the measure of investment to include collection of data may imply a modification of the GDP production boundary.

Indicators of welfare from free digital products can, and should, be developed in the context of measurement of nonmarket production outside the boundary of GDP. Productivity gains in households’ time use for nonmarket production may be increasing welfare in ways not measured by consumption or GDP. Therefore, the old debate about measuring household non-market production is now even more pertinent. International and national institutions need to accelerate efforts to develop indicators of welfare growth from non-market production beyond the boundary of GDP.

Recommendations for overcoming the measurement challenges posed by digitalization include improving access by national statistics compilers specifically to administrative data and generally “Big Data.” For administrative data, this entails close cooperation of national government agencies, while in the broader case of Big Data, the cooperation should extend to partnerships between the private and the public sectors, including international organizations.

Approved By

Louis Marc Ducharme

Prepared by Marshall Reinsdorf, Gabriel Quirós, and STA Group*.

*The Statistics Department (STA) established in January 2017 a group on the Digital Economy led by Gabriel Quirós, with wide staff participation, comprising Serkan Arslanalp, Evrim Bese Goksu, Diane Kostroch, Jose Carlos Moreno-Ramirez, Margarida Martins, Silvia Matei, Stephanie Medina Cas, Peter van Oudheusden, René Piché, Tamara Razin, Marshall Reinsdorf, Carlos Sánchez-Muñoz, Patrizia Tumbarello, Louis Venter, and Mari Ylä-Jarkko. Kathie Jamasali provided excellent editing assistance.

This paper has benefited from the discussions on the same topic at the 5th IMF Statistical Forum, in November 2017.

Contents

  • Glossary

  • INTRODUCTION

  • DEFINITION AND SIZE OF THE DIGITAL SECTOR, PRODUCTS, AND TRANSACTIONS

  • DIGITALIZATION AND THE CONCEPTUAL FRAMEWORK OF GDP: WELFARE, GLOBALIZATION AND PRODUCTIVITY

  • A. GDP Versus Welfare

  • B. Globalization

  • C. Productivity

  • PRICE INDEX COMPILATION CHALLENGES AND STATE OF PLAY

  • A. Quality Adjustment and Price Indexes

  • B. Coverage of E-Commerce and the Sharing Economy

  • COMPILATION CHALLENGES AND STATE OF PLAY IN NATIONAL ACCOUNTS

  • A. E-Commerce and Free Products from Online Platforms

  • B. The Sharing Economy

  • C. Lags and Data Gap Concerns

  • COMPILATION CHALLENGES AND STATE OF PLAY IN EXTERNAL SECTOR STATISTICS

  • A. Digital Trade

  • B. Digital Payments and Measurement of Cross-Border Remittances

  • DIGITALIZATION AND CHALLENGES FOR MONETARY AND FINANCIAL STATISTICS

  • A. Marketplace Lending Platforms

  • B. E-Money

  • C. Digital Currencies

  • POLICY IMPLICATIONS AND RECOMENDATIONS

  • BOXES

  • 1. The New Goods Problem

  • 2. Effects of Digitalization on Measurement of Inflation and the Cost of Living

  • FIGURES

  • 1. ICT Sector Shares of GDP based on Value Added, 2012

  • 2. The Three Dimensions of Digital Transactions

  • 3. Nonmarket Production of Services and the SNA Production Boundary

  • 3a. Price Indices for Investment in Computers and Telecommunications Equipment

  • 3b. Price Indices for Investment in Computer Software and Databases

  • 3c. Price Indices for Consumption of Communication Services

  • 4. International Flows of Data and Services in a Platform-Enabled Transaction

  • 5. Share of ICT and ICT-Enabled Services in Emerging and Developing Economies, Credit

  • 6. Percentage of BOP Respondents who…

  • 7. Active Corridors for Cross-border Remittances via Mobile Money

  • 8. Distribution of Digital Marketplace Lending

  • 9. Availability of Mobile Money Services Around the World

  • TABLES

  • 1. Possible Size of the Digital Sector in the United States, 2015

  • 2. Median Annual Consumer Surplus from Free Digital Goods, Internet Users in the United States in 2016

  • 3. Illustration of Quality Adjustment for iPhone in Price and Volume Indexes

  • 4. Countries Including E-Commerce in Price Indexes

  • 5. Global Totals of Remittance Receipts and Payments

  • 6. Share of E-Money Transactions in Noncash Payments in 2015

  • 7. Mobile Money Share of Accounts

  • References

  • ANNEX

  • I. Link of Consumption and Welfare Growth

Glossary

AE

Advanced economy

BOP

Balance of Payments

CPC

Central Product Classification

CPI

Consumer Price Index

DPI

Digital Price Index

EDI

Electronic Data Interchange

GDP

Gross domestic product

GSMA

Groupe Spéciale Mobile Association

ICT

Information and Communications Technology

IMTS

International Merchandise Trade Statistics

IIP

International Investment Position

ISIC

International Standard Industrial Classification

MFS

Monetary and Financial Statistics

MNE

Multinational Enterprise

NSO

National Statistical Office

NPISH

Nonprofit institutions serving households

OECD

Organisation for Economic Cooperation and Development

P2P

Peer-to-peer

PPI

Producer Price Index

TFP

Total Factor Productivity

Measuring the Digital Economy
Author: International Monetary Fund. Statistics Dept.