Authorized Authorized

254 WORLD DEVELOPMENT REPORT 2016
of the internet. It is not uncommon for incumbent
firms to secure profits by seeking protection through
regulatory means rather than by competing in the
open market. The problem arises when policy makers
oblige. There are also instances when regulations
are genuinely outdated or reflect risk aversion to
technological change and the consequent disruption.
For example, regulators around the world seem to be
conflicted on whether ride sharing services should be
regulated as transport service companies or as software
companies. Is mobile money a banking or a telecom
product? And in highly connected markets, could
the absence of competition across various digital platforms
inhibit future innovation? In some low-income
countries, the lack of supporting infrastructure—such
as electricity, roads, ports, warehouses, distribution,
and a well-functioning postal system—could hinder
firms from investing in digital technologies.
Appropriate regulation at various levels of
digital adoption
Policy reform priorities are likely to vary across countries
depending on their level of digital adoption.
Matching the country typology with appropriate
regulatory reforms leads to the following taxonomy
(figure 5.4):
• Emerging countries are characterized by low digital
adoption and protected markets. They are
also likely to suffer from poor infrastructure and
weakly accountable institutions. Investing in basic
physical and digital infrastructure (chapter 4);
lowering tariffs on digital products; encouraging
adoption of low-tech, disruptive applications such
as mobile money and social media; and reducing
product market regulations are some of the policy
priorities these countries should consider.
• Transitioning countries have mixed regulations, with
some sectors open to competition. Many of their
business regulations are codified, easily available,
and increasingly carried out online. These countries
also have fairly good physical infrastructure. Transitioning
countries thus need to remove regulatory
barriers across major sectors to incentivize firms to
invest in more efficient digital solutions and encourage
the entry of startups that can put competitive
pressure on incumbent firms. When required, they
should establish regulatory clarity between online
and offline businesses within the same sector. A
majority of developing countries and some developed
countries fall into this category.
• Transforming countries are open to competition in
most economic sectors and generally have account-
Figure 5.4 Regulations that encourage
competition also facilitate higher
adoption of digital technologies
Number of days to start a business
100
80
60
40
20
0 0.2 0.4 0.6 0.8 1.0
Technology:
Digital Adoption Index (Business)
Sources: Doing Business database (World Bank, various years); WDR 2016
team. Data at http://bit.do/WDR2016-Fig5_4.
Note: The Digital Adoption Index (Business) is the simple average of four
normalized indicators: the percentage of businesses with websites, the
number of secure servers, the speed of download, and 3G (third-generation)
coverage in the country.
able and capable governments that provide good
physical infrastructure and enforce business regulations
that promote competition. But they face
two distinct sets of problems. First, because they
are early adopters of digital technologies, many
of their firms have well-functioning but perhaps
less productive and nonscalable “legacy systems.”
These countries would benefit from relaxing their
regulatory constraints to level the playing field
between incumbent firms and (internet) startups in
all sectors, but especially in the legacy sectors. Second,
given the universality of digital technologies,
these countries have witnessed rapid growth of
digital platforms in selected sectors, some of which
have achieved a dominant position in their markets.
They need to find ways to encourage greater
competition across platforms: say, by eliminating
exclusivity conditions and introducing portability
and seamless transfers of data and information
across platforms.
Emerging countries: Invest in infrastructure
and enforce product market competition
For many lower-income countries, creating basic
business-sustaining infrastructure is a priority,