Daily Management Review

IMF: Economical statistics overlooks digitalization


The massive penetration of information technologies into business models and products transforms the economy and social interactions, but the lack of generally accepted definitions of the digital economy and the digital sector makes it difficult to collect and analyze statistical data in this area, the IMF states. So far, the margin of error is relatively small due to the still modest share of the sector in GDP, but the IMF advises statistical services to think about changing the methodology.

Since the early 2000s, digitalization has significantly changed the life of society. The IMF defines digitalization as understand the penetration of data and Internet technologies into production and its results, new forms of consumption of the state and households, fixed capital, cross-border flows and finance. The speed of the transformation raises questions about possible underestimation of economic activity and the economic welfare associated with digital products in the GDP structure. In particular, this is facilitated by the mystery of slowing the growth of labor productivity against the backdrop of a technological breakthrough. Since the mid-2000s, Internet platforms and smartphones have given consumers access to many new services, while GDP and labor productivity in developed economies have demonstrated weak growth.

However, linking these phenomena to each other will be a mistake, the IMF stresses. Low productivity growth is a reality and a problem that requires a political solution, and not a statistical error. Those who argue the opposite, exaggerate the weight of potentially unrecognized digital goods and services in the GDP structure, the fund insists. Although in a broad sense, the concept of "digital economy" can include almost all economic activity, the analysis should focus specifically on the digital sector, that is, goods and services in the field of information technology, believe in the IMF. 

The IMF admits imperfection of the methodology, which is now unable to assess the change in the quality of digital products when calculating the deflator for them, and to adequately measure the volume of the economy of joint consumption through the use of online platforms. At that, the fund believes that so far the error is relatively small. The share in most economies still accounts for less than 10% in terms of value added, income or employment. So, in the USA, which has at least some data and research on the topic, the unaccounted contribution of the sector to labor productivity can be about 0.3 percentage points (p.p.), while the overall dynamics of this indicator shows a one or two deceleration etc. If the estimate of the contribution is correct, the same factors should lead to a small overestimation of the inflation rate, the IMF notes. This is especially important for assessing monetary policy in countries that faced deflationary pressure against a background of digital transformation.

The IMF also disagrees with the idea of directly incorporating free digital services, including those provided by platforms that live off ads and collect user data, into the GDP structure. Gross product should remain a measure of market and near-market output, valued at market prices, which allows relying on this indicator when developing state policy, the fund is confident. However, a number of free services would be worth considering in the deflator, demonstrating a change in quality when calculating the level of real consumption.

In addition, statistical agencies should intensify their efforts to develop indicators of welfare growth in the process of non-market production of households not included in GDP. Productivity in this area can grow through the use of free digital products, according to the IMF. In order to overcome the challenges of measuring the digital economy, it is also necessary to increase the access of statisticians to "big data" in general, which implies strengthening of cooperation between the public and private sectors.

source: imf.org