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Developing Economies Start with the Free Flow of Data

The tech industry is the most dynamic sector in history: it is highly competitive, profitable, and creates jobs around the world. Its products and services have lowered barriers to empower people in ways proven to accelerate poverty reduction, raise standards of living, and help connect people in rural areas to financial and welfare systems that had previously been in distant population centers. Technology has changed the way that we look at development and it is little wonder many developing countries are working to develop a domestic tech sector as a source of economic growth.

To develop their local tech sector, many governments seek to expand broadband access or mobile networks in their countries. And yet a number of these countries are simultaneously attempting to restrict where data can be stored and processed in a mistaken effort to spur the transformative power of technology in their domestic markets.

Unfortunately, by restricting where data can be stored—or by mandating that data must be copied within the borders of a specific country—governments erode the very underlying benefit of the internet to connect, share, and innovate, which yields the opposite of their intended outcomes.

Data localization policies may at first seem to be a good solution: data localization by definition requires infrastructure to be built in country, but more data centers do not equal more connections to citizens and businesses. Because of the increased underlying costs of doing business, services will expand connections more slowly and citizens will pay more for those connections.

Time and again there is evidence that forcing the localization of data increases costs for startups and entrepreneurs by artificially reducing the supply of server space relative to the global market and making it more expensive. Data localization also deters investment from venture capital and multi-national businesses that help develop local industries because it necessitates costly business operations, and costly business operations prevent start-ups from scaling up. This effect is often compounded in developing countries with unreliable power and communications grids. Startups would prefer to host their services in established, reliable data centers because when the power goes out, so does their business.

As governments accelerate efforts to modernize their economies through technology and the data it generates, they should adopt policies that incentivize and encourage technology firms to invest and expand connections rather than constraining access to, and use of, data.

The rise of technology economies around the globe has proven countries that steer clear of localization requirements benefit from the free flow of data by allowing their innovators to access state-of-the-art digital products as seamlessly as anyone else in the world. It allows their companies to share and collaborate across borders and be just as cutting edge and competitive firms from the most developed countries. And individuals, particularly in rural areas, seeking to sell a product or service rely on data flows to make transactions, can find new customers and expand their operations.

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Public Policy Tags: Forced Localization