The Role of Digital Connectivity in Narrowing Disparities between Regions

Russian Federation (Lall and Lebrand 2020). Improvements in transport connectivity are often not enough to support economic development in less attractive locations. The quality of local amenities and the strength of comparative advantage in the export sector are strong predictors of gains across districts.

Domestic policies and investments that support spatial mobility of labor and internal connectivity can mediate potential trade-offs between spatial efficiency and equity within countries. Analysis of the BRI shows that by supporting measures that enhance domestic labor mobility, policy makers in Central Asia can leverage these large-scale infrastructure investments to reshape their economic geographies. These policies will allow for faster development and avoid the risks associated with balancing efficiency with equity concerns (Lall and Lebrand 2020). Many Central Asian countries retain remnants of the Soviet-era propiska systems, which are internal passport requirements, and limit mobility and access to services. Similar systems are in place in China (hukou) and are prevalent in Vietnam (ho khau) and other countries (see chapter 3). Policy makers may thus want to focus on relaxing domestic policies that restrict spatial mobility.

Complementary investments in trade facilitation can accentuate economic gains around hubs, while investments in domestic transport networks help spread the benefits spatially. As the returns to infrastructure taper off, such as in China, places will need to combine complementary factors to infuse economic activity. Analysis of the BRI suggests that investing only in transport infrastructure creates a large number of absolute losers, while investment in both transport and trade facilitation benefits almost all locations. Simulations show that in Central Asia, districts with high employment in nontraded sectors and districts that experience low reductions in transport costs would experience negative welfare gains. However, when these costs are complemented with reductions in border costs and increased amenities, almost all districts would benefit from lower transport costs and experience positive welfare gains (figure 4.7) (Lall and Lebrand 2020).

The Role of Digital Connectivity in Narrowing Disparities between Regions

Digital technologies can also play a key role in reducing trade costs; however, the extent to which they are successful is contingent on complementary factors. Technological innovations such as the telegraph cables of 1860s, the mobile phone revolution in developing countries during the 1990s, and the advent of Amazon and e-commerce in the 2000s have lowered trade costs tremendously. Information technology has dual effects: it permits dispersion of certain routine activities, while encouraging agglomeration of complex productive activities. It improves connectivity and matches between producers and consumers, but in most cases it complements rather than substitutes for physical connectivity. Studies show that digital technology improves welfare by