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Digitalization and Trade. Which Governance is Required to Let All People Benefit from New Technologies?

In former times, trade meant carrying goods from one country in the world to another country, mostly via sea. This is not yet obsolete. But the telecommunication revolution has triggered two processes of substitution.


In addition to physical transport, trade today involves the transmittance of knowledge and information from one country to another in order to allow the physical production of the good close to the consumer. Such transmittance is trade in services and it could substitute for trade in goods (see the 3-D printing technology).


The second process of substitution is within trade in services. Instead of face-to-face contact between a foreign service supplier/customer and a local customer/supplier through foreign investment, movement of the customer to the producer or of the producer to the customer (the so-called modes of supply in service trade), cross-border trade of information as the crucial input for service production would substitute for the three other modes of supply.


This revolution does not make the world borderless but it changes the design of borders.


Instead of physical borders between countries, virtual borders between residents and nor-residents in the web emerge. Borders are intended to protect people and to control who is coming in and goes out. Virtual borders have to control the in- and outflow of data and knowledge and to secure that personal or firm data are neither abused nor manipulated or stolen.


This is a global governance task and so far it is unfulfilled. Even between countries at similar level of development like the US and the EU data security and protection is an open issue.


The second governance task comprises the challenge of the digital revolution for equity. New technologies in combination with trade have proven to make the income distribution within countries more unequal while eroding the income gap between countries. Especially in poor countries, the digital revolution can decouple the unskilled worker segment from the general development of income because it is the skilled worker segment which can link to rich countries via the new technology and trade and enjoy income gains. In short, inclusiveness is threatened by digitalization of trade and so is the social acceptability of new technologies if they are found to divide rather than integrate the world. .


Which rules are necessary to cope with these two governance tasks? Which is the best way to make these rules operational? Should it be the bottom-up way from bilateral agreements and its multilateralism , or should it be top-down through global agreements? How can we ensure that the inventors of the technologies, the silicon valleys of the world, have these challenges on their screens right from the beginning?



A selection of literature has been compiled by our team of the ZBW – Leibniz Information Centre for Economics in the following list. You can use EconBiz to research further information and literature.


The project group of the Kieler Wirtschaftsgymnasium is working on the topic “Digitalization and Trade. Which Governance is Required to Let All People Benefit from New Technologies?”. The group is supported by an expert team of the YES! 2016.

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The topic “Digitalization and Trade. Which Governance is Required to Let All People Benefit from New Technologies?” is presented by researchers of the Kiel Institute for the World Economy.

Pictures (from top to bottom): (c) Shutterstock / Archiwiz, (c) Kieler Wirtschaftsgymnasium