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A working paper published by the European Central Bank suggests a relationship between the spread of digital technologies and the quality of oversight by central institutions and a range of regulatory governance factors.

As a proxy for wider technology adoption, the paper analyses adoption rates of internet and broadband subscriptions in 101 different countries over a 24-year period, and then seeks toto describe their evolution with an algorithm weighted by a series of governance and institutional factors.

“The quality of institutions and governance affect how easy or how hard it is to use digital technology, for example to get access to the internet, or to use search engines, mobile phones, or robots,” say the paper’s authors, Claudio Baccianti (Project Manager, EU Sustainable Finance at Agora Energiewende), Vincent Labhard (Principal Economist at ECB), Jonne Lehtimäki (Consultant for ECB).

Governance factors included regulatory quality - defined by the ability to implement sound regulation that promotes private sector development - and “score” for rates of corruption, using the Worldwide Governance Indicators (WGIs) published by the World Bank. Institutional indicators, meanwhile, cover political stability and the effectiveness of government in different countries.

When determining the significance of institutional and governance measures, the paper accounted for other key factors, including national economy, human capital, and level of development, increasing the statistical significance of relationships noted.

The researchers found that European and OECD countries generally performed similarly well in terms of digital adoption, with a clear link to their high scores for governance.

Outside of these countries, where the governance and institutional scores were lower, rates of progress were slower, and more geared to real GDP.

While generally showing a positive relationship between strong governance and digital adoption rates, the results also showed that high governance can occasionally lead to slower digitalisation. In EU countries, for example, it was also found that broadband subscriptions were hindered by governance; a likely sign of “excessive” regulation.

There is little data that can be used to draw similar conclusions about emerging technologies such as artificial intelligence, the internet of things, ‘digital twins’, and quantum computing, the authors point out. They suggest that regulators encourage the development of this information by traditional data sources while ‘big data’ sources could be found to supplement further research

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