Technological and Economic Decoupling in the Cyber Era

36 Pages Posted: 5 Jan 2021

See all articles by Daniel Garcia-Macia

Daniel Garcia-Macia

International Monetary Fund (IMF) - European Department

Rishi Goyal

International Monetary Fund (IMF)

Date Written: November 2020

Abstract

The COVID-19 pandemic has accelerated the shift toward digital services. Meanwhile, the race for technological and economic leadership has heated up, with risks of decoupling that could set back trade and growth and hinder the recovery from the worst global recession since the Great Depression. This paper studies the conditions under which a country may seek to erect barriers-banning imports or exports of cyber technologies-and in effect promote decoupling or deglobalization. A well-known result is that banning imports may be optimal in monopolistic sectors, such as the digital sector. The novel result of this paper is that banning exports can also be optimal, and in some cases superior, as it prevents technological diffusion to a challenger that may eventually become the global supplier, capturing monopoly rents and posing cybersecurity risks. However, export or import bans would come at a deleterious cost to the global economy. The paper concludes that fostering international cooperation, including in the cyber domain, could be key to avoiding technological and economic decoupling and securing better livelihoods.

JEL Classification: F12, F13, O33, F10, O30, F14

Suggested Citation

Garcia-Macia, Daniel and Goyal, Rishi, Technological and Economic Decoupling in the Cyber Era (November 2020). IMF Working Paper No. 20/257, Available at SSRN: https://ssrn.com/abstract=3758091

Daniel Garcia-Macia (Contact Author)

International Monetary Fund (IMF) - European Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Rishi Goyal

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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