Digital Inclusion vs. Innovation Momentum: Is There a Tradeoff? And Must Economies Choose?

Governments tend to focus on advancing the digital and economic competitiveness of their countries and strive to be at the forefront of growth in talent, intellectual property, and cutting-edge research and development. The COVID-19 pandemic has placed in sharp focus the ability of digitally advanced societies to cushion the economic impact of the pandemic, and allow individuals to maintain social connections, remain informed, and keep the knowledge and information-based parts of the economy functioning. However, the pandemic has also highlighted the importance of and need for digital inclusion of those at the socioeconomic margins. In the face of such crises, economies with lower rates of digital inclusion among the poor risk distancing them from the dividends of an accelerating digital society. With these two phenomena in mind, we ask: is it possible for an economy to be both digitally inclusive and at the forefront of innovation-based digital growth?

To investigate whether there is a tradeoff between innovation momentum and socioeconomic digital inclusion, we have drawn on years of empirical observations. To analyze the tradeoff, our methodology uses two holistic measures—the state of digital inclusion and the rate of digital innovation. The first measure draws upon our Global Digital Inclusion: Progress to Parity Scorecard (socioeconomic), which compares multiple metrics of digital access and literacy between a country’s poor and wealthy groups. The second measure, innovation momentum, drawn from the Digital Intelligence Index (DII)—our triennial empirical scorecard, captures the focus an economy places on seeding, scaling, and commercializing digital innovations within its country, including inputs into innovation, processes of innovation, and outputs of innovation.

We begin by exploring whether such a tradeoff manifests across digital economies around the world or whether this occurs only in the Digital North (top 1/3 of the economies in their DII). The analysis is conducted by plotting the progress to socioeconomic digital parity of the 90 economies and innovation momentum, with the Digital South colored in teal and the Digital North colored in purple.

The tradeoff between digital inclusion of the socioeconomically poor and higher innovation momentum is statistically significant at 95% in the Digital North and insignificant in the Digital South. As such, the paper primarily focuses on the tradeoff between socioeconomic digital inclusion and innovation momentum in digitally advanced economies. Within this grouping of 31 economies, we note four zones that economies are categorized within: At the Crossroads, in blue, describes economies with relatively middling socioeconomic digital inclusion and innovation momentum. Prioritizing Inclusion, in green, holds economies that have elevated levels of digital inclusion with low levels of innovation momentum. Prioritizing Innovation Momentum, in red, includes economies that are at the forefront of innovative digital growth with low levels of inclusion of the poor. Finally, Innovative Digital Economy for All only includes a single economy, Germany, which fosters an innovation-forward economy that is inclusive by design.

We then conduct an archetypal analysis to understand this phenomenon better. We consider the United Kingdom and Spain as archetypal of countries at the crossroads of innovation and inclusion with three approaches to potentially emulate: the first, New Zealand, is also our primary motivation for the study. Policymakers in New Zealand consciously recalibrated towards ensuring digital inclusion of those marginalized, sacrificing some innovation momentum. The inverse archetype is South Korea, an exemplar of innovation-driven growth with glaring socioeconomic digital inequalities. Finally, we consider the socioeconomic inclusion and innovation dynamics of Germany, which straddles both quite well.

We conclude that advanced governments that choose to prioritize innovation will face the challenges of wider socioeconomic disparities and distrust in the digital economy among those citizens that are left behind.

Finally, we provide three broad implications for policymakers who strive to foster an economy that is both inclusive of those on the margins and at the forefront of innovation:

  1. Policymakers should provide incentives to entrepreneurs to target their innovations toward those at the margins, as inputs into innovation (public and private investment capital, intellectual capital, and entrepreneurial capital) have the most significant impact on the tradeoff.
  2. Investment in equitable and affordable education for all. This will foster digital skills training through both the formal education system and through continuing education initiatives for adults and seniors.
  3. Governments must ensure that small and medium-sized enterprises (SMEs) have the digital resources to compete in global markets, as these businesses employ most of any country’s population. Raising the digital skill levels of the employees and the technology absorption capacities of SMEs will go a long way in forging an innovative and inclusive digital economy.

This report was originally developed for the Center for Governance of Change (CGC) project with the IE Business School in Madrid, Spain, as part of The Digital Revolution and the New Social Contract research program. An abridged version of this paper is available from our partners here.

This research is a part of the IDEA 2030 initiative, made possible by the generous support from the Mastercard Center for Inclusive Growth.


IDEA 2030’s “Digital Inclusion vs. Innovation Momentum: Is There a Tradeoff? And Must Economies Choose?” report examines the link between the state of socio-economic digital inclusion and the rate of innovation across digitally advanced economies. The key insight of this study is: once societies reach a critical mass of users in the digital economy, the factors of production and value creation tend to gravitate towards creating and capturing value from the attendant network effects of existing, oft adept and affluent users. This leaves those at the socioeconomic margins further behind and exacerbates the gaps between the digitally affluent and the digitally deficient in a society in the absence of policy interventions channeling inputs—intellectual capital, investment capital, and entrepreneurial capital—into inclusive innovation by design.


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