Data Sovereignty Boosts GDP 0.6% Through Free Cross-Border Exchanges

Data sovereignty has emerged as a critical concept in the digital age, shaping how organizations, state actors, and internet users control data collection, storage, and utility systems. As global trade increasingly relies on data sharing and processing across borders, the concept of data sovereignty is redefining the rules of international trade and economic growth.

Data sovereignty measures, such as localization methods and extensive assessments before outbound data transfers, can bolster national markets by helping mature industries offer high-performing services within state jurisdictions. This is particularly beneficial for countries with large populations, where companies can maximize revenue generation by harnessing vast data reserves. However, an over-reliance on national data sovereignty can negatively impact the domestic economy, with potential decreases in GDP, employment, and foreign direct investment (FDI). This can lead to siloed global economic ecosystems and detrimental effects on international trade.

Hyper-localization of data-dependent industries like AI and cloud service providers can hinder free cross-border trade and scaling operations. It can also reduce revenue diversification channels, cause disruptions, and generate suboptimal yields for companies relying on foreign data storage units and overseas processing facilities. Additionally, hyper-sovereign data management can undermine cross-border trade agreements and data-sharing treaties, requiring additional capital reserves to manage workloads.

To balance innovation and sovereignty, some countries facilitate cross-border data exchanges when they receive reassurance of optimum data protection levels bound by legal contracts. These bilateral or multilateral contracts help nations maintain data sovereignty of their citizens by setting out specific conditions for data usage. Such a data sovereignty model can boost international trade, global industrial productivity, and cross-border collaborative projects, leading to a vibrant domestic economy.

Data shows a 0.6% rise in GDP and a 1% increase in employment rates due to free data exchanges across countries. Digital-native companies depend on large aggregated datasets, and access to foreign data reserves helps them build innovative and customized services for international customers. Cross-country exchange of proprietary data facilitates researchers and scientists to work on new data-driven products.

An estimate shows that a lower data restriction on the International Technology and Innovation Foundation data index can decrease overhead costs by 0.6%. This can open the global and domestic markets to more competition, helping companies improve user-oriented services through high-quality data accessibility. Due to free data flows, national markets can become attractive destinations for data-led companies, with more domestic and foreign firms offering SaaS and AI solutions.

User data forms the core of the global digital economy, and protecting user data sovereignty is supreme for building market confidence and generating long-term value. Personal data protection laws must protect citizens’ data during cross-border transfers. For example, the EU General Data Protection Regulation (GDPR), the Asia-Pacific Economic Cooperation’s (APEC) Cross-Border Privacy Rules System, and the Privacy Enforcement Arrangement (CPEA) are necessary regulations to maintain individual data sovereignty.

Despite such legislative measures, the Schrems II decision invalidating the EU-US Privacy Shield agreement has posed major challenges for transatlantic data transfers. Currently, the EU-US Data Privacy Framework offers provisions for EU citizens’ data protection measures within the US jurisdiction, limiting US intelligence from accessing European users’ data. However, with an impending Schrems III case, a better transatlantic data transfer approach is necessary to balance data protection, innovation, and cross-border information flows.

In a data economy, trust and reliability are key for encouraging users to participate in data-sharing systems. A user-centric data sovereignty model initiates a trust-building exercise by implementing robust data usage policies and agreements to instill confidence among stakeholders. When users are confident to share their data due to strong security measures, it will lead to more innovative products, knowledge sharing among nations, collaborative exercises, and global economic growth. A user-focused data sovereignty thus enables interoperability, as organizations and governments can seamlessly share data across national domains without regulatory hurdles. As data-intensive industries like AI continue to evolve, data sovereignty will ensure responsible and sustainable growth in the long term.