TPRC 2024: The 52nd Research Conference on Communications, Information and Inter

Link to paper

Abstract:
The issue of cross-border data flow is increasingly central given the crucial role data plays as the lifeblood of economic and social interactions (OECD, 2020). With the rise of digitalization and cross-border transactions, concerns about national and cyber security have become more pronounced (Pangestu, M. and H. Lee-Makiyama, 2019). To address these challenges, many advocate for cross-border data to adhere to privacy and security laws or standards, which can be more effectively enforced through data localization policies. These policies may entail requirements for certain types of data to be stored in local servers and mandates for local data processing (OECD, 2020).
The digital economy thrives on the currency of data, which fuels transactions for both big tech and homegrown tech companies alike. As digital transactions increasingly transcend borders, facilitated by cross-border data flows, they significantly shape the landscape of digital marketplaces. This process involves the monetization of data, enriching global marketplaces, and enabling personalized services, particularly benefiting emerging nations in their digital advancement.
Drawing from Varian's concept of network externalities, where the value of digital products amplifies with network size, it becomes evident that a few economically powerful countries dominate digital platforms and services, leaving others as users or secondary innovators. This power asymmetry, coupled with limited computational capabilities in developing nations, results in a lack of control over the data generated by their residents.
The challenge of cross-border data flows lies in balancing data mobility, personal privacy and security, and the process of data monetization. Drawing an analogy to the Mundell-Fleming Trilemma in Keynesian Macroeconomics, we argue that national regulatory regimes face similar trade-offs. Just as a country cannot simultaneously peg an exchange rate, maintain an independent monetary policy, and allow free cross-border financial flows, in the realm of data management, a nation cannot uphold personal data privacy and security while maintaining independent data monetization mechanisms and consenting to unchecked cross-border data flows. Choices in one domain necessarily impact the others, highlighting the complexity of policymaking in the digital age.
We have conducted a cross-country analysis based on a unique dataset to empirically validate our hypothesis, providing insights into the dynamics of cross-border data flows and their implications for digital marketplaces and national policy frameworks.