This report characterizes the digital economy with data and artificial intelligence, and studies the impact of data policy on economic growth and international service trade. Although there are several papers and reports that emphasize the importance of data as an engine of economic growth, there is a lack of rigorous analyses through economic models. It is also difficult to find empirical evidence showing the relationship between data policy and trade in services. The report is designed to investigate the digital economy through the lens of economic growth and trade. Several useful results and implications are provided to enhance the digital economy in Korea.
   The report divides data into two categories: private data and public data. Many countries pay attention to utilizing private data as a new resource to boost economic growth. It is often said that data is like oil, but this kind of metaphor misleads readers in understanding the nature of data and the digital economy. Data is a production input factor but also shows many other economic characteristics such as non-rivalry, non-excludability, privacy, externalities, etc. In addition, data can be combined with recent digital technology such as artificial intelligence, machine learning, deep learning, sensor, robotics, etc. The report summarizes several useful statistics relating to the market for big data, data supply and demand, and workers for the data industry by using datasets from international organizations, private research institutes, and academics.
   The authors build an economic growth model with data and artificial intelligence in a dynamic general equilibrium setting to study the impact of data policy. In the constructed model, the economy consists of representative household, final goods producer, intermediate goods producer, and R&D producer. The model also reflects how data is created and destroyed, how producers use data in their sectors, how data is related to artificial intelligence technology in the R&D sector, and how workers play roles with other input factors. The report finds that an economy with data and artificial intelligence can grow perpetually even though there is a risk of privacy violation. It also finds that data indeed is a production factor that can be used to create new technology enhancing productivity and economic growth. Still, privacy is a very important aspect in the sense that privacy determines the rate of consumption growth and allocation of resources available in the economy.
   Data policy is closely related to trade in services. The authors collect data from the World Input-Output Database and Digital Trade Restrictiveness Index to study the impact of data policy on trade in services. They estimate the relationship between restrictive data policy and service trade at industry-level by controlling exporter-industry-year, importer-industry-year, and exporter-importer-industry fixed effects. The report finds a negative correlation between restrictive data policy and trade in services, which makes sense intuitively because the restrictive data policy of a hosting country increases the production and trade costs of its trading partners. The main result remains robust under alternative measures for data policy.
   Finally, the report reviews the Korean government’s plans for boosting the digital economy and amending data-related laws and institutions, and provides several policy implications.