Decoding the smart economy: how digital infrastructure drives urban growth
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Author | Lucía Burbano
This article was first published by Tomorrow.City. Find it here.
The digital economy, powered by smart technology, is at the heart of smart cities and already represents a significant part of the global GDP. In fact, the world’s largest urban areas already contribute a substantial 60% of global GDP, and as cities grow and become more prosperous, this figure will increase even further.
In the coming decades, experts predict that up to 80% of future economic growth in developing regions will be concentrated in cities. Digital infrastructure, which underpins this economy, enables smart cities to serve engines of economic prosperity and to offer a wide range of growth opportunities.
How digital infrastructure supports urban growth
A study on the implementation of smart technologies in China, which can be applied to other parts of the world, concludes that areas with high levels of investment in innovation tend to have stronger technological foundations and R&D capabilities. This enables these cities to integrate and use new digital infrastructure resources more effectively, thereby optimizing the spatial distribution of land.
Furthermore, widespread adoption of digital technologies can create a multiplier effect, boosting support for urban innovation systems and fostering technological innovation and the development of new productive forces. This, in turn, enhances local urban planning.
Cities with extensive industrial land typically engage in more intensive production activities that require efficient logistics, information management, and resource allocation systems. These cities also have a greater need for advanced and effective digital tools to boost productivity.
The development of digital infrastructure in these areas helps optimize resource management and production processes, initially improving the efficiency of industrial land use. This, in turn, drives a more efficient allocation of overall urban resources.
Moreover, smart urban transformation has a spatial spillover effect, which, according to the study’s authors, extends within an 80 km radius. This is likely because geographic proximity facilitates the rapid flow of information and resources. Additionally, as smart cities attract investment, companies and investors may seek opportunities in less congested areas, generating new positive effects in neighboring cities.
Another interesting finding is that, in addition to supporting urban growth and well-being by boosting the economy, smart city initiatives increase urban land-use efficiency by more than 10%.
In figures: the economic impact of digital infrastructure
A World Economic Forum report explains that a connected, data-driven urban environment not only improves public services but also provides the underlying infrastructure needed to enhance health, expand educational opportunities, and drive economic prosperity. For example, a 10-percentage-point increase in broadband penetration could boost GDP growth by between 1.2% and 1.4%.
Key technologies supporting digital infrastructure include:
Generative Artificial Intelligence
The technology everyone is talking about, with broad applications across various technological areas such as apps, security, and infrastructure, due to its ability to optimize operations, increase network reliability, automate routine tasks, and enable proactive problem-solving.
According to McKinsey and Co, Generative Artificial Intelligence (GenAI) accelerates technology modernization timelines by 40% to 50% and reduces costs associated with technical debt by 40%, while also improving the quality of outcomes.
Internet of Things
The Internet of Things (IoT) drives the smart economy by creating new revenue streams and increasing efficiency across various sectors, with a potential economic impact of $3.9 to $11.1 trillion by 2025. This impact comes from improved operational processes in manufacturing, optimized resource management in smart cities, and the emergence of new services and business models enabled by connected devices.
For example, smart factories could boost manufacturing output by nearly $2 trillion and connected energy grids could generate hundreds of billions in value.
5G
5G networks are transforming connectivity, providing high-speed access and a range of features that enhance reliability and coverage, enabling IoT operations and real-time data exchange.
Cities are increasingly turning to the private sector to meet the growing demand for affordable broadband and related services. These shared investment models have significantly eased the financial burden on cities.
Meanwhile, falling 5G infrastructure costs, the availability of shared spectrum, and the collaborative distribution of economic and operational expenses make private 5G networks a more accessible solution for urban connectivity, allowing cities to sustainably expand the number of endpoints without incurring costly expenditures.
Data
Data is another essential resource in the digital world, with great potential for economic growth, competitiveness, innovation, job creation, and overall social progress.
The development of data-driven applications provides a range of benefits to public administration, citizens, and businesses: improved policy-making and public services, enhanced healthcare, and new products and services, while also reducing public service costs and increasing their sustainability and efficiency.
What does the future hold for digital infrastructure?
Looking ahead, for digital infrastructures to continue driving city growth, the following aspects must be considered:
Cities must find innovative ways to use new technologies to optimize the balance between different land-use needs, such as housing, activating industrial areas, redeveloping, and revitalizing abandoned industrial land, public spaces, and social services.
By integrating technologies into policies, plans, and predictive and preventive projects to build various scenarios, anticipate environmental and climate challenges, economic risks, as well as social transformations and related health concerns.
Explore how cities can collect, use, store, and share data at a more granular, neighborhood level to improve service delivery, drive local economic development and innovation, provide training and reskilling for vulnerable groups, and attract and retain talent.
Photographs | Unsplash/Houston SEO Directory, Unsplash/Anita Chong, Unsplash/KS KYUNG