BRUSSELS—The European Union’s expanding digital regulatory model is hindering innovation and technology adoption across the Global South, imposing costly compliance burdens that disproportionately affect developing economies and local firms, according to a report released today by the Center for Data Innovation.
The report concludes that in exporting its digital rules globally—a pattern known as the “Brussels Effect”—the EU has effectively conducted a campaign of regulatory imperialism to exert influence over countries with different economic systems and technological realities. Focusing on the EU’s General Data Protection Regulation (GDPR), Digital Services Act (DSA), Digital Markets Act (DMA), and the upcoming Artificial Intelligence Act (AIA), the report shows how the Brussels Effect imposes compliance burdens that constrain domestic firms, discourage widespread technology adoption, inhibit innovation, and entrench the dominance of leading Western firms throughout the Global South.
“The EU’s precautionary, heavy-handed approach to digital regulation is hurting innovation not only within Europe, but far beyond its borders,” said Daniel Castro, director of the Center for Data Innovation. “The Brussels Effect pushes the EU’s internal rules onto other countries, with especially damaging consequences for the Global South—where nations bear the costs of reduced innovation despite having had no meaningful role in shaping the laws the EU expects them to follow.”
As a case in point, the report details how adopting GDPR-style rules imposes steep costs that have a direct impact on innovation. The law’s data localization, centralized enforcement, and extraterritorial requirements divert government and firm resources from innovation, slow digital adoption, and limit cross-border data flows for both the EU and its trading partners. For example:
- Between 2013 and 2018, South Africa saw gross output fall 9.1 percent and productivity 3.7 percent due to data restrictions; Indonesia faced similar declines.
- In Kenya, the 2019 adoption of a GDPR-style authority coincided with the closure of its open data platform and slowed tech-sector growth.
- In Brazil, Western privacy-enhancing technology firms outpaced domestic providers under GDPR-inspired rules, showing how imported frameworks can favor foreign over local innovators.
The report recommends that countries in the Global South pursue AI governance alternatives to EU harmonization:
- Reject EU-style harmonization: Tailor AI and data rules to local development priorities instead of rigidly following EU models.
- Adopt flexible, interoperable frameworks: Voluntary, collaborative approaches like APEC’s CPEA or the OECD Privacy Guidelines show how privacy and innovation can coexist.
- Strengthen regional cooperation: Alliances in Latin America, West Africa, and Southeast Asia demonstrate how collective governance can pool expertise, enable AI development, and amplify international influence.
Premature global adoption of EU digital rules risks constraining growth and innovation in the Global South. Context-sensitive approaches would better enable these countries to participate in the global digital economy.
Contact: Nicole Hinojosa, press@datainnovation.org
