Who spies on whom? Unravelling the puzzle of state-sponsored cyber economic espionage

Abstract

Traditional conceptions of state-sponsored cyber economic espionage suggest that countries with different product profiles should experience high levels of espionage between them. However, this is not what we observe empirically. Incidence of economic espionage tends to be prevalent between countries with similar product and manufacturing profiles. This suggests that we may be missing critical parts of what drives state-sponsored cyber economic espionage. To help unravel this puzzle, I develop a novel theoretical framework that proposes that because attackers seek to maximize the expected utility of stolen information, they target countries that possess similar productive capabilities as themselves. Consequently, countries with dissimilar product profiles should avoid targeting each other for espionage. I test this argument using data on states’ product complexities and cyber economic espionage for a global sample of countries in a dyadic analytical framework. The results robustly show that for any pair of countries, as the complexities of their products diverge, they become significantly less likely to aim espionage attempts at each other. This study thus contributes new insights to explain why cyber economic espionage appears restricted to only a small number of advanced economies. It also illustrates the utility of large-N dyadic approaches in studying state-sponsored cyber espionage.