Telecommunications - a means to economic growth in developing countries?

Abstract

The world economy has experienced an enormous growth the past 50 years. Yet the gap between the richest and the poorest countries has increased. There have been several attempts to explain the increased differences. Proponents of the endogenous growth theory claim that a technological revolution has created a new growth paradigm. Following the information technology revolution seen in the industrialised world in the 90s, information and communication technology has often been launched as a possible remedy for the slow or decelerating growth developing countries have faced. This paper seeks to explore the relationship between telecommunications development and economic growth by performing an econometrical analysis of 61 developing countries and 23 developed countries between 1990 and 1999. By estimating a simultaneous equation model where telecommunication infrastructure investments are endogenised into the aggregated economy and country specific fixed effects are included, simultaneous causality and spurious correlation are recognised. The results of the analysis indicate that there is a significant correlation between telecommunication and GDP growth. Overall, there seems to be larger growth effects from telecommunication development in developing countries than in developed countries, a result that contradicts earlier findings and the notion of network externalities. The report suggests that the indirect effects, i.e. the gain in productivity that other sectors experience as a result of development in the telecommunication sector, are more significant in developing countries, and this might explain the large growth effects found in these countries.