wb-kmv-september 16-20041 ict and global economic growth contribution, impact, and policy...

WB-KMV-SEPTEMBER 16-2004 1

ICT and Global Economic Growth Contribution, Impact, and Policy

Implications

eDevelopment Services Thematic Group, Informatics Program, ISG

The World Bank

September 16 2004

Speaker: Khuong Minh Vu

Research Associate, Harvard University


The ICT Revolution and Economic Growth (2)

PROCESS

INPUT OUTPUT

Technology Progress

• Drastic progress in ICT products performance (with the processor chip at its core: Moor’s Law)

• 1981: 29,000 transistors (i8088)

• 2004: 125 million transistors (Pentium 4)

• Dramatic decline in IT hardware price (by 2000 times over 40 years, 1960-2000)

• New applications (the Internet)

ICT penetration (1990-2000)

• PC: 7.6 times

• Mobile Phone: 57 times

• The Internet: 1600 times

• Number of Internet hosts: 300 times

• Global Phenomenon

Expenditures on ICT• Size and growth: from $1,300 billion in 1992 to $2,400 billion in 2001

Way of life

• Time with PC

• Communications & Learning

• Growth in ICT sector

• Ireland, India, Taiwan, Korea

• Growth in ICT-using sectors

• Banking, Health Care, Education, Consulting

• Manufacturing sector

• ICT-enabled businesses (Google, Allibaba.com)

• National economic growth

• Ireland, US, UK, Australia, Canada, Finland


The ICT Revolution: Drastic Decline in IT Hardware Price (2)

0

100

200

300

400

500

600

700

800

Computer Hardware

Non-Residential Structures

Industrial Equipment

Source: BEA data


The ICT Revolution: The Pace of Digitization 1990-2000

The Average Global Economic Growth: 3% The Average Growth in Total Trade: 5% The Average Growth in ICT Spending: 8%

The Pace of Globalization = 5%-3%=2% The Pace of Digitization = 8%-3% = 5%


ICT enhances the Quality and Timeliness of Decision Making

Ignorance

Uncertainty

Risk

Certainty

ICT


Research Focus and Main Results

Global Picture of ICT as a Source of Growth

Magnitude of ICT contribution to growth Dynamics: global ranking, convergence vs. divergence trend Determinants of Variations in ICT Contribution to Growth

Impact of ICT on Economic Growth

Share of ICT Contribution in output and ALP Growth Effect of ICT on Growth: Quantity, Quality and TFP Growth

Policy implications

ICT production vs. ICT use Policy framework for promoting ICT penetration ICT for Development


ICT as a Source of Growth:

ICT and Global Capital Stock

Qu

alit

y

Change in Capital Stock over 1990-1995: Quality vs. QuantityQuantity

-10 -5 0 5 10 15 20

-3

0

5

10

15

20

25

G7

Non-G7

Asia-11

LA-6

EEurope-8

Other-3

WorldQ

ualit

y

Change in Capital Stock over 1995-2000: Quality vs. QuantityQuantity

-10 -5 0 5 10 15 20

-3

0

5

10

15

20

25

G7Non-G7

Asia-11

LA-6

EEurope-8

Other-3

World


ICT As a Source of Output Growth: 1995-2000 vs. 1990-1995

-3.5-2.5-1.5-0.50.51.52.53.54.55.56.57.5

90-95 95-00 90-95 95-00 90-95 95-00 90-95 95-00 90-95 95-00 90-95 95-00

G7 Non-G7 Asia-11 LA-6 E. Europe WORLD

Country Group

Per

cen

tag

e P

oin

ts

ICT Non-ICT Hours Quality TFP


The Global Pattern of ICT Contribution to Growth:

1995-2000 vs. 1990-1995

densi

ty, %

of C

ountr

ies

ICT Contb. to Output Grow th, ppa

Period 1990-95 Period 1995-00

.05 .1 .17 .2 .3 .37 .4 .5 .6 .7 .8

0

5

10

densi

ty, %

of C

ountr

ies

ICT Contb. to ALP Grow th, ppa

Period 1990-95 Period 1995-00

.05 .1 .16 .2 .3 .34 .4 .5 .6 .7

0

5

10

ICT Contribution to ALP GrowthICT Contribution to Output Growth


The Global Dynamics of ICT Contribution to Growth: 1995-2000 VS. 1990-1995

1990-9

5, p.p

.a

ICT Contribution to Output Grow th, 1995-00 vs. 1990-951995-00, p.p.a

0 .1 .15 .3 .37 .45 .6 .75 .8

0

.1

.17

.2

.3

.4

Argentina

Australia

Austria

Belgium

Brazil

Bulgaria

Canada

Chile

China

Colombia

Czech

Denmark

Egypt

Finland

FranceGermany

Greece

Hongkong

Hungary

IndiaIndonesia

Ireland

Israel

Italy

Japan

KoreaMalaysia

Mexico

Netherlands

New Zealand

Norway

Philippines

Poland

Portugal

Romania

Russia

S. Africa

Singapore

Slovakia

Slovenia

Spain

Sweden

SwitzerlandTaiwan

Thailand

Turkey

UK

US

Venezuela

Vietnam


ICT Contribution to Growth: Convergence and Divergence Trends

0.30

0.35

0.40

0.45

0.50

0.55

1990-95 1995-00

Periods-

conv

erge

nce

World Industrialized Asia-11 LA-6 E. Europe

0.30

0.35

0.40

0.45

0.50

0.55

1990-95 1995-00

Period

xichm

a-co

nver

genc

e

Upper-income Middle-income Lower-income


Determinants of Variations in ICT Contribution to Output Growth

Income level Education Institutional quality Integration (Openness) English fluency

Furthermore, impact of institutional quality, integration, and English fluency significantly accelerates over time.

(I) (II) Variables Coefficient t-statistics Coefficient t-statistics

Income 0.038*** 2.72 0.043** 2.32 Education 0.011** 2.07 0.010* 1.68 Institution 0.020 0.93 0.028 1.36 Openness1 0.012 1.03 --- --- Openness2 --- --- 0.038 0.93 English 0.140*** 6.59 0.126*** 4.98 After95 0.201 1.31 0.130 0.91 Income_After95 -0.013 -0.65 -0.010 -0.53 Education_After95 0.003 0.52 0.003 0.41 Institution_After95 0.064** 2.27 0.054** 2.22 Openness1_After95 0.020 1.36 --- --- Openness2_After95 --- --- 0.047** 2.32 English_After95 0.068** 2.11 0.082*** 2.89 Asia 0.133*** 10.46 0.133*** 3.24 Latin America 0.103*** 3.80 0.101*** 4.07 Eastern Europe 0.053* 1.88 0.000 0.01 R-squared

0.95

0.95 Number of observations 100

100


Share of ICT Contribution in Output Growth

19

90

-95

, %

Share of ICT Contb. in Output Growth, 1995-00 vs. 1990-951995-00, %

5 10 15 20 30

5

10

15

20

Argentina

Australia

Austria

Belgium

Brazil

Canada

Chile

China

Denmark

Egypt

France

Germany

Greece

Hongkong

India

Ireland Israel

Italy

Japan

Korea

Malaysia

Mexico

Netherlands

New Zealand

NorwayPhilippines

Poland

Portugal

Singapore

Spain

TaiwanTurkey

UK

US

Vietnam


Effect of ICT on the Quality of Growth

An increase in ICT Capital Stock per capita by 10% adds nearly 0.1 percentage point to output growth, controlling for growth in capital and labor inputs

For all the sample, ICT Stock per capita has a positive but not and statistically significant correlation with the “net” TFP growth (TFP growth less the contribution of changes in capital and labor quality. This relationship, however, is statistically significant for the G7 group.


ICT Production vs. ICT Use

The Dynamics of ICT Penetration

Framework for Policy Agenda to Promote ICT Penetration

ICT for Development Exploiting the Internet Revolution Utilizing the Internet to Promote Local Economic

Development

Policy Implications


Policy Implications:

ICT Production vs. ICT Use

With S units of scare resources, the government considers two alternatives

Fostering ICT Diffusion

Subsidizing the ICT-Producing Sector

Market uncertainty

Success (p)

Failure (1-p)

g S+ e S

(a+) SY*

e S

What should be of a higher Priority for Governments



The Dynamic Model of ICT Penetration

Promoting Investment in ICT: Benefits vs. Costs

H

L

X M C

Mt+1

Mt

450-Line

High

Q

Policy Focus: Shifting M to the Left



Framework for ICT Policy Agenda (1)

Competencies

CostsBenefits

InfrastructureConditions

Making the educational sector a major focus of investments from all sources.

Reforming the education sector with strategic investments to make it a major engine for driving the economy towards a knowledge-based economy. Propping up ICT-related skills trainings with extensive supports. Encouraging competition among localities on ICT diffusion and monitoring the effectiveness of their ICT use for development.

Improving the overall business climate: openness, competition, transparency, and governance.

Promoting e-government, e-commerce, and other Internet-enabled services.Enhancing networking and cooperation among firms and local authorities through Internet-enabled cluster initiativesProviding incentives for complementary investments, which are critical for making investment in ICT more profitable.

Making/supporting strategic investments in telecom infrastructure: bandwidth capacity of connection to the global Internet backbone, and of national long-distance telecommunication networks.

Promoting the quality and pervasiveness of access to ICT services, especially the InternetReforming the regulatory framework related to telecommunication infrastructure development and operation.

Opening up the domestic ICT market and fostering competition among ICT equipment vendors.

Liberalizing telecommunication with regulatory reforms to bring down telecom costs and enhance the quality of service.Promoting the growth and vibrancy of ICT-related services, which help firms and households lessen the costs of investment in ICT.

Understanding potential applications of ICT and its impact on economic growth and development.

Recognizing the risk and opportunity costs of subsidizing the ICT-producing sector. Comprehending the deep determinants of ICT diffusion and considering them as the fundament to the government ICT agenda.

Concepts


The centrality of the concept issues ICT-producing sector vs. ICT applications Increasing the number of people making “profits” from

investing in ICT is more important than just pushing for short-term ICT penetration

“Benefits” is more important than “costs” in promoting the penetration of ICT

Promoting ICT penetration should reinforce market forces instead of distorting them

Knowledge and Wisdom vs. Information and Data


Framework for ICT Policy Agenda (2)


Information

Knowledge

Wisdom

Benefits from the Internet

Policy Focus


Exploiting the Internet Revolution

Knowledge Hierarchy

Participation,

Facilitation

Fostering, Incentives Financial support

What, Where, When, Who

How

Evaluated Understanding: should; should not, better, best.

Fostering, Incentives Financial support


Thank you for your attention

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