Telecommunications, information technology and economic development

The report first examines how telephone networks have affected economic development in the past. Results suggest that telecommunications can have a large impact on subsequent economic growth. This provides evidence for the idea that good communications systems allow greater success in export markets and quicker diffusion of technology. Next, the report looks at how information technology will affect development in the future. The main conclusions are that information technology is likely to be most effective in developed countries in raising productivity in the service sector and increasing the rate of innovation. For most developing countries, the main attraction of information technology is to increase international communications and the openness of the economy. While information technology is likely to lead to greater globalization and integration of developing countries into world markets and higher levels of income on average, it will also tend to increase the wage premium to educated workers, widening income inequality in developing countries. The growth in inequality poses a threat to the stability of developing countries and may lead to a rejection of globalization by some. Finally, given the importance of embracing new information technologies, the question arises of how countries can best achieve this. An empirical cross-country study of the determinants of Internet use highlights the importance of the availability, quality, and cost of telephones as a major factor. In particular, the extent of the telephone system played a major role in determining which countries were first to gain access to the Internet, and still plays an important role in determining the level of Internet use in countries that are connected. In addition, the quality of the telephone systems is important in determining the number of Internet hosts within a country. In turn, there is widespread evidence that competition in telephone provision has significant benefits in all dimensions (coverage, quality, and cost) as compared with public provision. In addition, a competitive environment in telecommunications and in Internet provision is more likely to encourage the adoption of new technologies as they develop. (Author abstract, modified)