IT and the Economy

Recent Research on Effects

The Question Behind the Question

• We don’t doubt, do we, that using IT brings “profit” to organizations.

• Can we generalize that to other entities, such as countries?

• What kind of “profit” can countries get from IT?

• What prerequisites are necessary in order to obtain that profit?

The Development Question: The Digital Divide

• The term “digital divide” refers to two dichotomies:– Between rich countries that have a lot of

technology and use it to generate wealth and poor countries who have no access

– Within a country, to the fact that elites have access to IT while many (perhaps most) others do not.

The Politics of the Question

• Ministers of the Economy of third world countries have been saying for years that their countries need “access” to technology in order to improve their level of economic development (i.e., wealth)

• The access they are talking about is IT (in the form of computers, communication, whatever).

The Paradigm

Poverty + IT = Wealth

Is this true? Can poor countries become not-so-poor countries by “adding” IT?

Basic Question

• What is the relationship between some measure of IT use or penetration and the (state of) a country’s economy?

• This question can be asked at two levels:– International: Does ITV cause differences

between countries?– Intranational: Does ITV cause a difference

within a given country

Let’s call this

variable ITV

Let’s call this

variable ECV

Or Turn It Around

• Maybe economic conditions have an effect on IT?.

• Again, there are two levels for this question:– Does ECV influence ITV between countries?– Does ECV influence ITV within a given

country

Three Possible Answers to Each Question

1. Positive effect

2. Negative effect

3. No or negligible effect

ITV ECVECV ITV

ITV

• A measure of the pervasiveness of ICT in a society

• Common measures– Teledensity– No. of computers per capita– Computer investment by business– No of Internet users– No of ISPs– Average computer investment per business

ECV

• A measure of the health or function of the economy of a society

• Common measures– GNP or GNP per capita– Wealth distribution– Income distribution– ?

Measures adopted for This Study

• ECV Income distribution: Gini Index

• ITV Teledensity

A measure of how evenly distributed income is and indirectly (over time) the evenness of distribution of wealth; also a measure of economic opportunity or access to or participation in the economic system of a country

A measure of the connectivity of a society as a whole; how many telephone lines plus cellphones per 100 population; an indirect measure of access to communication. NOT directly a measure of computer pervasiveness, use or value

Limitations of Measures

• Income distribution: Gini Index

• Teledensity

Highly tied to income rather than wealth. Even highly skewed economies might support individuals in families or family-corporate type environments. Low Gini indices might arise from extremely high taxation, limiting choices or purchasing power. Access to wealth might not correlate with access to non-economic influence or value

Concerns communication only, not use of computers. A small number of individuals might own or control an inordinately large proportion of the access to communication. Communication costs might be very high, favoring the wealthy and denying access to the poor.

Gini is probably a highly non-

linear scale with floor and ceiling

Intervening Variable

• Income Level (GDP per capita per year)• Four Classifications:

– Very Poor: <$2000– Poor Between $2000 and $6000– Developing Between $6000 and $21000– Advanced Greater than $21000

• Similar to P, P and R Chapter 1, but with explicit values. There is some correlation

The Results

• Scattergram

• Interpretation

Plots countries’ position depending on Gini index and teledensity. High Gini index is towards the top and high teledensity is towards the right of the diagram. Figures are from the CIA Factbook and may represent approximations across a decade. Several countries are missing as there was no Gini index figure. The pair xy denotes a quadrant (LH means Low Gini index and High teledensity)

Countries appear in only three of the four quadrants. There are no countries having high Gini Index and high teledensity. Therefore it seems as though no country can score high on both indices. HH is therefore probably not a transition status; hence evolution must be either LL to LH or HL to LL (and then to LH). It cannot be that Gini index falls lags behind teledensity rises(since there are no HH)

Teledensity Class

Gin

i Ind

ex C

lass

>60

40-60

20-40

<20

0-20 20-40 40-60 >60

US, UK, Canada, France, Germany, Italy, Finland, Switzerland (N=17/22)

Laos, Mozanbique, Yemen, Rwanda, Guinea, Senegal, Bangladesh (N=24/43)

Vietnam, Moldova, Ecuador, Egypt, China, Peru, Lebanon (N=37/55)

Thailand, Cyprus, Costa Rica, South Africa, Hungary, Portugal (N=29/48)

Teledensity Class

Gin

i Ind

ex C

lass

>60

40-60

20-40

<20

0-20 20-40 40-60 >60

Advanced Countries: Annual GDP exceeds $21000

Very Poor: Annual GDP is less than $2000

Poor:Annual GDP is $2000-$6000

Developing Countries: Annual GDP between $6000 and $21000

Teledensity Class

Gin

i Ind

ex C

lass

>60

40-60

20-40

<20

0-20 20-40 40-60 >60

Very Poor

Developing

Poor

Advanced

QUADRANTS

Digital Divides

Teledensity Class

Gin

i Ind

ex C

lass

>60

40-60

20-40

<20

0-20 20-40 40-60 >60

Undeveloped economies with internal digital divides and major elites

Developing or transition economies with internal digital divides but more resources

Modernizing economies, without internal digital divides

Advanced or Newly Industrialized economies with localized internal digital divides

Teledensity Class

Gin

i Ind

ex C

lass

>60

40-60

20-40

<20

0-20 20-40 40-60 >60

MIGRATIONr = -0.235 ns.

r = -0.121 ns.

r = - 0.448 p=0.015 r = - 0.031 ns.

Questions

• Why are there no countries in the ICT-divided quadrant?

• What are the migration paths?• What are the forces that move countries

among these categories?• Is it possible for ICT enhancement to

cause Gini falls?

Teledensity Class

Gin

i Ind

ex C

lass

>60

40-60

20-40

<20

0-20 20-40 40-60 >60

MIGRATION

For very poor countries, an increase in teledensity without an average increase in income has no effect on income distribution, because the elite have all the access

Similarly for poor countries. However, when some threashhold is reached, many start to gain access to the increased teledensity and begin redistributing the income through earnings at the bottom.

For developing or “modernizing” countries, a certain level of income allows access to more or most inhabitants and thus a real redistribution of income takes effect.

In the wealthiest countries, there is little effect from increased teledensity; the most capable rather than everyone, benefit from the technology and de-distribution takes place.

Implications

• The development ministers are right, but it’s INTERNAL digital divides that prevent the benefits of access from bringing home the economic bacon.

• There is a MEDIATED effect from seed wealth to technology to access to use of technology to increased income at lower levels to general redistribution, at which point “natural selection” might take over to cause de-distribution of income.

What Is Happening

• At low levels of income, only the elite have access to income-producing technology.

• As incomes rise, the non-elite gain access to the technology and produce income, apparently redistributing some to the poorer segments

• When incomes rise sufficiently, all who can profit from IT have it and now those who use it best make the most from it, creating what looks like a concentration of income again.

The process

Highly skewed income distribution

Infusion of income

Access to Technology

at Cost

Access to others and information

Generation of income at ALL levels in society

Apparent redistribution

of income

Diffusion of benefits

throughout society

Most capable acquire most

benefits

Some Concentration of

income