Economic Impact of ICT

Charles KennyCarlo Maria Rossotto

What Causes Economic Growth?

• The Right Culture (1900)?• Investment in Capital (1950s)?• Investment in People (1970s)?• The Right Policies (1980s)?• The Right Institutions (1990s)?• The Right Culture (2000s)?

Whatever It Is, It Isn’t Just Investment

-6

-4

-2

0

2

4

6

8

10

12

14

0 5 10 15 20 25 30 35 40 45

Decade Investment (% GDP)(Data 1950-90 Across Countries)

Dec

ade

GD

P G

row

th (%

)

But Technology Has a Large Role

0

2

4

6

8

1958 1962 1966 1970 1974 1978 1982 1986 1990

Rep. of Korea

Ghana

Thousands of 1985 international dollars

Difference attributed to knowledge

Difference due to physical and human capital

Teledensity and Income

y = -0 .20 94x2 + 5 .0228x - 25 .283R 2 = 0 .814

-4

-3

-2

-1

0

1

2

3

4

5

5 .5 6 .5 7 .5 8 .5 9 .5 10 .5

Lo g GDP pe r c apita (199 7)

Log

Mai

nlin

es p

er 1

00 (1

997)

S ie rra Le one

C ongo , De m . R e p

C ha d

C a m b od ia

Gu ine a

Ye m e n , R e p .

Mo ngo lia

Aze rg a ija n

Moldova

C e n tra l Africa n R e p ub licS u da n

C a m e roon

Nige r

Ma urita n ia

Indon e s iaS ri La nka

Ga bon

Bots wa na

Gu a te m a la

Tha ila ndMe xico

S a u d i Ara b iaGe org ia

Ukra ine

Arm e n ia

Ma ce d on ia

JJ a m a ica

Zim ba bwe

La tviaBu lga ria

Lithua n ia

Es to n ia

Be la rusC h ile

Hunga ry

Gre e ce

Kyrgyz R e p .

S we de n

IT Production

0.54

0.81

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

Abo

ve T

rend

TFP

Gro

wth

Cyclical Effects Trend from Durable Manufactures

Even Skeptics See US Impact (Gordon, 2000)

ICT: An Engine of Growth?Sources of Labor Productivity Growth

1995-2000

-4-20246

US

German

y

Malays

ia

Philipp

ines

Thaila

nd

ICT Investment and ICT Production TFP Other Factors

• US: ICT Investment and Production TFP accounts for 53 percent of productivity growth.• In Malaysia and Thailand growth would have been significantly negative without ICT

The Mystery of ICT Capital

Output = Yt = TFPt*F(Kt,Lt)• Investment in ICT has grown dramatically

over the past ten years, this investment has expanded Kt

• The evidence of a TFP impact from ICT use is mixed

• Production of ICT adjusted for hedonic gains has had an impact on TFPt… but this accrues to consumers

OECD Benefits from ICT UseICT Spending and TFP Growth in the OECD

-1

0

1

2

3

4

5

2 4 6 8 101992 Nominal ICT Spending/GDP

1991

-7 T

FP G

row

th

E-Choupals –Internet Access and Rural Livelihoods

• ITC used the Internet to re-engineer the supply chain of their soybean business in rural India

• ITC saves US$ 5 and the farmer saves a similar amount on each transaction

• For the first year ITC estimated a 2% total savings in production costs associated with their soybean business and a similar boost in profit due to enhanced quality

Telecoms as a driver of private-sector investment

• Total investment in telecoms in Sub-Saharan Africa was $13.9bn 2001-2005

• In 2003, Total investment in telecoms in Sub-Saharan Africa = 27% of total FDI and 0.8% of GDP

0.0

5.0

10.0

15.0

20.0

25.0

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Year

US

$, b

illio

ns

Total FDI inSub-Saharan Africa (SSA) Telecom PPI in SSA

Liberalization Drives Investment and Access

Telecom Leads Private Investment in MNA Infrastructure

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

1998 1999 2000 2001 2002 2003 2004 2005

Priv

ate

Inve

stm

ent i

n Te

leco

m (%

of T

otal

Priv

ate

Inve

stm

ent i

n In

fras

truc

ture

)

Private Participation in Telecom Projects Attracted over $13 billion in MNA 2000-2004

Private Participation in Telecom Projects in MNA is a high % of Private Participation in Infrastructure Projects

Private Investment in Telecom is Important in MNA 2000 - 2004

0

5,000,000,000

10,000,000,000

15,000,000,000

20,000,000,000

25,000,000,000

Private investment in telecoms Foreign direct investment, net inflows

Cur

rent

US$

Links to Economic Growth

An increase of 10mobile phones per 100 people boosts GDP growth by 0.6%

A 1% increase in the number of Internet users increases total exports by 4.3%

Countries with better Information Infrastructure have higher GNP per Capita Growth

0

1

2

3

Telecoms SectorUnderdeveloped Given

GDP per Capita

Telecoms SectorAdvanced Given GDP per

Capita

GNP per Capita Growth Rate

GN

P p

er C

apita

G

row

th R

ate

Less DevelopedInformation

Infrastructure

More DevelopedInformation

Infrastructure

1.9%

2.6%

Source: GICT MNA Working Paper (2003)

ICT, Trade, Economic Growth: the Logical Links

ICT, Firm Competitiveness, Economic Growth: Empirical

Evidence

Effect of ICT Use on Enterprise Performance in Developing Countries Indicator Enterprises that

do not use ICT Enterprises that do use ICT

Difference

Sales growth (%) 0.4 3.8 3.4 Employment growth (%) 4.5 5.6 1.2 Profitability (%) 4.2 9.3 5.1 Labor Productivity (value added per worker in USD)

5,288 8,712 3,423

Total Factor Productivity (%) 78.2 79.2 1

ICT Creates New Jobs

105

115

125

135

145

2003 2004 2005 2006 2007 2008

Thou

sand

s

IT-Related Employment in South East Europe

Between 2003 and 2008 there is

growth of 32,000 new IT jobs

Source: IDC IT Economic Impact Study, 2005, 6 South East European Countries

BulgariaCroatiaMacedoniaRomaniaSloveniaSerbia and Montenegro

ICT Growth and Taxes

$400

$500

$600

$700

$800

$900

$1,000

2003 2004 2005 2006 2007 2008

IT-Related Tax Revenues

An aggregate of $432 million in

new tax revenues over 5 years

Personal & Social TaxesCorporate Income Taxes

VAT

Source: IDC IT Economic Impact Study, 2005, 6 South East European Countries

BulgariaCroatiaMacedoniaRomaniaSloveniaSerbia and Montenegro

ICT and Government Efficiency

1 10 100 1000 10000

Egypt

Singapore

Annual Goods Cleared/Agent ($100k)

Clearance Time (Minutes)

Singapore uses ICT in TradeNet, Achieves Significant Gains in Customs Efficiency