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How can you get more economic growth out of your ICT? Take care of your digital divide

How can you get more economic growth out of your ICT? Take care of your digital divide. Alain BOURDEAU de FONTENAY Columbia Institute for Tele-Information (CITI) Fernando BELTRAN University of Auckland ACORN/REDECOM Conference2009, Mexico City, 4-5 September 2009. Objective.

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How can you get more economic growth out of your ICT? Take care of your digital divide

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  1. How can you get more economic growth out of your ICT?Take care of your digital divide Alain BOURDEAU de FONTENAY Columbia Institute for Tele-Information (CITI) Fernando BELTRAN University of Auckland ACORN/REDECOM Conference2009, Mexico City, 4-5 September 2009

  2. Objective • A conceptual paper to help identify where to look, hence what are the policy directions that need particular attention, hence the objective is to: • Provide an analytical framework within which the digital debate can be framed • Clarify the relevance of questions that are being raised • Identify the questions that require: • Theoretical foundations • Empirical testing • Understand what are likely constraints on digital divide policies • Limitation: the paper • does not establish/only suggest concrete results • where to look, hence likely policy directions Alain BOURDEAU de FONTENAY (ad2239@columbia.edu) Fernando BELTRAN (f.beltran@auckland.ac.nz)

  3. Outline • Background to the digital divide debate • ICT and economic growth • Poverty Alain BOURDEAU de FONTENAY (ad2239@columbia.edu) Fernando BELTRAN (f.beltran@auckland.ac.nz)

  4. Questions • What is the digital divide? • Does the digital divide matters? • Why? • Is the digital divide a matter of short or long run policies? • How are the digital divide and inequality related? Alain BOURDEAU de FONTENAY (ad2239@columbia.edu) Fernando BELTRAN (f.beltran@auckland.ac.nz)

  5. What is the digital divide? A number of different frameworks, e.g., • Technology (Goolsbee and Guryan 2006) • Conventional commodity innovation (Mueller 2001) • Internet usage (DiMaggio et al.; Noh and Yoo 2008) • Economic competitiveness (Liu & San 2006) • Social exclusion (NTIA 1995; Jung 2008) • Social capital (Selwyn 2002) Alain BOURDEAU de FONTENAY (ad2239@columbia.edu) Fernando BELTRAN (f.beltran@auckland.ac.nz)

  6. Definitions • NTIA: “The chief concern with respect to household computer and Internet access is the growing digital divide. Groups that were already connected… are now far more connected, while those with lower rates have increased less quickly. As a result, the gap between the information ‘haves’ and ‘have nots’ is growing over time” • Fink and Kenny: “Four possible interpretations… [that] appear in the literature: • 1.A gap in access to use of ICTs—crudely measured by the number and spread of telephones or web-enabled computers, for instance. • 2. A gap in the ability to use ICTs—measured by the skills base and the presence of numerous complimentary assets. • 3. A gap in actual use—the minutes of telecommunications for various purposes, the number and time online of users, the number of Internet hosts, and the level of electronic commerce. • 4. A gap in the impact of use—measured by financial and economic returns” Alain BOURDEAU de FONTENAY (ad2239@columbia.edu) Fernando BELTRAN (f.beltran@auckland.ac.nz)

  7. Definitions • Keniston and Kumar’s (2003) four divides: • 1. “The first divide is… between • those who are rich, educated, and powerful, and • those who are not… • 2. A second digital divide… is linguistic and cultural… It separates those who speak English… • 3. The third digital divide… is the gap between the rich and the poor nations… • 4. … in countries like India and America, yet a fourth: the emergence of a new elite group,… the beneficiaries of the enormous successful information technology industry and the other knowledge-based sectors of the economy such as biotechnology and pharmacology….” Alain BOURDEAU de FONTENAY (ad2239@columbia.edu) Fernando BELTRAN (f.beltran@auckland.ac.nz)

  8. Definitions • DiMaggio et al. (2004) “inequalities in access to the Internet, extent of use, knowledge of search strategies, quality of technical connections and social support, ability to evaluate the quality of information, and diversity of uses” Alain BOURDEAU de FONTENAY (ad2239@columbia.edu) Fernando BELTRAN (f.beltran@auckland.ac.nz)

  9. Economic growth 2 different objectives: • Economic efficiency • Social equity Implications of economic efficiency • Economic growth • International competitiveness Alain BOURDEAU de FONTENAY (ad2239@columbia.edu) Fernando BELTRAN (f.beltran@auckland.ac.nz)

  10. ICT and economic growth 2 views: • Digital divide literature: ICT assumed to be good for growth • Empirical productivity literature: • ICT might have had a significant impact on the economy in the late 1990s (Stiroh 1998) • ICT’s impact primarily through price substitution (Jorgenson and Vu 2005) • Broad consensus: ICT’s impact is substantially less significant this decade (Jorgenson et al. 2008) Alain BOURDEAU de FONTENAY (ad2239@columbia.edu) Fernando BELTRAN (f.beltran@auckland.ac.nz)

  11. Inequality • Question – What determines what? • Direct – what direction? • Poverty/inequality => Growth • Poverty/inequality <= Growth • Poverty/inequality  Growth • Indirect: • Poverty = F(other factors = X) • Growth = G(other factors = Y) • How are X and Y related and how does it affect the relationship between poverty/inequality and growth? (Davis 2006) Alain BOURDEAU de FONTENAY (ad2239@columbia.edu) Fernando BELTRAN (f.beltran@auckland.ac.nz)

  12. Poverty and inequality • Question: poverty/inequality? • Absolute poverty: trickle down effect • Relative poverty • Subjective poverty • Inequality • Absolute poverty • Long run: growth is good • Short run: ambiguous • Ambiguous: • Mostly absolute only in the short run (periodically revised) • But subcategories such as food insecurity (Gundersen 2008) • Inequality • More flexible than relative poverty • Reflects better the behavioral impact of the evenness and fairness of the income/wealth distribution Alain BOURDEAU de FONTENAY (ad2239@columbia.edu) Fernando BELTRAN (f.beltran@auckland.ac.nz)

  13. Multidimensionality of poverty • Poverty is multidimensional • Food security (Gundersen 2008) • Violence and security (Fay 2005; Aizer 2008) • Socio-economic polarization (Mogues & Carter 2005) • … Alain BOURDEAU de FONTENAY (ad2239@columbia.edu) Fernando BELTRAN (f.beltran@auckland.ac.nz)

  14. Relative poverty, inequality, and growth? • Observation: inequality • Decreased in the middle of XXth century • Generally increased since the ‘70s • Increased inequality: • Generally attributed to technological change, but why long run? • Some suggest ICT is a GPT • Very long time impact on labor force • Skilled labor force is a complement • Unskilled labor force a substitute • Limited wage flexibility of low wage worker • Potentially: low skilled workers might become permanently unemployable Alain BOURDEAU de FONTENAY (ad2239@columbia.edu) Fernando BELTRAN (f.beltran@auckland.ac.nz)

  15. No inequality in a pure neoclassical environment • Neoclassical labor allocation: • Individuals differ in terms of their innate abilities • Abilities are randomly distributed among individuals • The demand for abilities is exogenous and may change at random • The economy is characterized by perfect competition Then, marginal product-based wages are efficient • Neoclassical credit market: • People can “insure” themselves against low-wage abilities (Aghion and Howitt 1998) Alain BOURDEAU de FONTENAY (ad2239@columbia.edu) Fernando BELTRAN (f.beltran@auckland.ac.nz)

  16. Corrective factors • Competition optimizes efficiency given the transfer requirements (Becker 1957) • Knightian uncertainty (Knight 1921) • Innovation (Schumpeter 1912) • The response by the poor/minority: • Threat (Margo 1991) • Assimilation (Bloch & Rao 2001) • Pressure toward power sharing (Alesina & LaFerrara 2005) • … Alain BOURDEAU de FONTENAY (ad2239@columbia.edu) Fernando BELTRAN (f.beltran@auckland.ac.nz)

  17. The impossibility of an efficient market-based allocation system • Perfect credit market are inconsistent with free riding • Cost of credit is inversely related to wages • It is expensive to be poor • The very poor cannot be accountable, i.e., the cost of credit is infinite for them • The very poor need a welfare transfer to compensate for very low marginal product (safety net) • Excluding lumps sum transfer, the need for transfer • distorts the allocation of labor, hence • introduces economic inefficiency (Duflo 2003) Alain BOURDEAU de FONTENAY (ad2239@columbia.edu) Fernando BELTRAN (f.beltran@auckland.ac.nz)

  18. Why inequality is inefficient? • Poverty is undesirable, hence the haves have • The incentives to restrict upward mobility-based competition by the higher abilities have-nots. • More resources to block competition due to their higher wages, e.g., through being in a better position to: • Manage information • Manage the political process (Buchanan) • Control the allocation of public resources (e.g., education, security) • Hence, a greater ability to achieve mobility foreclosure (Chin & Wagner 2007; Cuellar 2007) • Mobility limitations means tendencies toward increases in chronic poverty Alain BOURDEAU de FONTENAY (ad2239@columbia.edu) Fernando BELTRAN (f.beltran@auckland.ac.nz)

  19. Population segmentation and mobility • Mobility foreclosure (hence inequality) strengthened where: • Individuals are easily identifiable (Alesina et al. 1999) • Easy identification facilitates discrimination (Phelps 1972) • Discrimination controls mobility • Disproportionate representation among the poor • Many racial and ethnic minorities (Kijima 2006) • Women • Hence, easy identification facilitates mobility foreclosure through discrimination • For instance, Eliza in Shaw’s 1913 Pygmalion (My Fair Lady) • Easier identification facilitates mobility foreclosure (Quillian 2003) • Discrimination is self-enforcing • Statistical discrimination (Phelps 1972; Altonji and Pierret 2001) • Implicit discrimination (Bertrand et al. 2005) • Network effects (Lee 2004) (Alesina et al. 1999; Mossberger 2006) Alain BOURDEAU de FONTENAY (ad2239@columbia.edu) Fernando BELTRAN (f.beltran@auckland.ac.nz)

  20. Population segmentation and the allocation of political power • Geographic segmentation and discrimination (Squires and Kubrin 2005) • Enforcement of laws and regulation (Cuellar 2007) • Information about minorities (Galbraith et al. 2006) • U.S. welfare reform (Jennings 2001) Alain BOURDEAU de FONTENAY (ad2239@columbia.edu) Fernando BELTRAN (f.beltran@auckland.ac.nz)

  21. Potential • Using ICT as: • Affirmative action (Franke 2007) • A way to better implement legislations and regulations, e.g., • Gender-based (Gayathri 2005) • … • Challenge - How to formulate a pro-long run growth strategy to go from the digital divide to the promotion of digital opportunity? • Inequality is largely sustained through social discrimination buttressed by institutions, what digital divide strategy can best address those problems? • The window of opportunity is limited in time (McSorley 2003) Alain BOURDEAU de FONTENAY (ad2239@columbia.edu) Fernando BELTRAN (f.beltran@auckland.ac.nz)

  22. ICT’s potential contribution to growth? • Quah: “Inequalities in access to the Internet, extent of use, knowledge of search strategies, quality of technical connections and social support, ability to evaluate the quality of information, and diversity of uses… [ICT] can “mobilize political action, build institutions, and foster accountability and governance” Alain BOURDEAU de FONTENAY (ad2239@columbia.edu) Fernando BELTRAN (f.beltran@auckland.ac.nz)

  23. Bibliography Aghion, P., & Howitt, P. 1998. Endogenous Growth Theory. Cambridge, MA.: MIT Press. Aizer, A. 2008. Neighborhood Violence and Urban Youth, NBER Working Papers. Cambridge, MA: National Bureau of Economic Research. Alesina, A., Baqir, R., & Easterly, W. 1999. Public Goods and Ethnic Divisions. The Quarterly Journal of Economics, 114(4): 1234-1284. Alesina, A., & La Ferrara, E. 2005. Ethnic Diversity and Economic Performance. Journal of Economic Literature, 43: 721-761. Altonji, J. J., & Pierret, C. R. 2001. Employer Learning and Statistical Discrimination. The Quarterly Journal of Economics, 116(1): 313-350. Becker, G. S. 1957. The Economics of Discrimination. Chicago: Chicago University Press. Bertrand, M., Chugh, D., & Mullainathan, S. 2005. Implicit Discrimination. The American Economic Review, 95(2): 94-98. Bloch, F., & Rao, V. 2001. Statistical Discrimination and Social Assimilation. Economics Bulletin, 10(2): 1-5. Chin, G. J., & Wagner, R. 2007. The Tyranny of the Minority: Jim Crow and the Counter-Majoritarian Difficulty, Arizona Legal Studies Discussion Paper. Phoenix: The University of Arizona. Cuellar, R. 2007. Poverty and Human Rights: Reflections on Racism and Discrimination. UN Chronicle. DiMaggio, P., Hargittai, E., Coral, C., & Shafer, S. 2004. Digital Inequality: From Unequal Access to Differentiated Use. In K. Neckerman (Ed.), Social Inequality: 355-400. New York: Sage. Duflo, E. 2003. Poor but Rational? In A. V. Banerjee, D. Mookherjee, & R. Benabou (Eds.), Understanding Poverty: 367-378. New York: Oxford University Press. Alain BOURDEAU de FONTENAY (ad2239@columbia.edu) Fernando BELTRAN (f.beltran@auckland.ac.nz)

  24. Bibliography Fay, M. (Ed.). 2005. The Urban Poor in Latin America. Washington, D.C.: World Bank. Franke, J. 2007. Does Affirmative Action Reduce Effort Incentives? A Contest Game Analysis, Unitat de Fonaments de l'Analisi Economica (UAB) and Institut d'Analisi Economica (CSIC), UFAE and IAE Working Papers Galbraith, C. S., Rodriguez, C. L., & Stiles, C. S. 2006. False Myths and Indigenous Entrepreneurial Strategies. Journal of Small Business and Entrepreneurship, 19(1): 1-20. Gayathri, V. 2005. Gender, Poverty and Employment in India. Journal of Social and Economic Development, 7(1): 29-52.. Goolsbee, A., & Guryan, J. 2006. The Impact of Internet Subsidies on Public Schools. The Review of Economics and Statistics, 88(2): 336-347. Gundersen, C. 2008. Measuring the Extent, Depth, and Severity of Food Insecurity: An Application to American Indians in the USA. Journal of Population Economics, 21(1): 191-215. Jennings, J. 2001. Welfare Reforms and Neighborhoods: Race and Civic Participation. Annals of the American Academy of Political and Social Science, 577: 94-106. Jorgenson, D. W., & Vu, K. 2005. Information Technology and the World Economy. Scandinavian Journal of Economics, 107(4): 631-650. Jorgenson, D. W., Ho, M. S., & Stiroh, K. J. 2008. A Retrospectic Look at the U.S. Productivity Growth Resurgence. Journal of Economic Perspectives, 22(1): 3-24. Jung, J.-Y. 2008. Internet Connectedness and its Social Origins: An Ecological Approach to Postaccess Digital Divides. Communication Studies, 59(4): 322-339. Alain BOURDEAU de FONTENAY (ad2239@columbia.edu) Fernando BELTRAN (f.beltran@auckland.ac.nz)

  25. Bibliography Keniston, K., & Kumar, D. (Eds.). 2003. The Four Digital Divides. Dehli: Sage. Kijima, Y. 2006. Caste and Tribe Inequality: Evidence from India, 1993-1999. Economic Development and Cultural Change, 54(2): 369-404. Knight, F. H. 1921. Risk, Uncertainty, and Profit (1 ed.). Boston: Hart, Schaffner & Marx; Houghton Mifflin. Lee, B. T. 2004. The Network Economic Effects of Whiteness. American University Law Review, 53: 1259-. Liu, M.-c., & San, G. 2006. Social Learning and Digital Divides: A Case Study of Internet Technology Diffusion. Kyklos, 59(2): 307-321. Margo, R. 1991. Segregated Schools and the Mobility Hypothesis: A Model of Local Government Discrimination. Quarterly Journal of Economics, 106: 61-73 McSorley, K. 2003. The Secular Salvation Story of the Digital Divide. Ethics and Information Technology, 5(2): 75-87. Mogues, T., & Carter, M. R. 2005. Social Capital and the Reproduction of Economic Inequality in Polarized Societies. Journal of Economic Inequality, 3: 193-219. Mossberger, K., Tolbert, C. J., & Gilbert, M. 2006. Race, Place, and Information Technology. Urban Affairs Review, 41(5): 583-620. Mueller, M. L., & Reina, S. J. 2001. Universal Service from the Bottom Up: A Study of Telephone Penetration in Camden, New Jersey. In B. M. Compaine (Ed.), The Digital Divide: Facing a Crisis or Creating a Myth: 119-146. Cambridge, MA: MIT Press. Alain BOURDEAU de FONTENAY (ad2239@columbia.edu) Fernando BELTRAN (f.beltran@auckland.ac.nz)

  26. Bibliography Noh, Y.-H., & Yoo, K. 2008. Internet, Inequality and Growth. Journal of Policy Modeling, 30: 1005-1016. Quillian, L. 2003. How Long Are Exposures to Poor Neighborhoods? The Long-Term Dynamics of Entry and Exit from Poor Neighborhoods. Population Research and Policy Review, 22(3): 221-249. Schumpeter, J. A. 1912. Theorie der Wirtschaftlichen Entwicklung. Berlin: Duncker & Humbolt. Selwyn, N. 2002. Defining the 'Digital Divide': Developing a Theoretical Understanding of Inequalities in the Information Age, Occasional Paper. Cardiff: School of Social Sciences, Cardiff University. Squires, G. D., & Kubrin, C. E. 2005. Privileged Places: Race, Uneven Development and the Geography of Opportunity in Urban America. Urban Studies, 42(1): 47-68. Stiroh, K. J. 1998. Computers, Productivity, and Input Substitution. Economic Inquiry, 36(2): 175-191. Alain BOURDEAU de FONTENAY (ad2239@columbia.edu) Fernando BELTRAN (f.beltran@auckland.ac.nz)

  27. THANK YOU Alain BOURDEAU de FONTENAY (ad2239@columbia.edu) Fernando BELTRAN (f.beltran@auckland.ac.nz)

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