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ICT and Global Economic Growth Contribution, Impact, and Policy Implications

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). INPUT.

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ICT and Global Economic Growth Contribution, Impact, and Policy Implications

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  1. ICT and Global Economic GrowthContribution, 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 WB-KMV-SEPTEMBER 16-2004

  2. The ICT Revolution and Economic Growth (2) INPUT OUTPUT PROCESS • 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 WB-KMV-SEPTEMBER 16-2004

  3. The ICT Revolution: Drastic Decline in IT Hardware Price (2) Source: BEA data WB-KMV-SEPTEMBER 16-2004

  4. 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% WB-KMV-SEPTEMBER 16-2004

  5. ICT enhances the Quality and Timeliness of Decision Making Risk ICT Certainty Uncertainty Ignorance WB-KMV-SEPTEMBER 16-2004

  6. 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 WB-KMV-SEPTEMBER 16-2004

  7. ICT as a Source of Growth:ICT and Global Capital Stock WB-KMV-SEPTEMBER 16-2004

  8. ICT As a Source of Output Growth: 1995-2000 vs. 1990-1995 WB-KMV-SEPTEMBER 16-2004

  9. The Global Patternof ICT Contribution to Growth: 1995-2000 vs. 1990-1995 ICT Contribution toALP Growth ICT Contribution to Output Growth WB-KMV-SEPTEMBER 16-2004

  10. The Global Dynamics of ICT Contribution to Growth: 1995-2000 VS. 1990-1995 WB-KMV-SEPTEMBER 16-2004

  11. ICT Contribution to Growth: Convergence and Divergence Trends WB-KMV-SEPTEMBER 16-2004

  12. 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. WB-KMV-SEPTEMBER 16-2004

  13. Share of ICT Contribution in Output Growth WB-KMV-SEPTEMBER 16-2004

  14. 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. WB-KMV-SEPTEMBER 16-2004

  15. Policy Implications • 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 WB-KMV-SEPTEMBER 16-2004

  16. Success (p) g S+ e S Market uncertainty Subsidizing the ICT-Producing Sector e S With S units of scare resources, the government considers two alternatives Failure (1-p) Fostering ICT Diffusion (a+) SY* Policy Implications: ICT Production vs. ICT Use What should be of a higher Priority for Governments WB-KMV-SEPTEMBER 16-2004

  17. Mt+1 450-Line High H Q Policy Focus: Shifting M to the Left L X M C Mt Policy Implications: The Dynamic Model of ICT Penetration Promoting Investment in ICT: Benefits vs. Costs WB-KMV-SEPTEMBER 16-2004

  18. 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. • 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. Competencies Benefits Costs Concepts • 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. • 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 initiatives • Providing 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 Internet • Reforming the regulatory framework related to telecommunication infrastructure development and operation. Infrastructure Conditions Policy Implications:Framework for ICT Policy Agenda (1) WB-KMV-SEPTEMBER 16-2004

  19. Policy Implications:Framework for ICT Policy Agenda (2) • 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 WB-KMV-SEPTEMBER 16-2004

  20. Policy Implications:Exploiting the Internet Revolution Fostering, Incentives Financial support Policy Focus Benefits from the Internet Fostering, Incentives Financial support Wisdom Knowledge Evaluated Understanding: should; should not, better, best. How Participation, Facilitation Information What, Where, When, Who Knowledge Hierarchy WB-KMV-SEPTEMBER 16-2004

  21. Thank you for your attention WB-KMV-SEPTEMBER 16-2004

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