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Digital Transformations. A Research Programme at London Business School Funded by the Leverhulme Trust “The Social/Economic Impact of Information and Communication Technology” Overview: Leonard Waverman, Professor of Economics Theme 1: Digital Divide: The Role of Mobile Phones
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Digital Transformations A Research Programme at London Business School Funded by the Leverhulme Trust “The Social/Economic Impact of Information and Communication Technology” Overview: Leonard Waverman, Professor of Economics Theme 1: Digital Divide: The Role of Mobile Phones Theme 2: Digitisation, Growth and Productivity
“People in the developing world are getting more access at an incredible rate- far faster than they got access to new technologies in the past . . . The Digital Divide is rapidly closing.” (World Bank, February 2005). One simple question: What is the impact of mobile phones on economic growth rates in developing countries? No prior studies on this. Images courtesy of Jon Stern.
Summary of Findings • Different econometric methods point to general conclusion: increased mobile penetration has a positive impact on growth rates. • Roll-out of mobiles in developing world far more rapid than roll-out of fixed lines in the developed world in the 1950s-1980s. • Mobile networks are critical social overhead capital- but privately provided! • Success of African mobile firms- Celtel- huge connectivity increases in the very poorest places.
“Why is There no New Economy in Old Europe?” Our Research Questions. • Why is there a “productivity pop” in some countries, post-1995, but not others? • What is the role of IC (Computers) and T (Telecoms) in the productivity divergence between the US and (most of) Europe? • What is the role of interactions between telecoms and computers in generating externalities from ICT capital? This is the concept of the “networked computer.” • Can an econometric approach provide better answers than growth accounting?
Summary of Findings • Differences between EU and US are in the extent of technology use, not the type of technology being used. • ICT usage/diffusion spillovers and ICT capital deepening effects both matter. • Combined effect of ICT factors is substantial- more than 50 percent of the US-Canada productivity gap. • Some evidence that the interaction between modernised telecom networks and PCs has influenced productivity levels.
US Lead in ICT Investment and Usage- Driving Productivity Differences Europe lags US and other countries in both ICT capital stock AND the spread of ICT
“Is Economic Turbulence a sign of the Innovation process?” Our Research Questions. • Up to now, the answer is no. Volatile economies are ones that grow less. • Is this an artefact of aggregation? • Are volatile sectors ones where entry and exit rates are higher, as well as ones where TFP growth is higher? • Are volatile sectors ones where IT investment has been higher over the recent period?
Summary of Findings • Volatile sectors grow faster even though volatile countries do not. • Two types of volatility, one consistent with creative destruction. • Link more positive in high TFP (or SFP) growth sectors. Also more positive in IT intensive sectors. • Sometimes negative link in low technology (IT or TFP) sectors.
Policy Implications • Employment volatility a necessary evil to accept for high technology. Industry protection may have long run deleterious effects on economic performance – particularly true in IT case. • UK and EU need to both increase investment and ensure investment translates into diffusion/usage to improve productivity performance. • Effectiveness of investment- translation into adoption and usage- affected by: • Government Regulation. • Firm Managerial Practices. • Complementary capital- worker skills, training etc. • Mobiles practical cost-effective technology for developing world- adopt policies (regulation) that help maximise penetration; effective way of closing “Digital Divide.”
