The Impact Of Information And Communication Technology Investment Externalities On Economic Growth In Newly Industrialized Countries

In recent years, progress in information and communication technology (ICT) has caused many structural changes such as reorganizing of economics, globalization, and trade extension, which leads to capital flows and enhancing information availability. Moreover, ICT plays a significant role in development of each economic sector, especially during liberalization process. Growth economists predict that economic growth is driven by investments in ICT. However, empirical studies on this issue have produced mixed results, regarding to different research methodology and geographical configuration of the study. The aim of this research is to empirically study the external effects of ICT on economic growth by the endogenous production growth model, using panel data collected from newly industrialized countries (NICs) in the world namely Mexico, Brazil, China, India, South Korea, Malaysia, Singapore, Philippines, Thailand and Turkey over the period of 1990-2008. This paper indicates a considerable lags between the time of investing in these technologies and the time at which the externalities arise. The focus is on the possible network effects and spillovers emerging as externalities from investments in ICT. This study also shows that productivity obtained from ICT is larger than one would expect from a standard neoclassical growth accounting approach. Field of Research : Economic growth, Information and Communication Technology, Externality, globalization, Newly Industrialized Countries 1. Introduction It is widely recognized that in the recent decades, the nature of the global economy has changed toward personal computers, Internet, cell phone and broadband networks. It means that, information and communication technology (ICT) has become an essential part of economy and there was an increasing trend in ICT investment in many countries across the world during the last two decades. The global ICT investment has increased from about three percent of GDP to about eight percent for the period 1992- 2006 as shown in figure 1. On the other hand, labour productivity has increased considerably in the developed and some developing countries. Despite the earlier uncertainty, many economists confirm the direct effect of ICT investment on the productivity (Jorgenson 2001; Oliner and Sichel 2002; Van Ark et al 2002; Stiroh 2002; Jorgenson and Stiroh 2000; Gordon 2000). They assert that ICT has a direct effect on capital deepening through the rapid technological progress which leads to lower quality-adjusted prices and increasing output. However, ICT is known as a general purpose technology and its effect on productivity goes beyond the capital deepening effect (Lipsey et al 2005). Moreover, ICT is a form of knowledge and network capital with the ability to improve overall productivity across different sectors in the economy through its effects on organization, management, and human capital (Moshiri and Nikpour 2010). Almost all firms and consumers use computers and Internet connection for economic purposes, such as providing consumers with a more diversified and customized products, improving product quality, and selling goods and services. However, country data on computer, cell phone, and Internet users illustrate different ICT diffusion rates across countries and between regions, even among those with the same levels of economic development. Nowadays, economists consider ICT as a main factor that contributes to the economic growth of a nation, especially in many newly industrialized countries (NICs) and developing countries. In fact, ICT is the combination of electronics, telecommunications, software,