WB-KMV-SEPTEMBER ICT and Global Economic Growth Contribution, Impact, and Policy Implications eDevelopment Services Thematic Group, Informatics Program, ISG The World Bank September Speaker: Khuong Minh Vu Research Associate, Harvard University

WB-KMV-SEPTEMBER The ICT Revolution and Economic Growth (2) PROCESS INPUTOUTPUT 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, ) New applications (the Internet) ICT penetration ( ) 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 The ICT Revolution: Drastic Decline in IT Hardware Price (2) Source: BEA data

WB-KMV-SEPTEMBER The ICT Revolution: The Pace of Digitization 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 ICT enhances the Quality and Timeliness of Decision Making Ignorance Uncertainty Risk Certainty ICT

WB-KMV-SEPTEMBER 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 ICT as a Source of Growth: ICT and Global Capital Stock

WB-KMV-SEPTEMBER ICT As a Source of Output Growth: vs

WB-KMV-SEPTEMBER The Global Pattern of ICT Contribution to Growth: vs ICT Contribution to ALP Growth ICT Contribution to Output Growth

WB-KMV-SEPTEMBER The Global Dynamics of ICT Contribution to Growth: VS

WB-KMV-SEPTEMBER ICT Contribution to Growth: Convergence and Divergence Trends

WB-KMV-SEPTEMBER 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 Share of ICT Contribution in Output Growth

WB-KMV-SEPTEMBER 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 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 Policy Implications

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

WB-KMV-SEPTEMBER Policy Implications: The Dynamic Model of ICT Penetration Promoting Investment in ICT: Benefits vs. Costs H L XMC M t+1 MtMt Line High Q Policy Focus: Shifting M to the Left

WB-KMV-SEPTEMBER Policy Implications: Framework for ICT Policy Agenda (1) Competencies Costs Benefits Infrastructure Conditions  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.  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.  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.  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. Concepts

WB-KMV-SEPTEMBER 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 Policy Implications: Framework for ICT Policy Agenda (2)

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

WB-KMV-SEPTEMBER Thank you for your attention