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IT and the Economy
Recent Research on Effects
The Question Behind the Question
• We don’t doubt, do we, that using IT brings
“profit” to organizations.
• Can we generalize that to other entities,
such as countries?
• What kind of “profit” can countries get from
IT?
• What prerequisites are necessary in order
to obtain that profit?
The Development Question: The
Digital Divide
• The term “digital divide” refers to two
dichotomies:
– Between rich countries that have a lot of
technology and use it to generate wealth and
poor countries who have no access
– Within a country, to the fact that elites have
access to IT while many (perhaps most)
others do not.
The Politics of the Question
• Ministers of the Economy of third world
countries have been saying for years that
their countries need “access” to
technology in order to improve their level
of economic development (i.e., wealth)
• The access they are talking about is IT (in
the form of computers, communication,
whatever).
The Paradigm
Poverty
+
IT
=
Wealth
Is this true? Can poor countries become not-so-poor
countries by “adding” IT?
Let’s call
this
variable
ECV
Basic Question
Let’s call
this
variable
ITV
• What is the relationship between some
measure of IT use or penetration and the
(state of) a country’s economy?
• This question can be asked at two levels:
– International: Does ITV cause differences
between countries?
– Intranational: Does ITV cause a difference
within a given country
Or Turn It Around
• Maybe economic conditions have an effect
on IT?.
• Again, there are two levels for this
question:
– Does ECV influence ITV between countries?
– Does ECV influence ITV within a given
country
Three Possible Answers to Each
Question
ECV
ITV
ECV
ITV
1. Positive effect
2. Negative effect
3. No or negligible
effect
ITV
• A measure of the pervasiveness of ICT in
a society
• Common measures
– Teledensity
– No. of computers per capita
– Computer investment by business
– No of Internet users
– No of ISPs
– Average computer investment per business
ECV
• A measure of the health or function of the
economy of a society
• Common measures
– GNP or GNP per capita
– Wealth distribution
– Income distribution
–?
Measures adopted for This Study
• ECV Income distribution: Gini Index
A measure of how evenly distributed income is and indirectly
(over time) the evenness of distribution of wealth; also a
measure of economic opportunity or access to or participation
in the economic system of a country
• ITV Teledensity
A measure of the connectivity of a society as a whole; how
many telephone lines plus cellphones per 100 population; an
indirect measure of access to communication. NOT directly a
measure of computer pervasiveness, use or value
Limitations of Measures
• Income distribution: Gini Index
Highly tied to income rather than wealth. Even highly skewed
economies might support individuals in families or familycorporate type environments. Low Gini indices might arise
from extremely high taxation, limiting choices or purchasing
power. Access to wealth might not correlate with access to
non-economic influence or value
Gini is probably
• Teledensity
a highly nonlinear scale with
floor and ceiling
Concerns communication only, not use of computers. A small
number of individuals might own or control an inordinately large
proportion of the access to communication. Communication
costs might be very high, favoring the wealthy and denying
access to the poor.
Intervening Variable
• Income Level (GDP per capita per year)
• Four Classifications:
– Very Poor: <$2000
– Poor
Between $2000 and $6000
– Developing Between $6000 and $21000
– Advanced Greater than $21000
• Similar to P, P and R Chapter 1, but with
explicit values. There is some correlation
The Results
• Scattergram
Plots countries’ position depending on Gini index and teledensity.
High Gini index is towards the top and high teledensity is towards the
right of the diagram. Figures are from the CIA Factbook and may
represent approximations across a decade. Several countries are
missing as there was no Gini index figure. The pair xy denotes a
quadrant (LH means Low Gini index and High teledensity)
• Interpretation
Countries appear in only three of the four quadrants. There are no
countries having high Gini Index and high teledensity. Therefore it
seems as though no country can score high on both indices. HH is
therefore probably not a transition status; hence evolution must be
either LL to LH or HL to LL (and then to LH). It cannot be that Gini
index falls lags behind teledensity rises(since there are no HH)
Laos,
Mozanbique,
Yemen, Rwanda,
Guinea, Senegal,
Bangladesh
(N=24/43)
>60
Vietnam, Moldova,
Ecuador, Egypt,
China, Peru,
Lebanon (N=37/55)
Gini Index Class
Thailand,
Cyprus, Costa
Rica, South
Africa,
Hungary,
Portugal
(N=29/48)
4060
US, UK,
Canada,
France,
Germany,
Italy, Finland,
Switzerland
(N=17/22)
2040
<20
0-20
20-40
40-60
Teledensity Class
>60
Poor:
Annual GDP is
less than $2000
Annual GDP is
$2000-$6000
Gini Index Class
>60
Very Poor:
4060
Developing
Countries:
Advanced
Countries:
Annual GDP
between $6000
and $21000
Annual GDP
exceeds
$21000
2040
<20
0-20
20-40
40-60
Teledensity Class
>60
>60
QUADRANTS
Very Poor
Gini Index Class
Poor
4060
Developing
Advanced
2040
<20
0-20
20-40
40-60
Teledensity Class
>60
Undeveloped
economies
with internal
digital divides
and major
elites
Gini Index Class
>60
4060
Developing or
transition economies
with internal digital
divides but more
resources
Modernizing
economies, without
internal digital
divides
Advanced or
Newly
Industrialized
economies with
localized
internal digital
divides
2040
<20
0-20
20-40
40-60
Teledensity Class
>60
>60
MIGRATION
r = -0.235 ns.
Gini Index Class
r = -0.121 ns.
r = - 0.031 ns.
4060
r = - 0.448 p=0.015
2040
<20
0-20
20-40
40-60
Teledensity Class
>60
Questions
• Why are there no countries in the ICTdivided quadrant?
• What are the migration paths?
• What are the forces that move countries
among these categories?
• Is it possible for ICT enhancement to
cause Gini falls?
MIGRATION
In the wealthiest countries, there is little
effect from increased teledensity; the
most capable rather than everyone,
benefit from the technology and dedistribution takes place.
Similarly for poor countries. However,
when some threashhold is reached, many
start to gain access to the increased
teledensity and begin redistributing the
income through earnings at the bottom.
For developing or “modernizing”
countries, a certain level of income
allows access to more or most
inhabitants and thus a real
redistribution of income takes
effect.
Gini Index Class
>60
For very poor countries, an
increase in teledensity without
an average increase in income
has no effect on income
distribution, because the elite
have all the access
4060
2040
<20
0-20
20-40
40-60
Teledensity Class
>60
Implications
• The development ministers are right, but it’s
INTERNAL digital divides that prevent the
benefits of access from bringing home the
economic bacon.
• There is a MEDIATED effect from seed wealth to
technology to access to use of technology to
increased income at lower levels to general
redistribution, at which point “natural selection”
might take over to cause de-distribution of
income.
What Is Happening
• At low levels of income, only the elite have
access to income-producing technology.
• As incomes rise, the non-elite gain access to the
technology and produce income, apparently
redistributing some to the poorer segments
• When incomes rise sufficiently, all who can profit
from IT have it and now those who use it best
make the most from it, creating what looks like a
concentration of income again.
The process
Highly skewed
income distribution
Infusion of
income
Access to
Technology
at Cost
Apparent
redistribution
of income
Generation
of income at
ALL levels
in society
Access to
others and
information
Diffusion of
benefits
throughout
society
Most capable
acquire most
benefits
Some
Concentration of
income