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Digital TransformationsA 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

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“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).

Images courtesy of Jon Stern.

One simple question: What is the impact of mobile phones on economic growth rates in developing countries? No prior studies on this.

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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.

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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?

“Why is There no New Economy in Old Europe?” Our Research Questions.

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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.

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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

PCs in Use per 100 Population, 2003

0 10 20 30 40 50 60 70 80

Can

Aus

USA

EU-14

ICT Capital per Hour Worked, 2003

$0 $1 $2 $3 $4 $5 $6 $7

Can

Aus

USA

EU-14

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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?

“Is Economic Turbulence a sign of the Innovation process?”

Our Research Questions.

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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.

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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.”