A research paper written for ECON 322: Global Economy: Trade and Development. In this paper, I discuss the affects of Information and Communication Technologies on economic growth. Specifically, I look at how ICTs have been used in Africa and Singapore to develop and stabilize their economies.

1. INFORMATION AND
COMMUNICATION
TECHNOLOGIES AND THEIR
EFFECT ON ECONOMIC GROWTH
AND DEVELOPMENT
Alexander J. Thurman
Economics 322
Dr. Gauger
8 March 2016

2. Thurman1
Information and Communication Technologies and their Effect on Economic Growth and
Development
The use and diffusion of communication and information technology has affected the
economic growth of developed and developing countries in a variety of ways. Innovation and
development have always been a vital part of economic growth, and the invention and
proliferation of information technology, computers, and digitalization has significantly changed
innovation. Innovation in information and communication technology has changed the direction
of economic growth. There are a few examples of how the diffusion of these technologies has
affected developing countries, such as how Singapore utilized information and communication
technology to facilitate long-term growth and how the adoption of mobile banking in Africa has
created a more perfect market. Due to the success of ICTs in these examples, it is quite possible
that these technologies could be used to achieve the millennial development goals. In this paper,
I will be describing and analyzing how the use and diffusion of communication and information
technologies have affected the economic growth of developed and developing countries and how
it may be used to succeed where providing support developing countries has otherwise failed.
The role of innovation in an economy has not always been clear. There is an ongoing
discussion of whether the effects of innovation are beneficial or detrimental, permanent or
temporary, and if it evolves naturally from the market or are institutions and policies necessary to
push for research and development. This information is important because it can tell us if and
how we should invest in new technology as well as what policies encourage innovation and
technological growth. However, the answers to these questions change based on the health and
development of an economy and the competency of the policy makers, consumers, and firms.

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While there is some opposition to the idea that innovation promotes economic growth, the
general, long-term effect of innovation and diffusion of technology is positive. One such
example of the beneficial effects of technology is the improvement of production processes in
the manufacturing industry through the increased implementation of information and
communication technologies, or ICTs. In Bartel, Ichniowski, and Shaw’s study, they found that
valve production plants greatly increased their use of information technologies and that this
adoption of new technology decreased the production times across all stages of the process. “The
largest reduction was in the setup stage, with an average reduction of 68%. The average
reductions for the run time and inspection time statistics are 37% and 33% respectively” (Bartel,
Ichniowski, and Shaw). While this study only looks at a part of a specific industry, similar results
can be found when looking at other firms. Farhadi and Ismail’s study specifically looks at how
information and communication products affect the productivity of an economy. “Countries with
competition and privatization in telecommunications have achieved a higher Total Factor
Productivity growth than those without competition and privatization” (Farhadi and Ismail).
Competition and privatization of ICTs has been an important factor in the spread of this
technology because competition between firms furthers the development and lowers the costs of
the products. Once the products become more understood and cheaper, firms through an
economy will begin to use them. From Farhadi and Ismail’s conclusion of their study, “the
coefficient measuring the effect of the ICT development on economic growth was positive,
indicating that ICT affect economic growth of the 153 sample countries in a positive way.”
Based on these result, the effect of ICT on economies is positive through its ability increasing
efficiency and productivity.

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While the link between economic growth and innovation seems clear, the introduction of new
technology into developing countries comes with its own challenges. However based on
Gregersen and Johnson’s understanding of economic growth, implementation of institutional
changes that maintain continued innovation work well to stimulate growth. In their article,
Gregersen and Johnson define economic growth as a long-term increase in the productive
capacity of the economy as a whole. This is an important distinction from growth in the short-
term because the introduction of a new piece of technology has been known to eliminate jobs and
therefore limit short-term growth. Despite any short-term, negative externalities, innovation and
diffusion of the products of that innovation, an economy can achieve permanent and sustained
growth. While innovation is important to economic growth, it is important to note that the
positive effects of innovation are not always readily obvious. Because innovation has
diminishing returns on investment, there can be a loss at the firm level, but spillover effects that
spread throughout an economy increase productivity in other areas (Gregersen). The
effectiveness of this spillover effect increases as the technological gap between two areas
increases. And due to the significant technological gap between developed and developing
countries, we actually see that developing countries have a higher acquisition of new
technological developments through this diffusion of innovation. While developed countries
must wait for the next bit of innovation to occur, developing countries can simply obtain new
technology from their more developed neighbors. The firms and institutions that originally
developed these innovations see less benefit from them than the institutions in developing areas.
Developing countries adopting new technology is a positive externality of the innovation of
developed nations. However while severely underdeveloped countries have the largest
technological gap, they have a lower rate of technological adoption due to lack of education and

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the institutions necessary to properly adopt and utilize new technology (Gregersen). For
example, the utility of ICTs is limited by the ability of a population to use them, but this could be
mitigated through educational and training programs, which would require the change and
implementation of policies. An unstable region, underfunded institutions, or inability to affect
policies would prevent the effective adoption of new technology. Due to the fact that economic
growth from technological adoption requires an evolution in policy and changes within
institutions, ICTs seems to be a perfect fit for accelerating the growth of technological adoption
among developing countries because of their ability to affect policy, infrastructure, and
productivity.
While the occurrence of innovation in developing countries is limited due to various factors,
the diffusion of new technology from developed countries to developing countries allows for less
developed countries to acquire new technology without having to invest in research and
development. For example, mobile banking in Africa has become a vital resource for both firms
and consumers to transfer funds and monitor prices. Mobile banking allows for small firms to
make instantaneous, small transfers as well as receive small amounts of funds with very little
cost, which helps alleviate the disincentives lenders may have (Mobile Banking). The only costs
to the African firms and consumers would be purchasing the phone, paying for data usage, and
the infrastructure of the towers. They did not have to invest the time, money, and expertise
needed develop the technology necessary to make mobile banking possible. The lack of obstacles
for these developments has allowed mobile banking to flourish in Africa with more than 40
million users (Mobile Banking). However, mobile banking becoming a necessity to fully
participate in the economy creates additional, upfront costs for businesses and consumers, which
could make starting a business more difficult and lower upward mobility for the poorest

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consumer. However, the advantage of having a more complete market outweighs those
disadvantages.
The success of mobile banking in Africa is an example of information and communication
technologies being used to stabilize and grow an economy. Singapore is another example of a
country that struggled developing its economy, but invested in utilization and production of
information and communication technologies. This technology was also borrowed from more
developed countries, which made accelerating growth easier. Singapore went from
underdeveloped to flourishing growth within a few generations because of their government’s
efforts to invest into ICTs (Vu). It is important to note that policy played a vital role in this
encouraging growth. Singaporean policy makers recognize an opportunity arising in the global
market and moved to take advantage of it by expanding on their production of ICTs (Vu). With
per capita GPD increasing at an average rate of 6% from 1965 to 2010, the exporting of ICTs
through multinational companies and integration ICTs within their economy has achieved the
goal of bringing Singapore into the developed world (Vu). Without a doubt, Singapore is an
excellent example of the possible success innovation and ICTs could have on developing nations.
In 2000, the Millennial Development Goals (MDGs) were set up with the hopes of improving
the quality of life for millions of impoverished people in underdeveloped countries. The
dissemination and utilization of information and communication technologies have played a role
in accelerating and cementing growth in areas targeted by the MDGs. The potential of ICTs is
especially useful for improved access to learning, creation of conductive learning environments,
quality of knowledge delivery, expanded secondary and post-secondary education, and
reeducation of expenditure on training (Luckson). These findings are significant because they
reveal the usefulness of ICTs in specific areas essential to achieving the MDGs. In Luckson’s

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study, researchers looked at 22 university studies to evaluate the utility of ICTs. “Eighteen
studies out of 22 claimed their products to be valued or highly valued by the targeted
beneficiaries” with the benefits including skills development, awareness and knowledge of ICTs,
and improved livelihoods from information and communication services (Luckson). The
researchers found that the introduction of ICTs was beneficial and welcomed in the communities
important to the MDGs to the extent that these technologies became “essential”. However, these
benefits do not come without costs. The high costs of IT infrastructure that are required for
dissemination and utilization are a considerable obstacle (Luckson). Nevertheless based on the
research discussed in previous paragraphs, it seems that these high upfront costs are more than
likely an investment as long as policy and institutions allow for firms and consumers to properly
and effectively utilize ICTs.
With the successes in Africa and Singapore, it is apparent that ICTs have a place in helping
developing countries grow their economies. Furthermore because of the spillover effect from
developed countries, underdeveloped countries have an actual opportunity to catch up with the
developed world. Fortunately, the spillover effect has no negative effects on the innovation of
developed countries, so their innovation and development can continue unabated. However, it is
important that policy makers help to establish institutions that will continue to push the
development of these technologies, so that competitive firms can increase saturation while
lowering costs. As long as the interactions between firms continues to drive innovation,
development, and proliferation of ICTs, growth will continue to persist within even the most
developed countries.

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References
"Mobile Banking: UNCTAD Report." Africa Research Bulletin: Economic, Financial and
Technical Series 48, no. 11 (January 2012). Accessed March 7, 2016.
Bartel, Ann, Casey Ichniowski, and Kathryn Shaw. "How Does Information Technology Really
Affect Productivity? Plant-Level Comparisons of Product Innovation, Process
Improvement and Worker Skills." Oxford University Press 122, no. 4 (November 2007):
1721-758. Accessed March 7, 2016. JSTOR.
Farhadi, Maryam, and Rahmah Ismail. "Does Information and Communication Technology
Development Contribute to Economic Growth?" Journal of Theoretical and Applied
Information Technology 39, no. 1 (May 15, 2012). Accessed March 7, 2016.
Gregersen, Birgitte, and Björn Johnson. "Learning Economies, Innovation Systems and
European Integration." Regional Studies 31, no. 5 (August 18, 1997): 479-90. Accessed
March 7, 2016.
Kaino, Luckson M., David Mtetwa, and Choshi Kasanda. "Experiences in the Dissemination and
Utilisation of Information and Communication Technology (ICT) Research Findings
from Three Southern African Universities." Africa Education Review 11, no. 2 (June 16,
2014): 103-18. Accessed March 7, 2016. Taylor & Francis Group.
Vu, Khuong M. "Information and Communication Technology (ICT) and Singapore’s Economic
Growth." Information Economics and Policy 25, no. 4 (December 2013): 284-300. Accessed
March 7, 2016. ScienceDirect