Has the Internet Fostered Inclusive Innovation in the Developing World? Graduate Institute, Geneva

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1 Has the Internet Fostered Inclusive Innovation in the Developing World? Caroline Paunov OECD Valentina Rollo Graduate Institute, Geneva ABCDE The Role of Theory in Development Economics World Bank, Washington June 2014

2 Motivation 1. Ubiquitous uptake of internet and mobile technologies in developed and developing countries 2. Fundamental change for knowledge sharing: cost & quality = Impacts on knowledge spillovers = critical component for growth dynamics (Romer, 1986, ) 3. Democratisation effects by benefiting more those with fewer opportunities to access knowledge >>> Did the use of the internet result in spillover effects on firms productivity and their innovation efforts? If so, did effects differ across firms favouring inclusive innovation?

3 Preview of Findings >>> Evidence on 49,702 firm observations across 117 developing and emerging countries 1. Industries adoption of the internet has positive impacts on firms productivity and innovation efforts 2. Larger gains for firms that did not export, were not part of multi-plant establishments and located in smaller agglomerations 3. however, only the more productive among firms gained more 4. Firms in locations with more deficient conditions benefited (but payoffs were lower)

4 Contributions We add to literatures on impacts of ICT investments on firms productivity (e.g. Bartel et al., 2007; Stiroh, 2002, Bloom et al., 2012, Brynjolffson and Hitt, 2000) and knowledge spillovers (e.g. Bloom et al., 2013, literature on geographic and international dimensions of spillovers) by: Providing cross-country evidence of spillover effects from the use of the internet Focusing on inclusive innovation benefits for certain types of firms Explore differential impacts of firms business framework conditions

5 Data and Some Statistics World Bank Enterprise Surveys, Manufacturing: 57.9%, services and construction: 42.1% - Africa: 27.4%, Eastern Europe and Central Asia: 19.8%, Latin America and Caribbean: 39.8% - Use of internet for communication: for communication with clients and suppliers - Labor productivity, equipment investments, patenting and quality certificate ownership Complemented by informal economy survey, 59.3% using cell phones in 2010

6 Share of Firms Using the Internet

7 Analytical Framework - Baseline model for analyzing impact on firms innovation and productivity performance (Y ict ): - ICT sct indicator of sector s uptake of to communicate with clients and suppliers, X ict firm-level controls, λ s and λ ct sector and country-year fixed effects - OLS regressions & logistic regressions for quality certificates and patents - Quantile regressions to assess impacts of internet adoption at different levels of the conditional productivity distribution

8 Baseline Results Industries Use of the Internet Had Positive Spillover Effects on Productivity - Plant controls: firm size (employment), age, public ownership, multiplant establishments, foreign ownership, exporter status, access to credit, managerial expertise, (website) - Standard errors clustered at the country-sector-year level

9 Robustness Results Robust effect of internet adoption on performance Controls, fixed effects are included as before, robust standard errors clustered for aggregations

10 The Democratization of Innovation The relation between innovation and performance is stronger for firms with limited access to knowledge networks Location in smaller/larger agglomerations Smaller/larger size Multi- vs. single-plant firms Exporters/non-exporters conditional on firms own capacities and framework conditions.

11 Opportunities for Inclusive Innovation Benefits in terms of labor productivity are larger for firms with limited access to knowledge networks.

12 Informal Businesses Benefited As Well - Plant controls: firm size (employment), age, firms ownership of bank accounts and whether firms had a loan - Standard errors clustered at the country-sector-year level

13 Productivity Levels Matter Largest returns from their industry s adoption of the internet arise for the most productive.

14 Differential Effects on Productivity: Firm Size Smaller firms with productivity levels above the median benefit substantially more than larger firms.

15 Differential Effects on Productivity: Small and Big Agglomerations Differences are smallest for firms at the lower and higher ends of the productivity distribution.

16 Differential Effects on Productivity: Exporters and Single- vs. Multi-Plant Firms

17 The Impact of Business Conditions Firms exposed to power outages benefit less but have positive returns nevertheless! Problematic labor regulations similarly reduced returns, particularly for least productive firms >> Even in difficult business conditions firms benefitted from the adoption of the internet.

18 Conclusion Positive impact of industries internet use on firm performance in developing and emerging countries Spillover gains (independent of firms own investments) provide support for public policy the more so as our evidence provides support of the internet s role as a mechanism to democratize innovation However, complementary support to build firms capacities is needed for the internet to effectively support inclusive innovation

19 Contact Information Additional

Has the Internet Fostered Inclusive Innovation in the Developing World?

Has the Internet Fostered Inclusive Innovation in the Developing World? Caroline Paunov* OECD Valentina Rollo** Graduate Institute, Geneva Version: 16 September 2015 Abstract The adoption of the Internet