Impact of Internet Technology on Economic Growth in South Asia with Special Reference to Pakistan

Transcription

1 Pakstan Journal of Socal Scences (PJSS) Vol. 35, No. 2 (2015), pp Impact of Internet Technology on Economc Growth n South Asa wth Specal Reference to Pakstan RzwanaYasmeen FUUAST, School of Economc Scences, Islamabad rzwana_239@yahoo.com Sada Tufal FUUAST, School of Economc Scences, Islamabad sadasaa7@gmal.com Abstract The major objectve of ths study s to examne the mpact of nternet usage on economc growth of South Asan countres wth partcular reference to Pakstan. The annual tme seres data of four Asan countres from were used. Wth technology advancement, Internet has becomng an mportant source to dssemnate knowledge. For ths purpose ARDL approach was used. The results show that both captal and labor have postve mpact on economc growth of Pakstan n the long run. The nternet usage has also a postve long run mpact on economc growth. However, the use of nternet needs to be further effectvely made so that t can exert a sgnfcant effect on the economc growth of the country. Although, the results of the study may not be generalzed as the study s based on not a large sample due to unavalablty of tme seres data on some varables, but the study provdes a new avenue for other researcher as ths study has got mportant mplcatons for further research. Keywords: Internet Technology, Economc Growth, Panel ARDL. I. Introducton A. Problem Specfcaton Informaton and Communcaton Technologes (ICTs) contans three separate words; nformaton, communcaton and technology. Informaton s any knd of message; audo, wrtten or vsual through whch a person takes knowledge about new place, person, envronment or stuaton. Communcaton s the way of transferrng such message to the others. Informaton and communcaton technology s the use of modern technology to ad the capture, processng, storage and retreval, and communcaton of nformaton, whether n the form of numercal data, text, sound, or mage. The global adopton of Informaton and Communcaton Technologes (ICTs) has reached vast momentum over the last decades. In these adoptons of technologes the flow of nternet shows extraordnary fgure as a major component. When the ntal graphcal browser was ntroduced n 1993 only less than 1 percent populaton of world had access to nternet. At the turn of the century ths number has grown to 8 percent of

2 778 Pakstan Journal of Socal Scences Vol. 35, No. 2 worldwde populaton. On average 30 percent of world populaton has access to nternet n The nternet s changng the way we socalze, work, create and share nformaton and even all thngs around the world. Internet s a valuable tool of nformaton for producers, mddlemen and consumers. It enhances market competton and mproves prces. Wth the help of nternet e-government can reduce corrupton and better delvery of publc servces. It also helps to reduce regonal dspartes especally between urban and rural areas. It also plays a key role n labor market because nternet connectvty creates new opportuntes n workng. It speeds up the globalzaton development by reducng the physcal barrers because wth the help of onlne communcaton many busnesses are able to reduce travel cost. It removes constrants lke lack of nformaton, lack of proper roads and lack of alternatve nfrastructure. Yet the magntude of ICTs s not fully apprecated. Internet usage has soco-economc dmensons. Internet s regarded as major contrbutng factor n soco-economc development. Over the past fve year s nternet accounted for 21 percent of GDP n mature economes 2. In global nternet users Asa Pacfc has hghest number wth 786 mllon nternet users and accounted for 43.5 percent of global nternet users n Durng 2001 only 1.3 percent of Pakstan populaton, 0.7 percent of Inda populaton and 0.8 percent of Sr Lanka populaton were used nternet. Wth access of nternet ths rato ncreased n 2013 and 10.9 percent of Pakstan populaton, 15.1 percent of Inda populaton and 21.9 percent of Sr Lanka populaton s usng nternet 3. Fgure 1: Internet User In 2013 Source:

3 RzwanaYasmeen, Sada Tufal 779 Fgure 1 shows nternet user per 100 populatons n Bangladesh has 6.4 percent Inda has 32.8 percent, Pakstan has 12 percent, Sr Lanka has 6.9 percent nternet users from per 100 populaton. In Bangladesh nternet came late wth connectvty n Durng 2000 to 2010 the number of nternet usage has grown from 0.1 mllon to 8mllon. In Inda number of nternet usage has grown from 5.5 mllon to 100 mllon. Accordng To Internet and Moble Assocaton of Inda (IAMAI) Inda s account for largest onlne communty after Chna. More than 50 percent of urban nternet users access nternet daly n Inda. Indan Councl of Research and Internatonal Economcs Relatons (ICRIER) reported that on average 1.08 percent ncrease n output due to 10 percent ncrease n nternet subscrber showng huge drect mpact on country s GDP 4.Snce the md-1990s, nternet access has been made avalable n Pakstan. ICT s one of the man growng ndustres n the country. Durng the number of nternet users has grown from 0.13 mllon to 1.85 mllon 5. In Sr Lanka the percentage of nternet user s below than other developng countres. On an average 8 percent of Sr Lankan populaton has access to nternet at home. Durng the number of nternet usage has grown from 0.21mllon to 1.77 mllon 6. The contrbuton of nternet to GDP s 1.9 percent n developng countres and 3.4 percent n developed countres. Hence, the ICT sector s now consdered as a backbone n growth and development of any country, as t facltes other economc sectors that s why t s very mportant to study mpact of nternet on economc growth. Keepng n vew, mportance of the ICT there s a need to conduct research on the mpact of nternet usage n economc growth n Pakstan the present study would be therefore as frst attempt n ths regard B. Objectve of Study The man objectves of ths study are;. To examne the mpact of nternet usage on economc growth of South Asan countres wth partcular reference to Pakstan.. To estmate the aggregate producton functon usng varous factors ncludng nternet usage as an explanatory varable.. To nvestgate the mpact of fnancal development on economc growth of south Asan countres. v. To suggest polcy recommendaton as to how the use of nternet would be more effcently made for economc growth. C. Plan of Study The rest of paper s organzed as follows; Secton 2 s dedcated to a crtcal revew. Secton 3 dscusses data and methodology. In secton 4, results and dscusson are presented whle concludng remarks and ploy mplcatons are gven n secton

4 780 Pakstan Journal of Socal Scences Vol. 35, No. 2 II. Lterature Revew Ths secton presents a crtcal revew of lterature pertnent to ths study. Hoon and Cho (2005) analyzed the effect of the nternet on nflaton for 207 countres. Cross country panel data were collected from The hypothess that nternet mproves productvty and t wll reduce nflaton rate was tested by pooled OLS and random effect model. The hypothess results showed that nternet sgnfcantly reduces the nflaton rate and enhance economc growth. Mejers and Verson (2010) examned the mpact of nternet and trade on economc growth. 213 tme seres data from 1990 to 2008 was used. The study reported a postve mpact of nternet on economc growth and trade. A smultaneous equatons model reveals the sgnfcant and postve role of nternet use on trade openness for almost 32 countres. Meah (2012) examned the mpact of nternet on economc growth n Bangladesh. The sample ncluded 224 countres and panel data were used from Ths study reported that nternet usage has postve mpact on economc growth and nternet usage encourages economc growth n Bangladesh. When panel regresson tested for South Asan countres the results showed that nternet takes on a negatve coeffcent. The reasons for contradctory results may be become of based approach or msspecfcaton error. Salahuddn and Alam (2012) examned nternet usage, trade openness and economc growth n Australa. Annual data were collected from ARDL approach was used for data analyss. The results showed that n long run nternet usage encourages economc growth. Ths study further revealed that trade openness has postve but nsgnfcant long run effect on economc growth. Rahman et al., (2013) analyzed ICT mpact on soco economc condtons of rural Bangladesh. Qualtatve research approach was appled. Data were collected from four regons of Bangladesh through survey durng December 2011 to February Ths study concluded that factors lke rural economy, women empowerment, socal securty, dsaster and health care facltes are very much nfluenced by ICTs n Bangladesh. The above revew shows the nternet use of nternet has a postve mpact on economc growth of varous countres of the world. The avalable lterature shows that no such studes has undertaken n Pakstan. Ths study would therefore be an endeavor toward ths level. III. Data and Methodology Framework A. Data and Model Specfcaton Ths study deals wth the annual tme seres data of four Asan countres (Inda, Sr Lanka, Bangladesh and Pakstan) from Wth technology advancement, Internet has becomng an mportant source to dssemnate knowledge. Barro s (1996) n hs endogenous growth model rase the mportance of the role of knowledge and nnovaton n stmulatng economc growth. In buldng an econometrc model, we specfy the equaton wth economc growth as a functon of real GDP to evaluate the relatonshp between nternet and economc growth. We follow the new classcal producton functon usng Cobb-Douglas specfcaton:

5 Y f ( K, L)...(1) Ths functon may be specfed as follows: RzwanaYasmeen, Sada Tufal 781 Y AL Where, Y s GDP, L s labor and K s captal. In order to theorze the mpact of nternet and fnancal growth we modfy equaton (1) as follows: K T F e...(3) Y AL K e...(2) Equaton (3) can be wrtten by log-transformaton as equaton (4) lny ln L ln K lnt ln F...4 o Where, dependent varable s GDP and s denoted by YIn ths study, for technology we use the nternet usage and t s taken as nternet users per 100 people. Gross fxed captal formaton s used as proxy for captal. Labor s expressed by Labor force partcpaton rate, total (% of total populaton). In our study the followng seres of proxes are used for fnancal development, () the rato of M2 to nomnal GDP, () the rato of prvate credt to dsbursed to nomnal GDP, () the rato of bank assets to nomnal GDP s used. The data of all varables were obtaned from World Development Indcators (WDI, 2014). B. Methodology The panel ARDL approach s superor to other conventonal panel co-ntegraton procedures n tme seres analyss. To approxmate the long run and short run relatonshp among the varables, two new technques are generated by Pesaran et al., (1997,1999) Namely PMG, MG and DFE, whch assume that parameters are heterogeneous across the countres. Mean Group approach developed by Pesaran and Smth(1995), owng to heterogeneous slops, provdes the ndvdual parameters n dynamc panels from average of estmated coeffcents of all countres calculated trough ARDL technque. For example ARDL model s as follows: Y t Y X, t, t t...(5) Where, s the sgn for the countres.e. =1,2,..N, then the long run parameters for th country s...(6) MG technque (usng above ARDL equaton) estmate separate regresson for each country and then calculate mean of the measured coeffcents for all countres. Moreover, MG analyzes heterogeneous coeffcents both n long and short run. However, suffcently large dmenson of the data s requred for consstency of ths approach. Addtonally, MG gves consstent estmator n the long run even the regressors are ntegrated of I(1) (see Pesaran et al., (1999)). MG estmator for the entre panel s computed by followng equaton; N 1...(7) N 1

6 782 Pakstan Journal of Socal Scences Vol. 35, No. 2 On the other hand, PMG methodology, presented by Pesaran et al., (1999) assume short run slopes coeffcents ncludng ntercepts and speed of adjust me to be dffer across country. Dynamc Fxed Effect s an addtonal methodology whch mposes homogenety of all slope coeffcents n the long run. DFE allows the speed of adjustment and co-effcent to be dentcal also n the short run. However, DFE analyze ntercepts to be dfferng across groups. The unrestrcted ARDL specfcaton of the equaton gven as follows: Y t m j1 Y j, t j n j0 X j, t j...(8) Here, vector of explanatory varables for group s the t X t j,, where, symbolzes the fxed effects. Moreover, m and n are lags whle m and n may vary across the countres due to unbalanced panels. For VECM system, above model can be reparameterzed as: Y t ' ' ( Y t1 X, t1) jy, t j j X, t Where, m1 ' represents the long-run parameters, and,...(9) are error correcton parameters. Keepng n vew model of our study, n equaton (9) Y s GDP, X s a set of all explanatory varables ncludes captal, labor, nternet, fnancal development, & sgnfes the short run coeffcents. Moreover, s the speed of adjustment for long run equlbrum, whereas, countres are denoted by and t shows the tme perods. The parameters on left sde n parenthess are the long run and term on rght hand sde s short run dynamcs. The model s estmated by PMG, MG and DFE methodology, and the approprateness of the PMG estmator can be establshed through Hausman test. In general, Hausmantest s performed to make relatve choce among the MG, PMG and DFE approaches. IV. Results and Dscusson A. Panel Unt Root Test Ths secton gves man fndngs of the study. The results of panel unt root test are reported n Table 1. The results show that all varables (captal, labor, nternet usage, and fnancal development) are non-statonary at level wth constant and trend, except GDP. However, these varables become statonary after at frst dfference. Snce, same varables are ntegrated of order zero I(0)or one I(1), therefore the panel ARDL approprate and much sutable for estmaton. Panel ARDL has certan advantages: (1) s t allows the estmaton wth dfferent combnaton order of statonary ether I (0) or I(1). Ths approach captures both short run and long run dynamcs wth error correcton term. The results of PMG, MG and DFE models are reported n Table 2. The results show that there s a long run mpact of nternet usage on economc growth. The Hausman test also shows the drecton of the results and confrms consstent and effcent performance of the PMG over MG and DFE models. In lne wth ths argument, under short run analyss ths study fnds statstcally nsgnfcant contrbuton of captal, labor, n1, j t j1 j0

7 RzwanaYasmeen, Sada Tufal 783 nternet usage, and FD to economc growth. However, the long run analyss of PMG, MG and DFE shows better results relatve to short run analyss. The present study fnds that captal and labor have postve and sgnfcant mpact on economc growth. A unt ncrease n captal and labor wll lead to 0.17 and 0.12 percent ncrease n economc growth, respectvely. Regardng the mpact of the nternet on economc growth, the algebrac sgn s postve n the long run, though t s statstcally nsgnfcant. Ths s very mportant result. Conversely, fnancal development has sgnfcant but negatve mpact on economc growth. It s argued that FD has mportant mpact on growth for any economy. However n ths study we found negatve relatonshp between FD and growth. These fndngs are n agreement wth Wong study (2010), and Lu and Hsu (2006) whch also reported negatve relatonshp between FD and economc growth n Japan. Value of ECM s negatve & statstcally sgnfcant. Means convergence to equlbrum s hgher, or 89% of dsequlbrum s corrected n on tme perod n case of PMG. Table 1: Panel Unt Root Results Level Varables Levn, Im, Ln, Chu Pesaran and Shn Bretung Levn, Ln, Chu 1 st Dfference Im, Pesaran and Shn Bretung Y -3.06* -3.96* -3.48* * * -9.68* K * -6.86* -6.69* I * -7.00* * T -1.35* -1.87* * -7.84* -6.64* F * -6.25* -6.28* Note: * ndcates sgnfcance at 5% level Table 2: Panel ARDL Estmaton Varables PMG MG DFE LONG RUN K 0.71(0.017)* -1.03(0.688) 0.046(0.908) L 0.12(0.002*) (0.938) (0.373) I.056(0.331) -0.16(0.048)* 0.067(0.257) F -1.06(0.030)* -3.11(0.308) -0.01(0.973) Hausman Ch sq Test 7 p-value SHORT RUN dk 4.09(0.17) 3.14(0.318) 7.95(0.000)* dl 0.12(0.62) -.185(0.423) 0.02(0.777) di 0.33(0.16) 0.21(0.386) (0.941) dfd -2.19(0.45) -2.40(0.551) 0.13(0.915) Ecm -.89(0.000)* -0.87(0.000)* -0.34(0.000)* Constant (0.000)* (0.499) 3.40(0.788) Note: * ndcate that all varables are sgnfcant at 5% level. Probablty values are gven n parentheses, all estmaton of PMG, MG and DFE are performed n stata. The lag structure used n ARDL s (1) for all varables. Hausman test s also estmated to check the preferred effcent estmator and probablty values are greater than 0.05 at 5% level reported n parentheses. 7 PMG s effcent estmaton than MG under null Hypothess PMG s effcent estmaton than DFE under null Hypothess

8 784 Pakstan Journal of Socal Scences Vol. 35, No. 2 V. Conclusons and Polcy Implcatons The study concludes that both captal and labor have postve mpact on economc growth of Pakstan n the long run. The nternet usage has also a postve long run mpact on economc growth. However, the use of nternet needs to be further effectvely made so that t can exert a sgnfcant effect on the economc growth of the country. Although, the results of the study may not be generalzed as the study s based on not a large sample due to unavalablty of tme seres data on some varables, but the study provdes a new avenue for other researcher as ths study has got mportant mplcatons for further research References Barro, R.J. (1996). Determnants of economc growth: A cross-country emprcal study. NBER Workng Paper :NO Cho,C. and Y, M.H. (2004). The effect of the nternet on nflaton: Panel data evdence. Journal of Polcy Modelng, 27(7), Meah, M. (2012).The mpact of nternet on economc growth n Bangladesh. Retreved from sequence=1 Lu,W.C., and Hsu, C.M. (2006). The role of fnancal development n economc growth: The experences of Tawan, Korea, and Japan. Journal of Asan Econ,17, Mejers, H. (2010). Trade, nternet and economc growth: A cross country panel analyss. Frst ICTNET workshop Parma, Italy on the of December Pesaran, M.H., and Smth, R. (1995). New drectons n appled macroeconomc modelng. Dept. of Appled Economcs, Unversty of Cambrdge. Pesaran, M. H., Y. Shn, and R. P. Smth. (1997). Estmatng long-run relatonshps n dynamc heterogeneous panels. IDAE Workng Papers Amalgamated Seres Pesaran, M.H., Y. Shn and R. Smth, (1999). Pooled mean group estmator of dynamc heterogeneous panels. Journal of the Amercan Statstcal Assocaton, 94, Pesaran, M. H., Shn, Y., and Smth, R. J. (2001).Bounds testng approaches to the analyss of level relatonshps. Journal of Appled Econometrcs, 16, Rahman, A. Nayeem, M. Haroon, A. Tooheen, R. (2013). ICT mpact on soco-economc condtons of rural Bangladesh. Journal of World Economc Researc.1-8. Retreved from Salahuddn, M. (2013). Internet usage and economc growth n Australa: An ARDL bounds testng approach. Unversty of Southern Queensland, Australa KhorshedAlam Unversty of Southern Queensland, Australa. Retreved from E2014&paper_d=263 Wong, H. T (2010). Terms of trade and economc growth n Japan and Korea: An emprcal analyss. Emprcal Economcs, 38(1),