Effects of ICT on Economic Growth across Asian Countries

Transcription

1 Effects of ICT on Economic Growth across Asian Countries Donya Asgarizadeh MA in Economics, Department of Economics, Islamic Azad Universy, Firoozkooh Branch, Firoozkooh-Iran Esmaiel Abounoori Professor of Econometrics & Social Statistics, Department of Economics, Islamic Azad Universy, Firoozkooh Branch, Firoozkooh-Iran Abstract Today, economic competiveness depends on the abily to transform vast quanties of information into usable knowledge. This paper examines the impact of ICT on the economic growth across countries. The data are gathered from World Bank tables. Accompanied by panel data across countries, a robust posive correlation between ICT level and economic growth and s causal impact on economic growth are documented. The results based on annual cross-country panel data including 16 Asian countries (China, Egypt, Arab Rep., Hong Kong, India, Indonesia, Iran, Japan, Korea Rep., Kuwa, Malaysia, Philippines, Saudi Arabia, Singapore, Thailand, Turkey, Uned Arab Emirates, and Vietnam) for the period including 96 observations indicate that ICT in general has posive and significant effects on economic growth. Table 1 shows country specific effects; the coefficient for Iran(0.89) and for Turky(0.78) are significant at 10% and 8%, respectively. The effects have been high in Kuwa(1.65), Indonesia(1.43), and China(1.09). The coefficient in Japan is negative but insignificant, may be because the economic growth in Japan has reached almost to satiation! JEL Classification Code: O33, C23 Key words: ICT, Economic Growth, Panel data

2 1. Introduction Typical ICT components include hardware, software and telecommunication equipment, Kaiser[22]. Also ICT is defined as a set of activies that facilate by electronic means the processing, transmission and display of information, Estavillo[13]. Recent industry analysis shows that the decline in production is related to overinvestment in certain tradional sectors (yielding lower returns) and to underinvestment in a number of more dynamic and higher productivy industries. One of the most popular explanations for these diverging productivies focuses on the relative exposure to ICTs. "The New Economy: Beyond the Hype" concluded that information and communications technology (ICT) is important and has the potential to contribute to more rapid growth in the future OECD[15]. There is ltle doubt that the use of ICT is perceived as a catalyst for economic growth. However, is still a challenge to assess how and how much ICT has contributed to economic growth at the country as well as the global levels. This paper examines the impact of ICT on the economic growth using panel data concerning 16 Asian cross countries during Lerature Review Examining the contribution of ICT to output and productivy growth was iniated by the studies of Oliner and Sichel [20], Jorgenson and Stiroh [3, 4] which focused on the U.S. economy. A series of studies has followed this approach, inspecting individual countries or group of countries. Besides the follow-up studies by Jorgenson and Stiroh [4], and Oliner and Sichel [20] for the U.S. economy, the notable studies on individual countries include Oulton, [14] for the Uned Kingdom, Colecchia and Schreyer [1], Jalava and Pohjola [12] for Finland, Van der Wiel, [10] for the Netherlands, Parham et al, [5] for Australia, Armstrong et al, [17] and Khan and Satos, [9] for Canada, RWI and Gordon, [19] for Germany, and Cette et al, [8] for France. The significant studies for a group of countries include Schreyer [16], Ark et al [2], Daveri [7] for most EU economies; Jorgenson [6] for the G7 economies, Sotiris and Papaioannou [18] explored the effect of ICT on productivy and economic growth in both developing and developed countries over the time period of , using a production function framework and forein direct investment (FDI) as a proxy for ICT and concluded that FDI has a posive and meaningful effect on productivy and economic growth and that effect was greater in developing countries also was posive but not meaningful when all the countries were lumped together. Dewan and Kreamer [21] drawing data from more than 36 countries over different countries concluded that in more prosperous and industrial countries, there was a highly posive and meaningful relationship between ICT and economic growth, but there was no evidence of such a relationship in developing countries. Dewan and Kreamer [21] suggest that the gap is due to low levels of IT investment in developing countries and also lack of complementary assets such as knowledge-based structure for developing the use of IT goods. This paper is intended to examine the relationship of investments in ICT and economic growth in selected countries by employing the framework of a dynamic panel data method over the time span of The main hypothesis of the paper is that the effect of ICT on economic growth is posive and significant. The data mainly were based on the World Bank (2010) tables. 3. Methodology In a general framework, the growth models including ICT as an explanatory variable can be wrten as follows: ICT 0 Y t Y Y t, Yt At F Ct, Kt, Ht, Nt (1) Where t is time in all cases, Y is the total added value, YICT is added value of goods and services related to ICT, and Yo represents the value added related to other products. Production is possible through ICT inputs (C) and non-ict inputs: physical capal (K), human capal (H), and labor force (N). There are two different approaches to estimating the effect of ICT investments on economic growth: the production function approach and the growth accounting approach. The

3 following generalized form of the Cobb Douglas production represents the production function approach: C K h n Y= AC K H N (2) Conversion to logarhm yields the following in log-linear form: Ln Y= ln A c ln C k ln K h ln H n ln N (3) Differentiating (1) wh respect to time gives a representation of the growth accounting approach: Y A c C k K h H n N (4) Where a dot over a variable indicates a rate of change. Assuming constant returns to scale, and each factor receiving s marginal product, the parameters c, k, h and n measure the share in total income of ICT input, physical capal, human capal and labor respectively. All factors except technological change (A in (4)) are observable. In his paper, we choose to work wh the production function approach; because was more widely used in economics and had less restrictive assumptions. Specifically the following simple double log Cobb-Douglass production was the equation used in our regression: LnGDP 0 1LnKict 2LnK 3LnHC 4LnRO 5LnFDI U (5) where: β 0 is a constant coefficient, LnGDP is natural logarhm of real GDP per capa in constant 2000 prices in US dollar, LnKic t is investment in ICT, LnK is gross domestic investment, LnHC is log of secondary and tertiary school enrollment used as measure of investment in human capal, LnRO is oil income, LnFDI is foreign investment as an indicator of technical and technological improvement. U is the model's random error component. The subscripts t and i refer to country and time respectively. The following represents the panel data estimation equation used in this paper: Y i t X (6) Where Y is gross domestic product in constant 2000 prices in US dollar in country i at year t, and Xi t is a vector of the explanatory variables (investment in ICT, gross domestic investment, human capal, oil income, foreign investment as an indicator of technical and technological improvement) for country i = 1, 2, m and at time t= 1, 2,,T, Φ a scalar vector of parameters of β1., β5; ψ is a classical stochastic disturbance term wh E[ψ ]= 0 and var [ψ ]= 2 ε ζ, δi and Γt are country and time specific effects, respectively. In the case where country specific effects are constant across countries and time effects are zero [i.e. δi = λ and Γt =0)], we can estimate Ordinary Least Squares (OLS). In the case where country specific effects are constant, but not equal (i.e. δi = λi and Γt =0 which yields a one-way fixed effects mode, we can use Restricted Least Ordinary Least Squares. In case where country specific effects are not constants and time effects are not present [i.e. δi = λ + wi and Γt =0] where E [w i]=0 and var[wi]= 2w ζ and cov [ψi, wi] =0, we can estimate by the Generalized Least Squares (GLS), which amounts to estimating random-effects model. 4. Empirical Results The results based on annual cross-country panel data including 16 Asian countries (China, Egypt, Arab Rep., Hong Kong, India, Indonesia, Iran, Japan, Korea Rep., Kuwa, Malaysia, Philippines, Saudi Arabia, Singapore, Thailand, Turkey, Uned Arab Emirates, and Vietnam) for the period including 96 observations indicate that ICT in general has posive and significant effects on economic growth. Table 1 shows country specific effects; the coefficient for Iran(0.89) and for Turky(0.78) are significant at 10% and 8%, respectively. The effects have been high in Kuwa(1.65), Indonesia(1.43), and China(1.09). The coefficient in Japan is negative but insignificant, may be because the economic growth in Japan has reached almost to satiation!

4 Table 1 Dependent Variable: EG? Method: Pooled EGLS (Cross-section weights) Date: 08/13/12 Time: 15:54 Sample: Included observations: 6 Cross-sections included: 16 Total pool (balanced) observations: 96 Linear estimation after one-step weighting matrix Variable Coefficient Std. Error t-statistic Prob. C CH--ICTCH EG--ICTEG HK--ICTHK IN--ICTIN ID--ICTID IR--ICTIR JA--ICTJA KO--ICTKO KU--ICTKU MA--ICTMA PH--ICTPH SA--ICTSA SI--ICTSI TH--ICTTH TU--ICTTU VI--ICTVI Weighted Statistics R-squared Mean dependent var Adjusted R-squared S.D. dependent var S.E. of regression Sum squared resid F-statistic Durbin-Watson stat Prob(F-statistic) Unweighted Statistics R-squared Mean dependent var Sum squared resid Durbin-Watson stat Summery and Conclusion This paper concentrated on exploring the supply side of ICT in the selected countries (China, Egypt, Arab Rep., Hong Kong, India, Indonesia, Iran, Japan, Korea Rep., Kuwa, Malaysia, Philippines, Saudi Arabia, Singapore, Thailand, Turkey, Uned Arab Emirates, and Vietnam). The results of the growth model estimations wh ICT as an explanatory variable using Panel Data method in the context of the selected countries show that ICT has a meaningful effect on the economic growth of these countries. The coefficient measuring the effect of the ICT gross domestic investment on economic growth was posive, indicating that ICT investments affect economic growth of the selected countries in a posive way; the coefficient for Iran(0.89) and for Turky(0.78) are significant at 10% and 8%, respectively. The effects have been high in Kuwa(1.65), Indonesia(1.43), and China(1.09). The coefficient in Japan is negative but insignificant, may be because the economic growth in Japan has reached almost to satiation! ICT has already led to more rapid growth in countries where appropriate policies to reap the benefs from have been put in place. Moreover, continued technological change should bring many more benefs in the future. However, policies to bolster ICT will not on their own lead to stronger economic growth. Indeed, economic growth is not the result of a single policy or

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