Tags
Related Posts
Share This
The role and impact of ICT on economy growth
Title:
Name:
Faculty :
University:
1.0 Introduction
2.0 Literature and theories
3.0 Role and Impact of ICT on Economy Growth
3.1 Role and Impact of ICT investment
3.2 Measurement of ICT contribution to economic growth
3.3 Policy implication boosting economic growth
4.0 Future Research
5.0 Conclusions
6.0 References
Use of information to the discretion of the prediction of economic growth driven by investments in the Information and Communication Technology(ICT). This paper discuss on the use of ICT that contributes to the economic growth and how it being measured. Prediction analysis resulting to empirical studies and research had been carried out between ICT and economic growth found there is both mixed results depending on the methodology of the research engaged and geographical landscape or situation that should be considered. The analysis of estimates reveal a significant impact on economic growth of investments in ICT towards specific region implies whereby countries seek to enhance their economic growth, they need to implement specific policies that facilitate investment in ICT. A proposed future research has been made in this paper that could help to ensure the role and impact of ICT to spur the economy growth with the continuing trend that is growing is also given.
This research paper is to examine whether ICT role and impact to the economy growth. Though there is so many debate about whether it does help in the progress over the past decade on the increase in the impact of economy and the way people work, communicate and spend time across countries around the world, however, research will explain that in the past decade several methods have been used to analyze the impact of ICT on economy growth. Studies throughout 1990s showed that increasing investment in this field constantly resulted in emergence of positive relationship between economic growth and information technology. However, there is much research is needed due to the challenges to ensure how much ICT has contributed to economic growth to the country as well as the global levels. Study is needed to investigate the impact of ICT on economic growth on a global basis by examining all countries with significant expenditure on ICT over the past decade.
This study aims to investigate the relationship between economic growth and ICT in developed and developing countries as well. The methodology of “Measuring the contribution of ICT to economy growth and productivity” is based on original work by Solow (1957) and (Jorgenson and Griliches (1968)) and later extended by (Alia Oliner and Sichel (2000) ) and (Jorgenson and Stiroh (2000)). ICT can impact economic growth through four major channels referred to by (Jalava, Pohjola 2002): (i) Production of ICT goods and services, which directly contributes to the aggregate value added generated in an economy; (ii) Increase in productivity of production in ICT sector, which contributes to overall productivity in an economy Total Factor Productivity (TFP); (iii) Use of ICT capital as input in the production of other goods and services; (iv) Contribution to economy-wide TFP from increase in productivity in non-ICT producing sectors induced by the production and use of ICT (spillover effects). One of the example looking into Finland economic growth based on analysis by (Jalava, Pohjola 2005) that ICT is the source of output and also productivity growth to Finland thus impacting the improvement of the GDP and economic growth.
In developing countries, SMEs industries are challenged by the globalization of production and shift in the importance of the various determinants to competitiveness. By spreading the information and communication technologies (ICT) complement with the ever decreasing prices for communication, markets in different parts of the world become more integrated. The influence of ICT has led many comment on the argument that these technologies are creating a new economy in which information is the most critical resources that provides competitive advantages in all sectors such as manufacturing and even more in the services sectors. From performance perspective, the competitiveness effect of ICT is derives from the impact that ICTs have upon the productivity of the factor inputs. ICT can improve the efficiency and increase productivity by separate ways including, improving efficiency in resource allocation, reducing transaction costs and technical improvement that leads to the shift of the production functions. Referring to Moodley (2002) conducted an in-depth quantitative and qualitative analysis of the use of B2B e-commerce by manufacturing firms in South Africa and his study is based on 120 firm level interviews and 31 interviews with industry experts. The evidence indicates that the incidence of use is fairly low. From the analysis, 87% of the firms had access to the Internet, only 49% of the firms had a corporate website and only 22% was using the Internet for order taking. The findings enables him to come to a conclusion that e-commerce is not yet an important strategic objective for most South African firms.
Hoon (2003) explored the impact of ICT investment on economic growth using a cross-country analysis based on data from 56 developing countries for the years 1970–1998 and found that ICT positively contributes to economic growth in the developing world. While van Ark and Piatkowski (2004) analyzed IT investment patterns and their impact on economic performance in two sets of countries regarded as being at different levels of economic development: the 15 countries of the European Union (‘‘old” Europe) and 10 Central European economies under accession (‘‘new” Europe). They had come to a conclusion that there is a trend moving into the convergence of investment in IT between ‘‘old” and ‘‘new” Europe. Investment in IT capital was also found to be the vital factor affecting productivity growth in both sets of countries. There is studies made from this developed world with a strong evidence of a strong positive correlation between IT and economic performance, IT-induced changes in workforce composition in favor of highly skilled or educated workers and organizational changes that allow firms to implement IT more effectively and efficiently. Using the new data from after 1995, Jorgenson and Vu (2005) found that the contribution of ICT capital to world GDP had more than doubled and now accounts for 0.53 per cent of the world average GDP growth of3.45 per cent. The percentage was higher for the group of G7 countries, where ICT investments contributed with 0.69 per cent to a GDP growth of 2.56 per cent during 1995–2003.
Therefore, this research paper intends to discuss and find out more about what and how the roles of ICT plays a major part to contributes and have an impact on the economics performance and growth across globally.
Literature review by Avgerou (2001) stated that ICT is a necessity for taking part in today’s global economy and as such the role of ICT in the emerging global market cannot be over-emphasised. ICT has the potential to integrate the whole world economies in other words demolishing the barriers created by time and distance. It will ease the trade in goods and services and encouraging investment by the creation of new sectors of enterprises, new revenue streams and new jobs. Meng & Li (2002) maintain that the role of the ICT industry in developing countries is far from clear as developing countries are still short of capital investment and knowledge, thus they will lag behind in ICT-industry development and diffusion in comparison to the industrialized nations. This late adoption of ICT might translate into a competitive advantage for the developing countries since they to learn from the experience of the developed countries while adopting the latest generation technologies. However, they will benefit from not incurring the learning and experimentation cost that typically characterised the adoption of new technologies by the early adopters referred by (Wong, 2002).
Early macro level studies, going back to late 1980s and early 1990s, indicated that ICT’s share in productivity and economic growth was very small (Roach, 1987, 1989, 1991; Oliner and Sichel, 1994; Jorgenson and Stiroh, 1995). Macro-economic studies showed that investments in ICT had a considerable effect on the productivity of labor force and economic growth as well (Jorgenson,2001, Oliner and Sichel, 2004, Jorgenson and Stiroh, 2000). Gordon (2000) attributed that productivity growth of the 1995-2000 period to business cycles, whereas Stiroh (2001) and some others show that business cycles had little Influence on productivity growth during those years. Results sometimes diverge due to different methodologies employed. For example, Jorgenson and Stiroh (1995, 2000), 47 Jorgenson (2000), and also Oliner and Sichel (1994, 2000) use a “growth accounting framework” in which they separate ICT capital from non-IT capital, and focus mainly on business cycles. Mankiw, Romer, and Weil (1992) using data from 42 developing and 24 high income developed countries over the period of 1985-1999 and also Pohjola (2001) using Panel Data Modeling, found that ICT/GDP effect on growth in these countries was meaningful and positive in high income countries, positive but not meaningful in developing countries.
Sotiris and Papaioannou (2004) explored the effects of ICT on productivity and economic growth in both developing and developed countries over the time period of 1993-2001, using a “production function” framework and foreign direct investment (FDI) as a proxy for ICT and concluded that FDI has a positive and meaningful effect on productivity and