Diffusion of ICT spurs economic growth

Standard of living, according to many economic scholars, is the single most significant indicator of economic performance of a nation. What generates the long-term upturn in standard of living is economic growth. In fact, economic growth is the most powerful engine attributed to macro- and micro-level economic performances along with policies and uses of various economic components.
The world economy, as we see it today, has been influenced by multi-faceted economic factors. In today's world economy - technology, especially the Information and Communication Technology (ICT), is a key factor that has a strong impact on economic growth both in short- and long-terms. There have been remarkable works done on associating long-term economic growth with technological progress. From a more micro-economic point of view, ICT, being a compilation of ideas and knowledge as a whole, has helped produce outputs from inputs. At this point of time, more ICT, from an economic perspective, means being capable of producing more outputs with a given amount of inputs.
In a causal relationship model, people tend to focus on computers and the Internet as the icons of ICT and their roles in economic development. However, more often than not, the process which generates new ideas and innovations, not the ICT itself, has been significantly profound. This comprehensive energy helps sustain the overall economic growth. Accordingly, businesses have invested in new ICT spin-offs when they have seen an opportunity to earn profits. Investment in ICT contributes to overall capital deepening. The greater use of ICT, in many cases, has helped businesses reduce their costs, enhance their productivity and increase their overall efficiency, and thus raise economic growth.
Moreover, greater use of ICT-generated processes have contributed to network effects, such as lower transaction costs, higher productivity of knowledge workers, and more rapid innovation, which, when captured from macro level point of view, has improved the overall efficiency of the economy.
If we put economic growth and technological progress in a framework, the singularity apparently flaws our causal relationship but in reality, as in both theory and evidence, the mutual inclusiveness of economic growth and technological progress is remarkable and many economic models deal with linking them together. Technological progress, according to New Growth Model, is a product of economic activities. Moreover, unlike physical objects, knowledge and technology are characterised by increasing returns, and these increasing returns drive the process of growth. Thus we can specify three main impacts of ICT on economic growth as below:
CAPITAL DEEPENING: Overall capital deepening is a result of investment in ICT and this investment consequently helps raise productivity. Although the capacities and qualities of ICT have improved all over the years, nominal prices of ICT products and services have decreased. Since businesses have been able to increase their capital spending on down-stream sectors due to lower prices of ICT equipment, capital deepening has become a natural consequence of this phenomenon. In addition, the decrease in ICT prices and the resulting capital deepening contribute to overall productivity growth.
TECHNICAL PROGRESS IN ICT SECTOR: We have been blessed with outstanding progress in the production of ICT goods and services for the last several decades. Along with the technological progress, the qualities of these goods and services have improved in rocket speed. Thus we have seen Multifactor Productivity (MFP) growth in the ICT producing sector. Increasing the amount and type of capital and labour used in production, plus reaching higher overall efficiency in these factors of production would directly lead to economic growth, specifically the higher multifactor productivity.
SPILLOVER EFFECTS: ICT use has also spillover effect which is a cumulative result of investment in ICT and the greater usage by the stakeholders. The greater use of ICT will help companies enhance their overall efficiency and thus raise MFP. Also it will contribute to network effects, such as lower transaction costs (Mobile Financial Services are examples of such implementations) and more innovations, which will improve the economy's overall efficiency.
Large-scale and economy-wide diffusion of information and communication technologies is one of major characteristics of some well-performing developing economies. ICT diffusion, through increased Internet and mobile phone subscriptions, can positively effect economic growth in three different ways. First, it can assist economy-wide technology diffusion and innovation. Second, it can improve the quality of decision-making by economic agents. And finally, it can raise the output level by creating demand for goods and services and by lowering costs of production. The three impacts and the resulting ICT diffusions in an economy mentioned above are deeply connected with the economic growth models.
Whether ICT has a positive impact on economic growth or not, is not the issue here. The real issue is to find out the specific areas in terms of economic growth and ICT implications. Economic benefits are not singularly achieved by greater use of ICT. The impacts, as noted is this write-up, need to be coupled with other factors such as stable environment, availability of right skills and organisational ability to make ICT effective in the workplace so that we can generate specific results for economic development.
The writer is a tech-entrepreneur
and economic analyst.
shah.ksohail@gmail.com