Economic Benefits of ICTs

As in a pendulum movement, the reflections about the impact of ICTs in the Economy have swung from enthusiasm to realism and back to optimism, being each of these states really subjective and implying a wide range of shades within.

After a first period of cyberoptimism, people that “wanted to see” and people that thought “waiting to see” was a bad strategy because “it will then be too late”, followed a timespan where scientists — mainly economists — stuck to strict evidence from reality, being their main conclusion that the more you spend/invest in ICTs the more they affect both the share and the growth of the GDP — an obvious conclusion to many, I’d dare say, as it’ll happen with sweets if you spent half your national budget in candy.

In the last years, due to more data available and more and better analyses, we have been seeing new findings that, at last, seem to bring more light to the issue of the impact of ICTs on the Economy. In the following table I present a summary of a good bunch of such positive impacts. One caveat is due: as it is clarified in most of the documents listed below, evidence is not always subject to generalization. While sometimes it actually is, some findings apply only to specific contexts such as countries, economies, moments of time, constellations of conditions and so forth. I nevertheless believe that these impacts are worth listing because some were predicted — or expected — ten years or more before they could be measured. On the other hand, some caveats about the applicability of these findings are mainly based on (non) availability of data. Last, but not least, because even if some results only apply, as we have said, to specific economic setups, some of these setups could be reproduced in other contexts — e.g. in developing countries — in order to try to provide the same results.

Economic Benefits of ICTs
Growth ICTs, in general, facilitate economic growth, having a positive impact in national GDP growth
Specifically, the greater the size of the ICT sector (products and services), the larger the positive impact of ICT on growth.
Enabling of larger markets coverage
Increase of reach of businesses
Reduction of economic downturns and dampens business cycles
Boost of economic output thanks to employment creation
Allowing of diversified growth strategies, especially due to changes in trade
Market Promote integration of isolated communities into the global economy
New information-based products, new business niches
Scaling-up of international competition thanks to more transparency and trade
Energizing of the market due to shortening of product life cycles and
Investment Growth in global investment
Positive impact on system development cost, risk and timescale effects
Reduction of information asymmetries, especially in banking and finance, thus improving market behavior due to more transparency
Positive confidence and risk assessment effects
Impact of ICT-related capital investments on overall capital deepening
Developmental gains from investing in ICT consumption
Developmental gains from investing in ICT production (even greater than for investment in ICT consumption)
High returns on investment in telecommunications equipment and, more generally, in the telecommunications sector
Efficiency Facilitation of cost-effective public and private services
Enabling of more efficient goods and services allocation
Cost savings, in general, for industry
Fostering of effective use of development resources: capital and natural resources
Improvement of inventory management, better flow control, better integration between sales and production and, therefore, enhancing management of production
Increased transport efficiency
Reduction of transaction and search costs and information asymmetries in product, services and factor markets
Improved performance in firms, increasing efficiency in combining capital and labor (multifactor productivity)
Reduction of site dependency of data processing
Enabling of higher quality products and services
Improvement of quality monitoring
Fostering of mass customization
Enabling of dis-intermediation
Creation of new intermediaries, new business niches
Better access to knowledge and information by enabling of rich information flow
Improved decision-making
Greater flexibility on the part of firms in catering to a diversified customer base
Network externality effects
Innovation Lowering of technology cost
Increase in the volume and innovation effects
Benefits from international standardization
Positive impact of rapid technological progress
Impact on skills and organizational change
Productivity Productivity in Firms
Productivity in Industries
Productivity in Economies
Increase of labor productivity, especially in more skilled workers and/or after an initial period of adoption/training
Increase of multifactor productivity
Significant contribution to value-added by ICT skilled jobs
Greater impact of broadband on productivity
Contribution to the increase of capital input per worker (capital deepening) thus increasing efficiency and productivity
Trade Growth in global trade
Intensification of trade
Growing trade in ICT goods and ICT-enabled services, increasing its share in total goods and services exports
Emergence of a global information infrastructure
Enabling of outsourcing, thus reducing costs – on one side – and creating business – on the other one.
Increase of foreign investment
Employment Positive effects on employment creation
ICT-producing enable better paid ICT-related jobs
Energizing of occupational structure and changing demand for competencies
Positive impact on high-skilled workers’ wages
Increased transparency and efficiency in labor markets, allowing better allocation of workers and skills
Compensation of deficient growth of employment opportunities in manufacturing by significant increases in ICT business employment
Creation of new kind of jobs
Improved social development
Demand Increase of user expectations
Strengthening of ICT-products and -services demand
Enabling of new forms of interaction between firms and other parties such as consumers thanks to networking

Surprisingly — or not — there are few papers stating the negative impact of ICTs in the Economy. Some of them do not dare talking about negative impacts but of changes in the Economy: change of paradigm, organizational changes, turbulences in international markets, etc. and speak of them quite neutrally: they are neither positive nor negative on their own, but it will depend on a firm or a sector strength and position to benefit from them or to suffer them.

To be true, the only potential negative impact I have been able to find in economic papers — and also in sociological papers — is about employment. Again, a caveat: as I have shown before, most authors predict that the net effect on employment will be positive, and will be in the lines shown in the table. Nevertheless, some — among them Greenwood (1999) and Castells (2000) — picture some drawbacks of ICTs entering workers’ life. While the first one describes an impasse scenario where skilled workers will benefit while non-skilled will have to adapt to new technologies — losing productivity, competitiveness and earnings in the meanwhile — Castells is certainly more frightening, as he depicts the segmentation of workers in two axes: networked vs. switched-off labor, and self-programmable vs. generic labour. The conclusions are similar to Greenwood’s, but presumably to stay in the long run and with deeper consequences that spill from the labor market over the social and cultural arenas in a not really promising future for the switched-off and/or generic kind of workers.

References

Analysys. (2000). The Network Revolution and the Developing World. Washington, DC: infoDev.
Atkinson, R. D. & McKay, A. (2007). Digital Prosperity. Understanding the Economic Benefits of the Information Technology Revolution. Washington, DC: Information Technology and Innovation Foundation. Retrieved March 20, 2007 from http://www.itif.org/files/digital_prosperity.pdf
Bartel, A., Ichniowski, C. & Shaw, K. (2007). “How Does Information Technology Affect Productivity? Plant-Level Comparisons of Product Innovation, Process Improvement, and Worker Skills”. In
The Quarterly Journal of Economics, 122(4), 1721-1758. Cambridge: MIT Press.
Castells, M. (2000). “Materials for an exploratory theory of the network society”. In
British Journal of Sociology, Jan-Mar 2000, 51(1), 5-24. London: Routledge. Retrieved January 29, 2007 from http://www.blackwell-synergy.com/links/doi/10.1111/j.1468-4446.2000.00005.x/enhancedabs/
Greenwood, J. (1999). “The Third Industrial Revolution: Technology, Productivity, and Income Inequality”. In
Economic Review, (Q II), 2-12. Cleveland: Federal Reserve Bank of Cleveland. Retrieved May 20, 2006 from http://www.clevelandfed.org/Research/review99/third.pdf
Navas-Sabater, J., Dymond, A. & Juntunen, N. (2002). Telecommunications and information services for the poor. Toward a Strategy for Universal Access. Washington DC: The World Bank.
Nishimoto, S. & Lal, R. (2005). “Development divides and digital bridges: why ICT is key for achieving the MDGs”. In Commonwealth Secretariat (Ed.),
The Commonwealth Finance Ministers Reference Report 2005, 40-43. Barbados: Henley Media Group. http://www.undp.org/poverty/docs/CFMR_UNDP_ICTD.pdf
OECD. (2008). Measuring the Impacts of ICT Using Official Statistics. Paris: OECD. Retrieved January 10, 2008 from http://www.oecd.org/dataoecd/43/25/39869939.pdf
Primo Braga, C. A., Kenny, C. J., Qiang, C., Crisafulli, D., Di Martino, D., Eskinazi, R., Schware, R. & Kerr-Smith, W. (2000). The Networking Revolution. Opportunities and Challenges for Developing Countries. Washington, DC: infoDev. Retrieved October 26, 2007 from http://www.schoolnetafrica.net/fileadmin/resources/The_Networking_Revolution.pdf
Souter, D. (2004). ICTs and Economic Growth in Developing Countries. Paris: OECD. Retrieved June 19, 2006 from http://www.oecd.org/dataoecd/15/54/34663175.pdf
Talero, E. & Gaudette, P. (1996). Harnessing Information for Development. A proposal for a World Bank group strategy. World Bank Discussion Papers no. 313. Washington, DC: The World Bank. Retrieved November 14, 2007 from http://www-wds.worldbank.org/servlet/WDSContentServer/WDSP/IB/1999/08/15/000009265_3961219093624/Rendered/PDF/multi0page.pdf
UNCTAD. (2006). Using ICTs to Achieve Growth and Development. Background paper by the UNCTAD secretariat. Geneva: UNCTAD. Retrieved February 28, 2007 from http://www.unctad.org/en/docs/c3em29d2_en.pdf

If you need to cite this article in a formal way (i.e. for bibliographical purposes) I dare suggest:

Peña-López, I. (2008) “Economic Benefits of ICTs” In ICTlogy, #52, January 2008. Barcelona: ICTlogy.
Retrieved month dd, yyyy from http://ictlogy.net/review/?p=677

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7 Comments to “Economic Benefits of ICTs” »

  1. thanks for this write-up. i am especially grateful for the formal citation suggestion. this article was a huge help on a seminar i did. keep up the good work

  2. This paper has been of great benefit to me. Please keep up with the good work.

  3. Pingback: Las Tecnologías de la Información y la Comunicación | Fundamentos de economía

  4. hello

    thank you for this site i wand a pdf fil of paper aboue impact of ict on economics please send me

    thanx

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About Me

    I am Ismael Peña-López.

    I am professor at the School of Law and Political Science of the Open University of Catalonia, and researcher at the Internet Interdisciplinary Institute and the eLearn Center of that university. During 2014 I am also the director of the Open Innovation project at Fundació Jaume Bofill.