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Transaction costs, information technology and development

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  • Nirvikar Singh

Abstract

Purpose - The purpose of this paper is to examine the impact of transaction costs on economic welfare and development, and the role of information technology (IT) in reducing transaction costs. Design/methodology/approach - The paper extends the static model of Romer, in which transaction costs reduce welfare by reducing the equilibrium number of intermediate goods, and estimate the welfare losses in the case of domestic transaction costs. The main analysis of the paper extends a dynamic model of Ciccone and Matsuyama to incorporate transaction costs. Also described are case studies of the use of IT in rural India. Findings - In the static model, it is shown that domestic transaction costs have a substantial welfare impact when the number of goods is endogenous. In the dynamic model, it is shown that high transaction costs reduce the long‐run level of development, and may arrest development completely in the extreme case. Some preliminary, qualitative evidence from rural India is offered to illustrate how these reductions may occur through the use of IT. Originality/value - The treatment of transaction costs in a dynamic model is novel, and the use of such a model provides a new theoretical underpinning for understanding the potential impacts of IT on development.

Suggested Citation

  • Nirvikar Singh, 2008. "Transaction costs, information technology and development," Indian Growth and Development Review, Emerald Group Publishing Limited, vol. 1(2), pages 212-236, September.
    • Handle: RePEc:eme:igdrpp:v:1:y:2008:i:2:p:212-236
    DOI: 10.1108/17538250810903792
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    16. Nirvikar Singh, 2003. "India's Information Technology Sector: What Contribution to Broader Economic Development?," OECD Development Centre Working Papers 207, OECD Publishing.
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    Cited by:

    1. Singh, Nirvikar, 2006. "Services-Led Industrialization in India: Assessment and Lessons," Santa Cruz Department of Economics, Working Paper Series qt8jn2b8z6, Department of Economics, UC Santa Cruz.
    2. Jake Kendall & Nirvikar Singh, 2012. "Performance of Internet Kiosks in Rural India," Review of Market Integration, India Development Foundation, vol. 4(1), pages 1-43, April.
    3. Dr. Kavita Sexena, 2015. "Position of Information Technology in Service Sector of Indian Economy," Journal of Commerce and Trade, Society for Advanced Management Studies, vol. 10(2), pages 98-102, October.
    4. Jake Kendall & Nirvikar Singh, 2006. "Internet Kiosks in Rural India: What Influences Success?," Working Papers 06-05, NET Institute, revised Sep 2006.
    5. Martin L. Weitzman, 1998. "Recombinant Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 113(2), pages 331-360.
    6. Nguyen Hung Anh & Wolfgang Bokelmann, 2019. "Determinants of Smallholders’ Market Preferences: The Case of Sustainable Certified Coffee Farmers in Vietnam," Sustainability, MDPI, vol. 11(10), pages 1-20, May.
    7. Richartz, P. Christoph & Abdulai, Awudu & Kornher, Lukas, 2020. "Attribute Non Attendance and Consumer Preferences for Online Food Products in Germany," German Journal of Agricultural Economics, Humboldt-Universitaet zu Berlin, Department for Agricultural Economics, vol. 69(1), March.
    8. Nijiraini, Georgina & Thiam, Djiby, 2015. "Estimating transaction costs associated with water policy implementation in South Africa," 2015 Conference, August 9-14, 2015, Milan, Italy 212585, International Association of Agricultural Economists.
    9. Fuhong Zhang & Apurbo Sarkar & Hongyu Wang, 2021. "Does Internet and Information Technology Help Farmers to Maximize Profit: A Cross-Sectional Study of Apple Farmers in Shandong, China," Land, MDPI, vol. 10(4), pages 1-18, April.
    10. Georgina W. Njiraini & Djiby Racine Thiam & Anthea Coggan, 2017. "The Analysis of Transaction Costs in Water Policy Implementation in South Africa: Trends, Determinants and Economic Implications," Water Economics and Policy (WEP), World Scientific Publishing Co. Pte. Ltd., vol. 3(01), pages 1-30, January.
    11. Edy Dwi Kurniati & Indah Susilowati & Suharno, 2019. "Sustainable Competitive Advantage of SMEs through Resource and Institutional-Based Management: An Empirical Study of Batik SMEs in Central Java, Indonesia," Tržište/Market, Faculty of Economics and Business, University of Zagreb, vol. 31(1), pages 61-82.

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    More about this item

    Keywords

    Transaction costs; Internet; Economic development; Rural areas; India; Communication technologies;
    All these keywords.

    JEL classification:

    • P2 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies
    • L31 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Nonprofit Institutions; NGOs; Social Entrepreneurship
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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