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Telecommunications Infrastructure and Economic Development: A Simultaneous Approach

  • Lars-Hendrik Röller
  • Leonard Waverman

In this paper we investigate how telecommunications infrastructure affects economic growth. This issue is important and has received considerable attention in the popular press concerning the creation of the "information superhighway" and its potential impacts on the economy. We use evidence from 21 OECD countries over the past twenty years to examine the impacts that telecommunications developments may have had. We estimate a structural model which endogenizes telecommunication investment by specifying a micro-model of supply and demand for telecommunication investments. The micromodel is then jointly estimated with the macro-growth equation. After controlling for country-specific fixed effects, we find evidence of a positive causal link, provided that a critical mass of telecommunication infrastructure is present. ZUSAMMENFASSUNG - (Telekommunikations-Infrastruktur und Wirtschaftsentwicklung: Ein simultanes Modell) In diesem Beitrag wird untersucht, welchen Einfluß die Telekommunikations-Infrastruktur auf die wirtschaftliche Entwicklung ausübt. Diese wichtige Frage hat im Zusammenhang mit der Diskussion um "Informationsautobahnen" Aktualität erlangt. In der vorliegenden Studie wird der Einfluß der Telekommunikations-Infrastruktur für 21 OECDLänder für die vergangenen 20 Jahre analysiert. Es wird ein Strukturgleichungsmodell geschätzt, in dem Investitionen in die Telekommunikations-Infrastruktur als endogene Variable erfaßt werden und in einem Mikromodell Angebot und Nachfrage nach Telekommunikations- Investitionen spezifiziert werden. Das Mikromodell wird dann zusammen mit der Makro- Wachstumsgleichung geschätzt. Als Ergebnis stellen die Autoren dann eine positive Kausalbeziehung zwischen Telekommunikations-Investitionen und wirtschaftlicher Entwicklung fest, wenn eine kritische Masse an Telekommunikations- Infrastruktur existiert.

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Paper provided by Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG) in its series CIG Working Papers with number FS IV 96-16.

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Length: 22 pages
Date of creation: Jul 1996
Date of revision:
Publication status: Published in the The American Economic Review , Vol. 91(4,September), 2001, pp. 909-923.
Handle: RePEc:wzb:wzebiv:fsiv96-16
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  1. Leff, Nathaniel H, 1984. "Externalities, Information Costs, and Social Benefit-Cost Analysis for Economic Development: An Example from Telecommunications," Economic Development and Cultural Change, University of Chicago Press, vol. 32(2), pages 255-76, January.
  2. Pereira, Alfredo M. & de Frutos, Rafael Flores, 1999. "Public Capital Accumulation and Private Sector Performance," Journal of Urban Economics, Elsevier, vol. 46(2), pages 300-322, September.
  3. John Fernald, 1997. "Roads to prosperity? assessing the link between public capital and productivity," International Finance Discussion Papers 592, Board of Governors of the Federal Reserve System (U.S.).
  4. Gramlich, Edward M, 1994. "Infrastructure Investment: A Review Essay," Journal of Economic Literature, American Economic Association, vol. 32(3), pages 1176-96, September.
  5. Shane M. Greenstein & Pablo T. Spiller, 1996. "Estimating the Welfare Effects of Digital Infrastructure," NBER Working Papers 5770, National Bureau of Economic Research, Inc.
  6. Mankiw, N Gregory & Romer, David & Weil, David N, 1992. "A Contribution to the Empirics of Economic Growth," The Quarterly Journal of Economics, MIT Press, vol. 107(2), pages 407-37, May.
  7. De Long, J Bradford & Summers, Lawrence H, 1991. "Equipment Investment and Economic Growth," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 445-502, May.
  8. J. Bradford De Long & Lawrence H. Summers, . "How Strongly Do Developing Countries Benefit from Equipment Investment?," J. Bradford De Long's Working Papers _108, University of California at Berkeley, Economics Department.
  9. Cadot, Olivier & Röller, Lars-Hendrik & Stephan, Andreas, 1999. "A Political Economy Model of Infrastructure Allocation: An Empirical Assessment," CEPR Discussion Papers 2336, C.E.P.R. Discussion Papers.
  10. Quah, Danny, 1993. "Empirical cross-section dynamics in economic growth," European Economic Review, Elsevier, vol. 37(2-3), pages 426-434, April.
  11. Quah, Danny, 1993. " Galton's Fallacy and Tests of the Convergence Hypothesis," Scandinavian Journal of Economics, Wiley Blackwell, vol. 95(4), pages 427-43, December.
  12. Norton, Seth W, 1992. "Transaction Costs, Telecommunications, and the Microeconomics of Macroeconomic Growth," Economic Development and Cultural Change, University of Chicago Press, vol. 41(1), pages 175-96, October.
  13. Alicia H. Munnell, 1992. "Policy Watch: Infrastructure Investment and Economic Growth," Journal of Economic Perspectives, American Economic Association, vol. 6(4), pages 189-198, Fall.
  14. Greenstein, Shane M & Spiller, Pablo T, 1995. "Modern Telecommunications Infrastructure and Economic Activity: An Empirical Investigation," Industrial and Corporate Change, Oxford University Press, vol. 4(4), pages 647-65.
  15. Hardy, Andrew P., 1980. "The role of the telephone in economic development," Telecommunications Policy, Elsevier, vol. 4(4), pages 278-286, December.
  16. Aschauer, David Alan, 1989. "Is public expenditure productive?," Journal of Monetary Economics, Elsevier, vol. 23(2), pages 177-200, March.
  17. Gene M. Grossman & Elhanan Helpman, 1993. "Endogenous Innovation in the Theory of Growth," NBER Working Papers 4527, National Bureau of Economic Research, Inc.
  18. Holtz-Eakin, Douglas, 1994. "Public-Sector Capital and the Productivity Puzzle," The Review of Economics and Statistics, MIT Press, vol. 76(1), pages 12-21, February.
  19. Garcia-Mila, Teresa & McGuire, Therese J., 1992. "The contribution of publicly provided inputs to states' economies," Regional Science and Urban Economics, Elsevier, vol. 22(2), pages 229-241, June.
  20. Frank R. Lichtenberg, 1993. "The Output Contributions of Computer Equipment and Personnel: A Firm- Level Analysis," NBER Working Papers 4540, National Bureau of Economic Research, Inc.
  21. Holtz-Eakin, Douglas, 1993. "State-specific estimates of state and local government capital," Regional Science and Urban Economics, Elsevier, vol. 23(2), pages 185-209, April.
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