DP2399 Telecommunications Infrastructure And Economic Development: A Simultaneous Approach

Author(s): Lars-Hendrik Röller, Leonard Waverman
Publication Date: March 2000
Keyword(s): Economic Development, Economic Growth, Telecom
JEL(s): L96, O47, O57
Programme Areas: Industrial Organization
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=2399

This paper investigates 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 a twenty-year period 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 micro-model is then jointly estimated with the macro-growth equation. After controlling for country-specific fixed effects, we find evidence of a significant positive causal link, especially when a critical mass of telecommunications infrastructure is present. Interestingly, the critical mass appears to be at a level of telecommunications infrastructure that is near universal service.