Page 1 Digital Transformations A Research Programme at London Business School Funded by the Leverhulme Trust “The Social/Economic Impact of Information and Communication Technology” Overview: Leonard Waverman, Professor of Economics Theme 1: Digital Divide: The Role of Mobile Phones Theme 2: Digitisation, Growth and Productivity

Page 2 “People in the developing world are getting more access at an incredible rate- far faster than they got access to new technologies in the past... The Digital Divide is rapidly closing.” (World Bank, February 2005). Images courtesy of Jon Stern. One simple question: What is the impact of mobile phones on economic growth rates in developing countries? No prior studies on this.

Page 3 Summary of Findings  Different econometric methods point to general conclusion: increased mobile penetration has a positive impact on growth rates.  Roll-out of mobiles in developing world far more rapid than roll-out of fixed lines in the developed world in the 1950s-1980s.  Mobile networks are critical social overhead capital- but privately provided!  Success of African mobile firms- Celtel- huge connectivity increases in the very poorest places.

Page 4  Why is there a “productivity pop” in some countries, post-1995, but not others?  What is the role of IC (Computers) and T (Telecoms) in the productivity divergence between the US and (most of) Europe?  What is the role of interactions between telecoms and computers in generating externalities from ICT capital? This is the concept of the “networked computer.”  Can an econometric approach provide better answers than growth accounting? “Why is There no New Economy in Old Europe?” Our Research Questions.

Page 5 Summary of Findings  Differences between EU and US are in the extent of technology use, not the type of technology being used.  ICT usage/diffusion spillovers and ICT capital deepening effects both matter.  Combined effect of ICT factors is substantial- more than 50 percent of the US-Canada productivity gap.  Some evidence that the interaction between modernised telecom networks and PCs has influenced productivity levels.

Page 6 US Lead in ICT Investment and Usage- Driving Productivity Differences Europe lags US and other countries in both ICT capital stock AND the spread of ICT

Page 7  Up to now, the answer is no. Volatile economies are ones that grow less.  Is this an artefact of aggregation?  Are volatile sectors ones where entry and exit rates are higher, as well as ones where TFP growth is higher?  Are volatile sectors ones where IT investment has been higher over the recent period? “Is Economic Turbulence a sign of the Innovation process?” Our Research Questions.

Page 8 Summary of Findings  Volatile sectors grow faster even though volatile countries do not.  Two types of volatility, one consistent with creative destruction.  Link more positive in high TFP (or SFP) growth sectors. Also more positive in IT intensive sectors.  Sometimes negative link in low technology (IT or TFP) sectors.

Page 9 Policy Implications  Employment volatility a necessary evil to accept for high technology. Industry protection may have long run deleterious effects on economic performance – particularly true in IT case.  UK and EU need to both increase investment and ensure investment translates into diffusion/usage to improve productivity performance.  Effectiveness of investment- translation into adoption and usage- affected by: –Government Regulation. –Firm Managerial Practices. –Complementary capital- worker skills, training etc.  Mobiles practical cost-effective technology for developing world- adopt policies (regulation) that help maximise penetration; effective way of closing “Digital Divide.”