1. 1 Dividends from the ‘New’ Economy: Economic Impacts of ICT Matti Pohjola World Institute for Development Economics Research (WIDER) United Nations University 28 June 2001

2. 2 Economic Impacts of ICT 1. A Definition of the New Economy 2. The Digital Divide 3. Ways to Benefit from the ICT Revolution 4. How Large Are the Dividends? 5. Policies for Bridging the Digital Divide Pohjola, M. (ed), Information Technology, Productivity, and Economic Growth, Oxford University Press 2001 Pohjola, M. (ed), The New Economy in Development (under preparation)

3. 3 A Definition of the ‘New’ Economy 1) Globalization of business –spreading of capitalism around the world (introduction of markets, free trade, and deregulation) 2) Revolution in information technology –decline in the costs of computing –convergence in communication and computing technologies through the digitization of information –networking of computers via the Internet –creation of new companies and industries –restructuring of existing firms 1) + 2) => 3) Acceleration of productivity and economic growth

4. 4 An Important Problem: The Digital Divide 55 countries account for 99 % of all ICT spending in the world The inequalities of access to the Internet exceed the inequalities of income across the world –In 1997, the richest fifth of countries had 86 % of world GDP but 93 % of Internet users –the poorest fifth had 1 % of GDP but 0.2 % of Internet users => Income and wealth inequalities across countries will increase if the new technology is the source of new wealth

5. 5 Internet Host Density and GDP per Capita, 1999-2000

6. 6 The Number of People Online, Nov 2000

7. 7 Two Possible Ways to Benefit from the ICT Revolution Becoming a producer of ICT –in advanced industrial countries, the valued added of ICT industries typically accounts for 4-6 % of GDP –not a realistic option for most countries since the markets have been preempted by big multinationals Becoming a user of ICT –in advanced countries, the ratio of ICT spending to GDP is typically between 6 to 10 % –a realistic option for all countries In the long run, the benefits from ICT use are more important than those from production for any country

8. 8 Average ICT spending to GDP ratios, 1992-99

9. 9 ICT Spending and GDP per Capita Source: WITSA (2000) and World Bank

10. 10 How Large Will the Dividend Be from Becoming an Advanced ICT User? 1) Evidence from advanced countries in the late 1990s 2) Evidence from a cross-section of 49 countries in 1992-99

11. 11 Advanced countries in the late 1990s The contribution from ICT use to GDP growth: 0.3 -- 1.1 percentage points per year Sources: Jalava and Pohjola (2001), Oliner and Sichel (2000), OECD (2001)

12. 12 49 countries in 1992-99 increasing the share of ICT investment in GDP by 50 % (say from 2 to 3 %) increases GDP growth rate by 2 percentage points this would double the GDP/capita level in 35 years Source: Pohjola (2001)

13. 13 Policies for Bridging the Digital Divide Promoting the use of ICT –providing access to ICT is not enough, participation of citizens should be encouraged –put government online to improve services and give citizens better access –lower taxes and tariffs on ICT products Developing national capabilities –invest in basic education and infrastructure –promote competition in telecommunications the cost of access to the Internet is the most important factor in explaining the diffusion of the Internet across countries