Role of ICT in Economic DevelopmentThis is a featured page

Original course & content comes from Washington State University Extension, Center to Bridge the Digital Divide.
Role of ICTs and Telecommunications Technologies in Economic Development
ICT Empowers People with Information
INVENEO on ICT by Global Challenges

According to Nandi (2002) the primary means by which telecommunication services can promote economic development is by serving as a medium that facilitates the acquisition and transportation of information in cost effective ways while minimizing the obstacle of distance and time. Barnett, Jacobson, Young and Sun-Miller (1997), state that telecommunication is a space-adjusting technology that links various countries together through inter-connectivity, making the world a global village.

From these brief explanations of the role of telecommunications in economic development, by the above-mentioned authors, we can identify various mechanisms by which telecommunication influences the efficiency of different economic activities at the micro, macro and global level.
Information plays an important role in business and economic development by being the source of knowledge, education and human capital.

Availability of better information helps to improve education, health services and provides knowledge, ideas and opportunities and thus contributes to national productivity. The efficiency of household activities increases with telecommunications by allowing easy access to services like health care, education and financial services. However, this easy access to telecommunications services should be affordable to many ordinary people. This affordability of telecommunications services is a challenge in LDCs as most people are unemployed so access to ICTs for the unemployed is a problem.

Telecommunications service providers have a duty to make access to ICTs a practical experience, not just a policy of universal access written in government policies, statutory documents and companies' annual reports. Universal access means that telecommunications and ICT services should be available (and affordable) to most people in a society at a reasonable distance to where these people live.

In business and in academic institutions especially those in distance education where academics write and produce electronic reading material for their learners (tele-education and/or electronic learning/e-learning), the introduction of ICTs, telecommunications and/or information technology leads to higher productivity growth through greater specialization and in many other ways.

Nandi (2002) states that at the firm level, it results in significant economies of scope which are achieved through more centralized coordination of production units. During the last two decades, modern telephone networks and highly advanced telephone equipment have significantly increased the speed at which the information could be transported and exchanged. A few areas are stated below that explain how telecommunications as an efficient medium for transporting information is contributing towards higher economic development through its direct and indirect means.

Direct Effects of Telecommunications on Economic Development

Diffusion of New Ideas and Knowledge

The flow of information plays an essential role in the diffusion of new technology and ideas at the level of individual enterprises, the industrial sector and the national economy. The importance of the new knowledge and new ideas as key elements for stimulating growth rate has long been recognized by economists but is receiving more attention in recent years among new growth theorists. The source of knowledge and new ideas can be domestic or global. If knowledge is local, telecommunications technology can be used to globalise that local knowledge and this process is known as localisation, making a local idea global. In the case where information or an idea is made known in various countries (and usually adopted in those countries), this process is known as globalisation. ICTs then make both localization and globalisation possible. Modern telecommunications provide a cost effective and time efficient medium for accessing rapid development of computer and communication technology.

Reduction of Regional Infrastructure and Development GapOne of the reasons for the persistent gap between rural and urban areas in any country is the telecommunications infrastructure gap, which results in the information gap between rural and urban areas. Rural areas have little or no telecommunications infrastructure (e.g. in terms of telephones, facsimile/fax, computers, printers and the Internet, except in telecentres or community phone shops where available), when compared with the urban areas. This difference in telecommunications infrastructure is called the digital divide. Telecommunications infrastructure should then be developed in rural areas in order to reduce this digital divide, as Mbarika (2002) stated earlier in this study unit.If rural people obtain more information about agricultural prices, markets and economic opportunities beyond their geographical horizon they will be able to increase their productivity. Availability of telecommunication services can help to improve information flow between rural and urban regions and help reduce the gap of economic development between developed and developing countries but here other factors such as cultural, social and institutional factors can play important roles. Information between rural and urban areas can only be transmitted if there are communication technology links between these areas. Governments and other financially able parties, such as in the private sector, should establish communication technology links to facilitate information transmission.

Telecommunications as an Input to the Economic Production ProcessTelecommunication services in any business entity are to some extent a low cost substitute for information handling labour and has very low substitutability with other traditional inputs such as capital, production, labour and materials (Nandi 2002). However, telecommunication services help the industries more by increasing the productivity of each of these traditional inputs and thus increasing the efficiency of the entire production process. Telecommunications service is highly complementary with the use of information technology products. Telecommunications help with the retrieval and transportation of information, and allow efficient processing and exchange of information among different computers situated in distant locations.

Market Efficiency EffectBy facilitating information flow and by enhancing the communication between buyers and sellers, telecommunications increases the efficiency of market operations. Nandi (2002) mentions that when a telecommunication infrastructure exists, in equilibrium, idle resources are lower and markets are more efficient than when it does not. Telecommunications increase arbitrage opportunities in financial markets, which in turn lower the capital costs of production.
Spill Over and Externality EffectsIn addition to its direct contribution to end-users, the telecommunication networks and their use generate significant spill over effects in other sectors of the economy. Once the telecommunication infrastructure is built in any nation, it is available to all sectors of the economy and has good public characteristics. By possessing the characteristics of infrastructure capital, telecommunication networks generate substantial externalities both on the supply side and on the demand side. Investments in telecommunication infrastructure have effects similar to those of improved or increased innovation. Many of the benefits of telecommunication investments are not appropriated by the telecom sector, e.g. the lowering of transaction costs, the ability to search widely or the ability to control a greater pan of production and organizational activities. Telecommunications lower the fixed and variable costs of information acquisition and an expansion of telecommunications generates cost saving externalities in other markets (Nandi 2002)

The externalities involve lower search costs, increased arbitrage abilities and more information on the distribution of prices and services. Because of these spillovers and externality effects, the social rate of return on telecommunications is expected to be much higher than its return just on the telecommunications investment itself. Studies done by the United Nations Economic Commission for Europe, by the ITU, by the World Bank, recognize the role of telecommunications in stimulating efficiency and growth of other sectors in the economy.

Coordination of Economic ActivityBy allowing easy acquisition and transfer of information among economic units, and by facilitating rapid two-way communications over distance, telecommunications help in the coordination of economic activity (Nandi 2002). In business, this mechanism improves the capability of managers to communicate with each other and helps them to make better decisions and business plans. Telecommunications help to remove, to a great extent, the physical constraint on organizational communications in all sectors of the economy. Recently, telecommunications has become a primary contributing factor towards the development of increasingly complex large organizations and globalization of different corporations.

The efficiency of household operations also improves as telecommunications allow better coordination of their different activities. At the aggregate economy level, telecommunications helps social planners to coordinate different economic activities at reduced communications costs. However, it is very difficult to quantify the benefits to management and coordination activities as they affect the quality of managerial and administrative decision-making, which in turn improves economic performance.

Global Telecommunication ConnectionsAs is true for domestic telecommunications, global telecommunications can influence the global economy through similar mechanisms. Telecommunications helps the rapid movement of information from one country to another and allow optimal utilization of available technology, products and services around the world, thus helping to improve the global economy. International telecommunication networks can improve the global economy in many other ways. The speed of transmission of technological knowledge and other information depends on the quality of information connecting channels among different countries and the degree of absorption capacity of different countries.Modern telecommunication helps the coordination of different countries and increases the division of labour at the global level. International communications also increase the opportunities for many small potential traders in different countries and increase the efficiency of international capital markets. However, the expansion of global telecommunications can benefit different countries very unevenly due to their differences in political and economic powers as well as the differences in social and cultural backgrounds.

Rural and Urban DevelopmentIt is an established fact that there is a large gap and income between the most advanced countries and the developing countries in the world. However, the discrepancy in output, income and standard of living among different regions is more acute domestically in less developed countries than between developed and developing countries. In many rural communities, the middleman plays a key role as sole buyer of products, monopoly supplier of manufactured goods and credit suppliers to farmers. This middleman, in superior market information. The free flow of information between rural and urban markets can inform rural suppliers of the demand and prices of their products and services in different markets throughout the economy.This will allow them to adopt an optimal production and pricing plan for their products. Using telecommunications, rural agents can consult with agronomists and vegetarians in distant locations to provide necessary information to farmers for improving their crop yields and livestock productions. All these activities help the rural people to increase their productivity and income. The availability of telecommunications in rural areas can come from major urban areas, creating more jobs opportunities and income in rural areas. Thus, the development of rural telecommunications can help to overcome many obstacles to rural development.

Learning Activity 7
Identify the social constraints to the deployment and use of ICTs in your country and provide policy and regulatory suggestions on how to circumvent these constraints. - Write your suggestion as a Thread on this page.

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Adobe Portable Document Format Digital Discourse on ICT Development.pdf (Adobe Portable Document Format - 93k)
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Digital Discourse: Essay on ICT Development