UNIVERSITY OF ECONOMICS INSTITUTE OF SOCIAL STUDIES HO CHI MINH CITY THE HAGUE VIETNAM THE NETHERLANDS VIETNAM - NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS THE CONTRIBUTION OF INFORMATION AND COMMUNICATION TECHNOLOGIES INVESTMENT ON ECONOMIC GROWTH BY THAN PHUONG LAN MASTER OF ARTS IN DEVELOPMENT ECONOMICS HO CHI MINH CITY, DECEMBER 2013 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com UNIVERSITY OF ECONOMICS INSTITUTE OF SOCIAL STUDIES HO CHI MINH CITY THE HAGUE VIETNAM THE NETHERLANDS VIETNAM - NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS THE CONTRIBUTION OF INFORMATION AND COMMUNICATION TECHNOLOGIES INVESTMENT ON ECONOMIC GROWTH A thesis submitted in partial fulfilment of the requirements for the degree of MASTER OF ARTS IN DEVELOPMENT ECONOMICS By THAN PHUONG LAN Academic Supervisor: Assc. PHAM HOANG VAN Assc. Dr NGUYEN TRONG HOAI HO CHI MINH CITY, DECEMBER 2013 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com ACKNOWLEDGEMENTS Writing process of a thesis is a collaborative experience involving the helps and supports from many people. I want to express my gratitude to those who give me the great support to complete this study.
I am deeply indebted to Associate Professor Doctor Pham Hoang Van, Lecturer at Department of Economics, Baylor University (USA), Fulbright Scholar, is a super supervisor. Thanks for his encouragements and useful comments to pursue this topic from the initial ideas to the final completion as well as enable me to develop a deeply understanding on my thesis. Equally, I also wish to express my grateful thanks to Associate Professor Doctor Nguyen Trong Hoai, Lecturer at Department of Economics Development, University of Economic (HCMC), my second supervisor, for his valuable suggestions during the time I write this thesis. His wide knowledge, excellent advice and logical way of thinking have provided me a good basis in present this thesis.
Doctor Truong Dang Thuy, Lecturer at Department of Economics Development, University of Economic (HCMC), has provided me many useful comments that help me to improve my academic writing skill as well as critical thinking. Thanks for his nice supports and helpful advices. Doctor Pham Khanh Nam, Lecturer at Department of Economics Development, University of Economic (HCMC), has supports me in initial ideas for this thesis and provides me useful data source that help me a lot to continue this thesis. By the way, I also would like to express sincere thanks to Anders Halvorsen, Vice President, Administration of World Information Technology and Services Alliance (WITSA) organization.
He has provided me the Digital Planet Reports versions LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com 2002, 2004, 2006, 2008 and 2010 that covers all my needed data for ICT spending. Without his data, I would not be able to complete my thesis. Equally, I also wish to express my grateful thanks to Dr Vu Minh Khuong, Assistant Professor Lee Kuan Yew School of Public Policy, National University of Singapore (Singapore). Although very busy with his job, he did give me a lot of knowledge, data and useful advices for me to solve my problem when I got stuck and complete my thesis.
During 2 years at VNP course, lectures and many friends have encouraged, reposed trust in me and motivated me to overcome all difficulties in learning and my life. Thanks for all. Than Phuong Lan Dec 2013 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com ABSTRACT Growth accounting method to measure the contribution of Information and Communication Technologies (ICT) investment on economic growth has widespread in 1990s in the United States and then in many other developed countries including Europe, G7. This study extends growth accounting exercise in a large sample of 32 countries in recent period from 2005 to 2010.
Results from this study prove that ICT capital investment is a very important factor. Although its contribution is not largely as non-ICT capital, its share in economic growth is not small and positive in all countries including developed and developing groups. Even in the period after financial crisis in year 2008, ICT investment is recognized a positive contribution to economic growth in all economies in sample. Such country-by-country results, however, “are not sufficient to judge how significant ICT has impacted output growth across economies” as Vu (2005) mentioned.
Therefore, in my research, I continue to analyze the main channels through which ICT investment influences the economic growth and evaluate its impacts on each channels. By applying regression analysis, this study finds a robust and positive statistically significant between ICT capital on output growth and on TFP growth through spillovers effects in the full sample of 32 countries, especially in developing economies group. For developed economies, the empirical evidence of ICT impact on output growth is smaller and even not statistically significant impact on TFP growth through spillovers. Finally, an empirical regression model is build in order to find out determinants of variation on the contribution of ICT investment on economic growth in this research.
Regression results show that education, openness, inward FDI, health and English fluency are the most significant and positively impact although institutional quality is not statistically significant in period before 2008. However, those impacts from these variables are smaller in later period of post-2008. LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com ABBREVIATIONS ICT Information and Communication Technologies OLS Ordinary Least Square IV Instrument Variables TFP Total Factor Productivity TFPG Total Factor Productivity Growth FDI Foreign Direct Investment EU Europe US United States UK United Kingdom G7 Group of 7 Developed Countries: U.K, France, Germany, Italy, Canada and Japan OECD Organization for Economic Co-operation and Development WITSA World Information Technology and Services Alliance BEA U. Bureau of Economic Analysis UNDP United Nations Development Programme LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com CONTENTS ACKNOWLEDGEMENTS ABSTRACT ABBREVIATIONS Chapter I .4 Organization of the Study .1 Sources of Economic Growth .1 Two Views of Capital .2 Explaining Sources of Economic Growth .2 ICT and Its Impacts on Economic Growth .1 Information and Communication Technologies (ICT) .2 Accessing the Channels of Contribution to Growth by ICT .3 Measuring the Contribution of ICT Investment to Economic Growth .1 Approaches for Evaluating the Impacts of ICT on Growth .2 Measuring the Contribution of ICT Investment as a Source of Economic Growth 16 2.4 Determinants of the Variations in ICT Magnitude Contribute to Economic Growth.1 Estimating ICT and non-ICT Capital services .1 ICT Investment Flows Calculation .2 Real ICT Investment Flows .3 The measurement of ICT Capital Stock using PIM .4 Quantities and User cost of ICT Capital Services.
44 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.1 Growth Accounting For Contribution to Economic Growth of ICT Investment .2 Impacts of ICT on Economic Growth.3 Determinants of ICT Contribution to Growth. 60 EMPIRICAL RESULTS AND DISCUSSIONS .1 The Contribution of ICT to Economic Growth .1 Magnitude of ICT Contribution to Growth.2 The Share of ICT Contribution to Output Growth Rate. Non-ICT Capital .2 The Impacts of ICT Investment to Economic Growth .1 ICT is Capital Input Contribute to Economy Output .2 Spillover effects of ICT Investment on TFP Growth.3 Determinants of Variations of ICT Contribution to Economic Growth. 81 IMPLICATIONS AND CONCLUSIONS.
96 INFORMATION AND COMMUNICATION TECHNOLOGIES (ICT). 99 ICT CONTRIBUTION TO ECONOMIC GROWTH (RESULTS OF GROWTH ACCOUNTING METHOD). 99 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com LISTS OF FIGURES Figure 2.1: Contribution of ICT to Economic Growth .1: Share of ICT-Producing Industries in Total Business Sector .2: Output contribution of ICT Production in the Market Sector in Finland .3: Share of TFP Growth of ICT Producing Sector in Total TPF and Labor Productivity 1995-2000 .4: Contribution of ICT to Labor Productivity Growth .1: Summary for capital services calculation.1: Average GDP Growth of 32 Countries in Sample (in %) .2: ICT Contribution to GDP Growth (All Samples) .3: Average GDP Growth- Developed vs.4: ICT Contribtion To GDP Growth Developed vs.5: ICT Contribute to 100% of Overall Output Growth 2005-2010 .6: Shares in Contribution of ICT vs non-ICT Capital Input to Growth. 66 LISTS OF TABLES Table 2.3-1: Contribution of ICT Capital on Economic Growth .3-2: Contributions from non-ICT sector to Aggregate MFP growth .1-1: ICT’s Investment to spending ratio .1-2: Data sources for Capital Services Calculation .2-1: Proxy and expectation sign for each determinants of ICT contribute to Growth .2-2: Data sources of determinants of ICT contribute to Economic Growth .2-1: ICT is Capital Input Contribute to Economy Output .2-2: Specific Tests for ICT is Capital Input Contribute to Economy Output .2-3: Spillovers Effects of ICT Investment on TFP Growth .3-1: Determinants of Variations of ICT Contribution to Economic Growth.
75 Table B-1: ICT contribution to economic growth – results of growth accounting method. 99 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com CHAPTER I INTRODUCTION 1.1 Problem Statement The concept of Information and Communication Technology (ICT) had been used since 1980s by many academic researchers. Since then, ICT has become an interest topic and attracts researchers in many different fields. The reason is because ICT has many characteristics that make it particularly attractive in the whole development strategy.
At first, it is a useful channel of communication that would overcome the geographical distance. In any place, you can access information from anywhere else. Through ICT, almost every kind of knowledge can be transmitted between countries and regions all around the world. So with ICT, different countries have greater opportunity to interact with each other to improve themselves in cultures, politics and other features of society.
Especially, developing countries have the ability to increase their knowledge, productivity and new introductions of modern technologies. Moreover, this capability increases continuously due to advance developments in ICT products including radio, satellite, networking and data processing. Second, ICT has applications in many different areas that significant impact on the ways of education, learning, production, health, economic manipulations… Remote or distance education and health are among such of those benefits from ICT applications. Moreover, in discussion about role of ICT in learning and education in her report of “Investing Effectively in Information and Communications Technology in Schools, 2008-2013”, Minister Mary Hanafin emphasized that a pivotal force that brings the changing in learning is the use of ICT “which provides richer, more immediate, world-relevant educational resources and opportunities”.
1 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com Hence, “when used well, ICT enriches learning and enhances teaching” (Department of Education and Science 2008). For economic development, ICT applications such as PCs, telephone, mobile, internet or more recently of applications in stock market change the world economy to a new process that have not ever experienced before. Finally, the most important characteristic of ICT is called “network effects” since ICT benefits not only owners but also the society as a whole. The more people use ICT products, the increasing benefits for society it can raise.
In addition, when more and more people use ICT applications, the quality of ICT products could be improved since experiences from users may contribute to the quality of the ICT product, especially software. It is also recognized that basing on those characteristics; ICT makes the global development strategy changed such as globalization, trade extension, and economic development through the ways of learning, working or communication. Particularly in the economic development field, contribution of ICT on output and labor productivity growth is not a new subject and also proved to be significant on many economies especially in US and other developed as well as developing countries (Oliner and Sichel 2000, Daveri 2002, Schreyer 2000, Vu 2005). Global economists even predict that investment in ICT drives the economic growth (Kooshki and Ismail 2011, Colecchia and Schreyer 2002 for several OECD countries).
Moreover, ICT is considered as the key factor that explains growth differentials across countries. US economy is the most special and well-known case which attracts most economists in 1990s since it is the leader in producing and using ICT of the world.