how can you get more economic growth out of your ict? take care of your digital divide

How can you get more economic growth out of your ICT?Take care of your digital divide

Alain BOURDEAU de FONTENAYColumbia Institute for Tele-Information (CITI)

Fernando BELTRANUniversity of Auckland

ACORN/REDECOM Conference2009, Mexico City, 4-5 September 2009

04/20/23 05:30Alain BOURDEAU de FONTENAY ([email protected])

Fernando BELTRAN ([email protected]) 2

Objective To formulate a general analytical framework that:

Contributes to a better understanding of the links with economic growth and economic efficiency

Facilitates the evaluation of competing proposals in the digital divide debate Makes it possible to focus on the key differences between the competing

proposals Highlights those assumptions that need to be evaluated theoretically and/or

empirically to buttress a policy proposal

The objective is to develop an analytical framework, not to test it empirically nor to prove formally any parts of it.



Outline Background to the digital divide debate ICT and economic growth Poverty and inequality: is it efficient? Chronic poverty and inequality: what might

make it sustainable? What to look for when formulating a pro-

growth digital divide policy?

Why a digital divide policy? The primary rational for a digital divide

policy might be: Social equity A vision of society (Gore 1996) More efficient delivery of government services Economic efficiency (Mueller 2001)

Here, we are concerned with economic growth, hence economic efficiency

04/20/23Alain BOURDEAU de FONTENAY ([email protected])


How to look at the digital divide?

A wide spectrum of concerns, e.g., Technology (Goolsbee and Guryan 2006) What’s the fuss? It’s just another new good the

market needs to take care of (Mueller 2001) Internet usage (DiMaggio et al. 2004; Noh and Yoo

2008) Economic growth (Liu & San 2006) Social exclusion (NTIA 1995; Jung 2008) Social capital (Selwyn 2002)



Origin: a vision of society

Vice President Gore (1996)

President Clinton and I… challenged the nation to ensure that all of our teachers and students have access to modern computers and engaging educational

software… We challenged the nation to make sure that our children will never

be separated by a digital divide.



ACORN/REDECOM, Mexico City04/20/23 05:30

Alain BOURDEAU de FONTENAY ([email protected]) Fernando BELTRAN

([email protected]) 7

Definitions Fink and Kenny (2003): “Four possible interpretations… [that]

appear in the literature: 1.A gap in access to use of ICTs—crudely measured by the number and

spread of telephones or web-enabled computers, for instance. 2. A gap in the ability to use ICTs—measured by the skills base and the

presence of numerous complimentary assets. 3. A gap in actual use—the minutes of telecommunications for various

purposes, the number and time online of users, the number of Internet hosts, and the level of electronic commerce.

4. A gap in the impact of use—measured by financial and economic returns”

#4 corresponds to a market failure, implying the potential merit for a policy intervention



Definitions A digital divide policy has to be evaluated in terms of its specificity in time

and space, e.g., Keniston and Kumar’s (2003) four divides: 1. “The first divide is… between

those who are rich, educated, and powerful, and those who are not…

2. A second digital divide… is linguistic and cultural… It separates those who speak English…

3. The third digital divide… is the gap between the rich and the poor nations…

4. … in countries like India and America, yet a fourth: the emergence of a new elite group,… the beneficiaries of the enormous successful information technology industry and the other knowledge-based sectors of the economy such as biotechnology and pharmacology….”



Definitions DiMaggio et al. (2004)

“inequalities in access to the Internet, extent of use, knowledge of search strategies, quality of technical connections and social support, ability to evaluate the quality of information, and diversity of uses”

Identify useful parameters to assess ICT’s effectiveness

What are their relevance? Mueller (2001) – Is broadband access a consumption

good or an infrastructure? What is the scope of the digital divide, e.g.,

A technology? Are dimensions such as “social exclusion” relevant to

economic efficiency? Is DiMaggio et al.’s (2004) definition too broad/narrow to

look at economic efficiency? What is the relevant time dimension from a policy

perspective? To what extent might dimensions such as political power,

culture, institutions, and local specificity be relevant?



Objective for a digital divide policy

2 different kinds of objectives: Economic efficiency Social equity

Implications of economic efficiency Proper allocation of resources Economic growth International competitiveness



Lesson for the digital divideWould we have reasons to expect the digital divide

to have a significant impact on economic growth if so many questions are raised about ICT’s own impact on the economy, especially post-2000?

Different: Productivity studies

Structural changes are ignored Growth from technical change or factor substitution

(Jorgenson & Vu 2005) Digital divide: is it long run, e.g.,

Is it an infrastructure? Is it associated with institutional changes?



Productivity analysis Generic formulation:Q = AFF{L, K}where L and K are constant qualitybut the index methodology used to estimate L and K implies

that:L = ALN K = AKC N and C are the observed labor and capital inputs and AL and

AK are the measured of technical change for those inputs.

Productivity studies ignore factor-specific technical change AL and AK



The digital divide & growth: the impact of poverty AF is Solow’s technical change AL is the labor-specific technical change

Unskilled labor is primarily associated with poverty, hence, potentially with the digital divide. The digital divide, if it exists would correspond to frictions in the labor market

associated with poverty. Growth might be achieved through

improvements in: Low skilled labor participation, NUSkilled Ability to benefit from technical change, AUSkilled





Poverty/inequality Question – What determines what?

Direct – what direction? Poverty/inequality => Growth Poverty/inequality <= Growth Poverty/inequality Growth

Indirect: Poverty = F(other factors = X) Growth = G(other factors = Y) How are X and Y related and how does it affect the

relationship between poverty/inequality and growth?

(Davis 2006)

Poverty Question: poverty/inequality?

Absolute poverty: trickle down effect Relative poverty Subjective poverty Inequality

Absolute poverty Long run: growth is good Short run: ambiguous Ambiguous:

Mostly absolute only in the short run (periodically revised) But subcategories such as food insecurity (Gundersen 2008)

Inequality More flexible than relative poverty Reflects better the behavioral impact of the evenness and fairness of

the income/wealth distribution



Multidimensionality of poverty Poverty is multidimensional, e.g.,

Food insecurity (Gundersen 2008) Violence and security (Fay 2005; Aizer 2008) Socio-economic polarization (Mogues & Carter

2005) Racism (Becker 1957) Political power (Chin & Wagner 2007) Business cycles



Relative poverty, inequality, and growth?

Observation: inequality Decreased in the middle of XXth century Generally increased since the ‘70s

Increased inequality: Generally attributed to technological change, but why long

run? Some suggest ICT is a GPT

Very long time impact on labor force Skilled labor force is a complement Unskilled labor force a substitute Limited wage flexibility of low wage worker

Potentially: low skilled workers might become permanently unemployable



No inequality in a pure neoclassical environment



Corrective factors Competition optimizes efficiency given the

transfer requirements (Becker 1957) Knightian uncertainty (Knight 1921) Innovation (Schumpeter 1912) The response by the poor/minority:

Threat (Margo 1991) Assimilation (Bloch & Rao 2001)

Pressure toward power sharing (Alesina & LaFerrara 2005)

…



The impossibility of an efficient market-based allocation system



Why inequality is inefficient?

Poverty is undesirable, hence the haves have The incentives to restrict upward mobility-based

competition by the higher abilities have-nots. More resources to block competition due to their higher

wages, e.g., through being in a better position to: Manage information Manage the political process (Buchanan) Control the allocation of public resources (e.g., education,

security) Hence, a greater ability to achieve mobility foreclosure

(Chin & Wagner 2007; Cuellar 2007) Mobility limitations means tendencies toward

increases in chronic poverty



Population segmentation and mobility

Mobility foreclosure (hence inequality) strengthened where:

Individuals are easily identifiable (Alesina et al. 1999) Easy identification facilitates discrimination (Phelps

1972) Discrimination controls mobility

Disproportionate representation among the poor Many racial and ethnic minorities (Kijima 2006) Women



Population segmentation and mobility

Hence, easy identification facilitates mobility foreclosure through discrimination For instance, Eliza in Shaw’s 1913 Pygmalion (My

Fair Lady) Easier identification facilitates mobility foreclosure

(Quillian 2003) Discrimination is self-enforcing

Statistical discrimination (Phelps 1972; Altonji and Pierret 2001)

Implicit discrimination (Bertrand et al. 2005) Network effects (Lee 2004)



Population segmentation and the allocation of political power

Geographic segmentation and discrimination (Squires and Kubrin 2005)

Enforcement of laws and regulation (Cuellar 2007)

Information about minorities (Galbraith et al. 2006)

U.S. welfare reform (Jennings 2001)



Summary The concern with the digital divide is about poverty

and inequality Poverty and inequality

Time dimension: Chronic (segmentation, lack of mobility) Response to short run fluctuations

Information/discrimination key to mobility What might make it sustainable?

Information/discrimination Reducing chronic poverty and inequality

contributes to economic growth Hence ICT needs to reduce discrimination



Potential Using ICT as:

Affirmative action (Franke 2007) A way to better implement legislations and regulations, e.g.,

Gender-based (Gayathri 2005) …

Challenge - How to formulate a pro-long run growth strategy to go from the digital divide to the promotion of digital opportunity?

Inequality is largely sustained through social discrimination buttressed by institutions, what digital divide strategy can best address those problems?

The window of opportunity is limited in time (McSorley 2003)



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