information and communication technologies for development and poverty reduction

Information and

Communication

Technologies for

Development and

Poverty Reduction

The Potential of

Telecommunications

Edited by

Maximo Torero

Joachim von Braun

INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE

Outline

1. Motivation

2. Main Goal

3. Impacts of Rural Telephony

4. Five main questions

5. Results at the Macro Level

6. Institutions and ICTs

7. Results at the household and firm level

8. Role of ICTs in providing pro-poor public goods and

services

9. Final Comments


1. Motivation

ICT brings with it high hopes of positive outcomes

in developing countries

Strong inequality still remains in the use and

access of ICTs

In absolute terms developing countries are still

well behind the developed world in access to ICTs

Rapid growth in developing countries- partially a

result of low initial access


Outline

1. Motivation

2. Main Goal







services

9. Final Comments


2. Main Goal

Provide framework for policy dialogue towards better understanding of

the role of ICTs


Outline

1. Motivation

2. Main Goal







services

9. Final Comments


3. What are the potential impacts of rural

telephony?


Outline

1. Motivation

2. Main Goal







services

9. Final Comments


4. Five Questions

What link exists between ICT growth and economic growth?

Do weak institutions block effective use of ICTs?

Have ICTs been adapted to low-income countries, and have they had an impact on SMEs?

Does household access to ICTs remain constrained?

Can ICTs play a role in providing pro-poor public goods and services?


4.1. To answer the five questions:

Driving Supply (Penentration) Demand Impact

Forces and Institutional (Utilization)

Designs

Impact at the Global Level

Infrastructure-

Provision of Service

Impact at the Microeconomic Level

Pub

lic, P

riva

te &

Inte

rna

tio

nal

Content

Households

Organizations

Chapter 2

Chapter 3

Chapter 4

Chapter 5

Chapter 6


4.2. Where did we measure impacts?

P e r uT a n z a n ia

K e n y a

U g a n d a

G h a n a

U z b e k is t a n

C h in a

In d iaJ a m a ic a V ie tn a mL a o s

B a n g la d e s h


4.2. How did we select countries?

Main Telephones and GDP per Capita, 2000 (138 countries)

ChinaPeru

IndiaLao P.D.R.

Japan

Tanzania

United States

BangladeshUganda

Jamaica

0

10000

20000

30000

40000

50000

60000

0 10 20 30 40 50 60 70 80

Main Telephone Lines per '00' Inhabitants

GD

P p

er

Capita

(1995 U

S$)


4.3. How do we measure the impacts?

Macro level models to measure impact over growth

At the household or SME level:

• Models of Access

• Matching and Difference in Difference estimates

• Compensating Valuation

• Willingness to Pay


Outline

1. Motivation

2. Main Goal







services

9. Final Comments



• Tele-density positively associated with growth and investment

• Telecom infrastructure appears to boost investment by reducing uncertainty associated with monetary shocks (e.g. Norton, 1992)

• Impact of tele-density on growth is restricted to developed countries (Roller and Waverman, 1996)

• Minimum threshold of telecom density (around 24 percent) required for positive growth effects


5. Results at the Macro Level (ctd):

• Results for fix phones (Torero,

Chowdhury and Bedi;2004):

– Estimates based on 118 countries

– Positive causal relationship between

telecommunications infrastructure and GDP.

– 1 % increase in the telecommunications

penetration rate 0.03% increase in GDP.

– Nonlinear effect of telecommunications

infrastructure on economic output.

– Particularly pronounced impact for middle-

income countries


5. Results at the Macro Level (ctd):

• Results of Waverman, Meschi

and Fuss (2004): –All else equal, in the “low income”

sample, a country with an average of 10

more mobile phones for every 100

people would have enjoyed a per capita

GDP growth higher by 0.59 percent.


Outline

1. Motivation

2. Main Goal







services

9. Final Comments



Importance of specific characteristics of ICTs:

• High fix cost and low marginal cost

• Complementarities

• Network externalities

• Pervasive


6. Institutions and ICTs (ctd)

• Natural Monopoly versus Access pricing

• Natural Monopoly framework implies that a multi-

firm industry is inefficient due to a less than

optimal scale of production

• Access pricing seems to be the answer but this

requires initial infrastructure, or what we call minimum

critical mass


6. Institutions and ICTs (ctd):

Model of network expansion and breakdown

Average Cost

Utility

Network Size

n1 n2 n3 n

Critical Private Exit

mass point Optimum Point

Growth by Self-sustained Growth by

external growth external

subsidy subsidy

Source: Noam (2001)

Entitlement growth

(directed growth)

Do

llars


6.1. Institutions and ICTs: Some Results

Service shortfalls in some rural and peri-urbanareas can be solved without governmentsubsidies

• regulatory reforms are needed to let the market work well

But even in well-working markets service will notbe commercially viable in some peri-urban areasand in most rural areas

• subsidies may be justified to extend services beyond the market


6.2. Institutions and ICTs: Specific

Recommendations

• Recommend regulatory changes to enablethe market to work better

• increased competition

• open to new technologies

• open to new business models

• Outline an approach to subsidies to extendservices beyond the market

• using market forces

• minimal regulation


6.3 How to do it

• Distinguish two types of urban service shortfalls:

• market efficiency gap

• real access gap

• For the market efficiency gap:

• identify current regulatory problems and issues that Ethiopiaregulatory agency can address

• examine new technologies that could help to reduce costs

• For the real access gap:

• draw on best practices developed in rural areas

• complement and extend these for application in urban and peri-urban areas


6.3. How to do it (ctd)


6.4. Real Access Gap:

What best practices tell us

• Reliance on market forces:

• Bottom-up identification of demand

• Competition for the market

• Subsidies allocated through the market

• Minimal regulation:

• Freedom of business and technical choice

• Attractive licenses designed to encourage growth

• Limited price controls

• Cost-reflective access charges


Outline

1. Motivation

2. Main Goal







services

9. Final Comments


7. Results at the Micro Level

ICT may contribute to poverty alleviation

through:

• Making markets more accessible to both

households and small enterprises

• Improving the quality of the public goods

provision

• Improving quality of human resources

• More effective utilization of existing social

networks

• New institutional arrangements to strengthen

the rights and powers of poor people and

communities


7.1 Results at the Micro Level: Firms

• Early literature: limited evidence of productivity

effects (e.g. Berndt (1990), Loveman, (1994)

.Productivity paradox

• More recent (after 1987) and more accurate

data, Brynjolfsson and Hitt (1996): substantial

returns to investments in computers (48 percent)

• Difficult to measure, learning period, time lags


7.1. Micro Level results:

SMEs in India and Laos

India Laos

-Majority of businesses use fixed

telephone, fax and computers

- PC and the Internet are

underutilized

-Firm size, location of market,

and availability are important

determinants of adoption

-Positive relationship between

ICT use and some performance

indicators.

-Telephone widely used as

primary means of information

gathering by rural businesses,

and demand is high

-Little evidence on the positive

impact of telephone use on firm

performance


7.2 Results at the Micro Level: Households

• Information is an indispensable ingredient in decision

making for livelihood of households

• Potential gains for rural households:

• time and cost saving

• more and better information, leading to better decisions

• greater efficiency, productivity, and diversity

• lower input costs and higher output prices

• expanded market reach

• Previous work trying to measure the consumer surplus:

Saunder et al. 1983, Bresnahan, 1986, Saunders, Warford

and Wellenius 1994, etc.


7.2. Results at the Micro Level

Households in Bangladesh, Peru and Laos

Bangladesh and Peru Laos

-Compared to alternatives, positive direct

monetary gain of the use of rural telephones.

- Estimated gains in welfare with respect to

alternatives are:

Bangladesh: US$ 0.11 to 1.59 per call

Peru: US$ 1.62 to 2.91 per call

-Rural households willing to pay more than

the prevailing tariff rates per local call:

Bangladesh: US$ 0.10 to 0.26

Peru: US$ 0.25 to 0.35

-Telephone increase consumption

- Per capita consumption increase in

approximately 22% and 24% in per

capita cash based consumption.

-Changes in telephone use between

2000 and 2001 - positive impact on

changes in consumption in the same

period


Outline

1. Motivation

2. Main Goal






8. Role of ICTs in providing pro-poor public goods

and services

9. Final Comments


8. Role of ICTs in providing pro-poor public

goods

• ICTs can be a powerful tool for improving the

quality and efficiency of government social

services.

• Clear gap between the use of ICTs for the

delivery of public goods.

• Most of the cases of use of ICT in delivering

public services are isolated.



goods (ctd)

• Cross country analysis indicates that

telecommunications investment may well be

associated with improved health status.

• A simple linear cross-country regression of the

growth rate of fixed phone lines explains about

11% of the growth rate variance for life

expectancy.



goods: some examples of impact

• On farming technologies:

• giving information in the best farming technologies and price

changes in 30,000 villages across six states in India

• On health:

• telemedicine centers in Alto Amazonas, and in Andhra Pradesh,

India,

• HealthNet

• ProCAARE discussion forum and the WorldSpace Foundation

(WSF)-Africare HIV/AIDS initiative

• On education:

• education as the African Virtual University

• the distance learning university in India


Outline

1. Motivation

2. Main Goal







services

9. Final Comments


9. Final Comments

• ICTs- not a panacea

• ICTs can have an important impact at the macro

level once a critical mass is achieved.

• ICTs can have an important impact in linking

smallholders and SMEs to markets

• Need to differentiate market efficiency gap from

real access gap

• Government should play a major role in the real

access gap.


9. Final Comments (ctd.)

• Minimal conditions necessary for success:

• prompt deregulation

• effective competition among service providers

• free movement and adoption of technologies

• targeted and competitive subsidies to reduce

access gap

• institutional arrangements to increase the use of

ICTs in the provision of public goods.


9. Final Comments (ctd.)

• Two important things to keep in mind:

• Three C’s of ICTs: Connectivity, Capability to use

it, and Content. The latter is crucial specially to link

to markets.

• We need to look to new technologies: wireless

broadband technologies potentially offer a future

platform for delivery of voice telephony and

broadband services to peri-urban and rural areas

(leap-frogging).

information and communication technologies for development and poverty reduction

Documents

access of icts

firm level

main questions

macro level ctd

macro level models

results of waverman

icts rapid growth

sme level