stanford center for international development … · in our analysis of the dynamics of ict...

STANFORD CENTER FOR INTERNATIONAL DEVELOPMENT

Working Paper No. 307

ICT Penetration and Economic Growth in Developing Asia: Issues and Policy Implications

by

Khuong Vu*

* Lee Kwan Yew School of Public Policy, National University of Singapore.

Stanford University John A. and Cynthia Fry Gunn Building

366 Galvez Street | Stanford, CA | 94305-6015

December 2006

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Conference on Economic Policy Reforms in Asia, Stanford University,

June 1-3, 2006

ICT Penetration and Economic Growth in Developing Asia:

Issues and Policy Implications

By Khuong VuLee Kwan Yew School of Public Policy, National University of Singapore

Email: [email protected]

Abstract: This paper provides a global view on the diffusion of ICT and its contributionto economic growth in Asia. The findings reveal that the “digital divide” challenge is magnified in Asia: there is a clear divergence trend on the diffusion of personalcomputers among the Asian developing countries. China has been among the leadingperformers while India remains a laggard in ICT diffusion. The contribution ofinvestment in ICT to economic growth is much more significant for China than India inboth magnitude and share in total output growth.

The paper also points out that per capita income, openness, and education are the keyfactors underlying variation in the pace of ICT penetration across countries and theeffect of the education factor has significantly accelerated since 1996. Furthermore, theeffectiveness of the ICT agenda and efficiency of the ICT market also has a strong impacton the diffusion of ICT in a country. This model well explains why the pace of ICTpenetration has been much slower in India relative to China over the past 10-15 years.

Keywords: ICT; economic growth; diffusion

JEL Classification: O47

I am grateful to Dale Jorgenson, T.N. Srinivasan for advice and I thank Jon Samuels and participants at theStanford Pan-Asia Conference for helpful comments.

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I. Introduction

In 1965, Intel co-founder Gordon Moore predicted that the number of transistors on an

integrated circuit (computer chip) doubles about every two years. This prediction, known

as Moore's Law, has become reality over the past 40 years. The number of transistors on

a computer chip increased dramatically from 30 in 1965 to 29,000 (Intel’s 8086

microprocessor) in 1978, to 592,000,000 (Intel Itanium 2) in 20041. The progress of the

semiconductor industry has fueled the Information and Communication Technology

(ICT) revolution throughout the world, for which the introduction of the first personal

computer (PC) by IBM in 1981 and the operation of theworld’s first commercial cellular

phone system debuted in Tokyo in 1979 are milestones.

The ICT revolution has driven the spectacular pace of ICT penetration across nations,

especially since 1990. Over the period of 1990-2003, the worldwide density of PC

(measured as the number of PCs per 1,000 inhabitants) rose 11 times (from 11.5 in 1990

to 128 in 2004); the density of mobile phone rose 108 times (from 2.7 to 289) and the

density of internet users increased 2700 times (from 0.05 to 137). The ICT penetration

and its impact on economic growth, however, largely vary across nations and this

variation tends to enlarge over time.

As an investment opportunity for an economic agent, ICT is characterized by the

following features, which combine both opportunities and challenges:

Accessible to all nations with a rapid pace of technological progress, which

provides increasingly powerful and extraordinary applications across

economic sectors; however, infrastructure, education, openness, and policy

effectiveness play a crucial role in determining the pace of ICT penetration in

a country.

Relatively low cost and enormous potential payoff; however, lacking a

strategic approach and wise implementation could lead an investment in ICT

1 From Intel’s website (http://www.intel.com/pressroom/kits/events/moores_law_40th)

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to very frustrating results. Furthermore, realizing the potential benefits

promised by investment in ICT depends heavily on the commitment,

knowledge, creativity, and the dynamism of the investor, be it an individual, a

firm, or a country.

In addition, the depth and the pace of ICT penetration are measurable and these measures

are compatible across nations. Therefore, investigating the penetration of ICT and its

contribution to economic growth in a country or a region with a global perspective can

provide valuable insights into its strengths and weakness in embracing the ICT revolution

and globalization. This paper conducts this study for Asia with a special focus on China

and India.

This paper uses the data compiled primarily2 from the on-line version of the World

Bank’s World Development Indicators (WDI-Online) to quantify the dynamics of ICT

diffusion and its effects on economic growth.

The remainder of the paper is organized as follows. Section II investigates the dynamics

of ICT penetration in Asia from a global perspective. Section III assesses the contribution

of ICT investment among other sources of economic growth. Section IV examines the

sources of economic growth of India and China. Section V investigate the determinants

of ICT penetration and unearths policy implications for developing Asian countries.

Section VI concludes.

II. ICT Diffusion in Asia

This section looks into the pattern of ICT diffusion in Asia from an international

perspective on the dynamics of ICT penetration across the world over the period of 1990-

2003.

2 Other sources include the Conference Board and Groningen Growth and Development Centre’s Total Economy Database (for labor data), Barro and Lee’s Educational Attainment Data(Barro and Lee, 2000).

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This section uses a sample of 50 countries in the WDI-Online database for which the ICT

penetration data are recorded on a yearly basis since 19903 to analyze the dynamics of

ICT diffusion across countries.

Using the level of personal computer (PC) penetration as the main indicator4 for ICT

penetration, I divide the sample of 50 economies into two equal groups: the low ICT

penetration group (Low-ICT-PEN) comprises 25 economies with the PC penetration level

in 1990 below 10 per 1000 inhabitants; and the high ICT penetration group (High-ICT-

PEN) consisting of 25 economies with the penetration level of 10 or more PCs per 1000

inhabitants. For Asia, eight economies, China, India, Malaysia, Thailand, Philippines,

Indonesia, Sri Lanka, Pakistan, and Bangladesh belong to the Low-ICT-PEN group;

while four economies, Japan, Korea, Hong Kong, and Singapore fit in the High-ICT-PEN

group (Appendix I).

The ICT revolution is characterized by the rapid diffusion of PCs, mobile phones and the

internet. The adoption of PCs and mobile phones has been fueled largely by the rapid fall

in their price and striking improvement in their performance. Furthermore, the rapid

progress of the Internet and its variety of powerful applications has accelerated the

benefits of investing in PCs.

In our analysis of the dynamics of ICT diffusion, we will focus mainly on the penetration

of personal computers and mobile phones, the two emblematic products of the ICT

revolution5.

3 These countries together account for over 90% of the world ICT market according to the ICT expendituredata provided by WITSA(2004).

4 PC penetration level is highly correlated with the penetration levels of telephones, mobile phones, andinternet and it appears to be the most representative indicator of ICT penetration level in a country.

5 The Internet penetration rate is not thoroughly examined because of two reasons: (i) it is highly correlatedwith the PC penetration; and (ii) its estimates are less accurate than those for PC and mobile phonepenetration.

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II.1.Asia in a Global Picture

To capture the pace and dynamics of ICT penetration in the Low-ICT-PEN and High-

ICT-PEN groups over 1990-2003 we split this timeframe into two periods, 1990-1996

(six years) and 1996-2003 (seven years). The year of 1996 is chosen as the milestone

since the penetration of the archetypal ICT applications such as the Internet, mobile

phone appeared to take off around this time.

Table 1 reports the means and the coefficients of variation (also known as –convergence

coefficient) for the penetration of PC, mobile phone, and telephone for the Low-ICT-PEN

and High-ICT-PEN groups in the years of 1990, 1996, and 2003. Figures 1A and 1B

depict the penetration of PC and mobile phone, respectively, for the two groups. The

following observations concerning the dynamics of ICT penetration in Asian countries

stand out:

PC Penetration

The subgroup of Asian countries in the Low-PC-PEN group was below this whole

group on the average level and pace of PC penetration over the two periods of 1990-

1996 and 1996-2003.

The average PC penetration level (measured as the number of PCs per 1,000

inhabitants) for the Asian economies in the Low-ICT-PEN group increased from 2.4

in 1990 to 10.4 in 1996 to 41.9 in 2003; while this figures are 3.7, 16.8, and 57.4,

respectively, for the Low-ICT-PEN group as a whole (Table 1).

The“digital divide” is more severe and the divergence trend is more obvious for the

subgroup of Asian countries in the Low-PC-PEN group than for this entire group.

The –convergence coefficient6 for the Asian economies in the Low-ICT-PEN group

decreased from 1.17 in 1990 to 1.11 in 1996 but rose to 1.26 in 2003, while this

coefficient for the Low-ICT-PEN group was 0.89 in 1990; 0.86 in 1996; and 0.87 in

6 The -convergence of a measure for a group is computed as the ratio between the standard deviation andthe mean of the measure. The magnitude of the -convergence can be used as a measure of the “digital divide”.A significant decrease in the -convergence indicates that the group experiences a convergencetrend on this measure.

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2003, which was lower than the respective figure for the subgroup of Asian countries

and experienced only a slight fluctuation (Table 1).

The subgroup of Asian countries in the High-PC-PEN group was above the whole

group on the average level and pace of PC penetration over the two periods of 1990-

1996 and 1996-2000.

The average PC penetration level for the Asian economies in the High-ICT-PEN

group went up from 85.5 in 1990 to 221.7 in 1996 to 576.4 in 2003 while these

figures are 75.1, 191.4, and 430, respectively, for the High-ICT-PEN group as a

whole (Table 1).

The “digital divide” is much less significant and the convergence trend is more

obvious for the subgroup of Asian countries in the High-PC-PEN group than for this

entire group.

The –convergence coefficient for the Asian economies in the High-ICT-PEN group

rapidly decreased from 0.88 in 1990 to 0.40 in 1996 to 0.26 in 2003; a similar trend,

but at a lower pace was also observed for the entire High-ICT-PEN group: 0.62

in1990, 0.49 in 1996, and 0.46 in 2003 (Table 1).

The variation in the effectiveness of PC diffusion from period 1990-1996 to period

1996-2001 increased for the Low-ICT-PEN group while decreasing for the High-

ICT-PEN group.

The PC penetration level in a country at the end of a period, to some extent, can be

predicted by the level at the beginning of the period. The R2 of the regression of the

former on the latter indicates the predictive power of the PC penetration at the

beginning of the period. The unexplained portion of the variation, (1- R2) is attributed

to the effects of other factors, which can be used as a proxy for the effectiveness of PC

diffusion.

The R2 for the Low-ICT-PEN group decreased from 0.91 for period 1990-1996 to

0.76 for period 1996-2003 (Figure 1A); that is, the variation (1- R2) in PC diffusion

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for this group increased from 0.09 during 1990-1996 to 0.24 for 1996-2003 (Figure

1B, lower panel). However, this trend was reverse for the High-ICT-PEN group: the

variation in the effectiveness of PC diffusion decreased from 0.25 (R2 = 0.75) for

1990-1996 to 0.17 (R2 = 0.83) for 1996-2003 (Figure 1A).

China and Malaysia in the Low-ICT-PEN group and Singapore and Korea in the

High-ICT-PEN are outstanding performers in PC diffusion.

The position of a country above (or below) the predicted line for a period indicates

that this country performs better (or worse) than the group average on the

effectiveness on PC diffusion.

China, Malaysia, and Korea positioned just nearly along their predicted lines for the

period of 1990-1996 period, but far above the predicted lines of their group for the

period of 1996-2003; while Singapore positioned far above the predicted lines of the

High-PC-PEN group for both periods (Figure 1A).

Mobile Phone

The mobile phone technology has rapidly penetrated all countries with a spectacular

pace. There is a strong convergence trend among the Asian countries in the Low-

ICT-PEN as well as in this entire group and a similar trend is observed for the Asian

countries in the High-ICT-PEN and this group (Table 1).

The average mobile phone penetration level for the Asian countries in the Low-ICT-

PEN group rapidly increased from 0.8 in 1990 to 16.3 in 1996 to 190.4 in 2003 and

these figures are 0.4, 11.6, and 233.5, respectively, for the entire Low-ICT-PEN

group. It is interesting to note that the average level of mobile phone penetration for

Asian countries in the Low-ICT-PEN group was above the average level of the Low-

ICT-PEN group in 1990 and 1996, but fell below that in 2003.

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The –convergence coefficient on the mobile phone penetration level for the Asian

countries in the Low-ICT-PEN group fell sharply from 2.18 in 1990 to 1.52 in 1996

to 0.87 in 2003. This coefficient fell even more rapidly for the entire Low-ICT-PEN

group, from 2.63 in 1990 to 1.48 in 1996 to 0.82 in 2003. That is, there is a strong

convergence trend on mobile phone penetration in the subgroup of Asian countries in

the Low-ICT-PEN group and this trend even more obvious for this group as a whole.

A strong convergence trend was also observed for the Asian economies in the High-

ICT-PEN group and for this group as a whole.

Compared to the penetration of PC, the penetration of mobile phones depends less on

the initial level of penetration, especially in the period 1996-2003:

The R2 of the regression for mobile phone penetration for the Low-ICT-PEN group

decreased from 0.66 for period 1990-1995 to 0.49 for period 1996-2003. This

indicates that for the Low-ICT-PEN group, the factors other than the initial level of

mobile phone penetration play an increasingly important role in determining the

diffusion of this technology (Figure 1B).

In 2003, the average rate of mobile phone penetration for the High-ICT-PEN group

was 810 per 1,000 inhabitants, which appeared to be at its saturation level. This

explains why the R2 of the regression for mobile phone penetration level and for the

High-ICT-PEN fell from 0.63 for 1990-1996 to 0.015 for 1996-2003 (Figure 1B).

The performance of the Asian countries in the Low-ICT-PEN group in promoting

mobile phone diffusion varied largely (Figure 1B).

The South Asian countries and Indonesia showed a performance significantly lower

than the average level in promoting the diffusion of mobile phone in both periods

1990-1996 and 1996-2003;

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The Philippines and Thailand during 1990-1996 and the Philippines and China during

1996-2003 were above the group average performance. One possible reason for the

Philippines to be aggressive in embracing the mobile phone technology is its

difficulties in expanding its fixed line telephone network

The diffusion of an ICT asset depends on the cost of investment and the conditions

required for reaping the benefits from this investment. The contrast in the pace and

dynamics of the penetration of mobile phone (faster, convergence) and PC (slower,

divergence) among the countries in the Low-ICT-PEN group suggest that this group

faces fewer obstacles in the diffusion of the mobile phone than PC.

II.2. ICT Penetration in China and India in the Asian Picture

India vs. China:

As shown in Figure 2, the ICT penetration in China and India over 1990-2003 are

characterized by the following features:

The penetration rates of telephones, mobile phones, personal computers, and the

internet in the two countries started from a very low in 1990 to a much higher level in

2003.

However, the pace of ICT penetration in China has been much faster than in India. The

gap in ICT penetration between China and India have increasingly enlarged, starting

in 1992 for telephone, 1994 for mobile phones and PCs, and 1998 for the Internet.

The Internet, which was not introduced in India and China until the mid-1990s, has

penetrated rapidly in the two countries, especially since 1998. However, the Internet

penetration has been accelerated in a much more pace in China than in India. The

International Bandwidth per capita also follows a similar pattern: rapid increase in

both countries, but far faster in China than in India7.

7 In a country with a larger size of International bandwidth per person, the internet user enjoy higherconnectivity speed and therefore, higher benefit-to-cost ratio of using the Internet.

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It is important to note that the ICT expenditure as a percentage of GDP is not

significantly lower in India in comparison to China (Figure 2- Bottom Panel). That

could mean that the much lower pace of ICT penetration in India relative to China

may be partly explained by the lower efficiency of India’s ICT market than that of

China. This point will be discussed in more details in section V concerning the policy

issues.

India and China vs. ASEAN countries:

In comparisons to ASEAN countries, China was a leading performer while India was a

laggard on ICT diffusion during 1990-2003 (Figure 3A):

On PC penetration, Thailand and the Philippines started from higher levels relative to

other countries. However, China with a very rapid pace of PC diffusion caught up

with the Philippines in 2002 and became the second player after Thailand in 2003 and

the Philippines fell to the third place. The pace of PC penetration in Indonesia has

significantly slowed down since 1997, partly due to the consequences of the Asian

financial crisis. Vietnam, thanks to economic reforms initiated late 1980s has made

substantial progress on economic growth and ICT diffusion. Vietnam bypassed India

on PC penetration in 1995 and has stayed above India since then.

On mobile phone penetration, Thailand was the first, the Philippines-the second, and

China was the third player in 2003. Thailand made a steep progress after the countries

fell below the Philippines and China during 1999-2001. The pace of mobile phone

diffusion in Indonesia has also slowed down since 1997 but Indonesia is still above

Vietnam and India. Vietnam has made more progress than India on mobile phone

diffusion since 1995.

India and China vs. South Asian Countries

In comparisons to South Asian Countries, China was even more prominent as a leading

performer; while India stood out better than Bangladesh and Pakistan on ICT diffusion

during 1990-2003 (Figure 3B):

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Regarding PC penetration, below China in 2003 was Sri Lanka, India, Bangladesh,

and Pakistan. It is notable that Sri Lanka made a substantial progress on PC

penetration since 1995, which allowed the country to surpass other South Asian

countries. Pakistan, which was above other South Asian countries until 1996 made

very little progress on PC diffusion since 1995. Bangladesh showed an impressive

progress since 2002 and it is bound to catch up with India in a near future.

With respect to mobile phone penetration, the situation was quite similar to that of PC

penetration. Below China were Sri Lanka, India, Bangladesh, and Pakistan. However,

India’s performance in mobile phone diffusion is more similar to Pakistan and

Bangladesh than to Sri Lanka.

India and China vs. High-ICT-PEN Asian Countries

In comparisons to the Asian economies in the High-ICT-PEN group, which include

Japan, Korea, Singapore, and Hong Kong, China and India are far below on the levels of

ICT penetration (Figure 3C):

Regarding PC penetration, even the progress of China (reflected by the slope of the

penetration curve) looked moderate. Among the four Asian economies in the High-

ICT-PEN group, Singapore is the leader; next is Korea; then Hong Kong; and Japan

is the laggard. In particular, Korea made a sheer progress in 1998, which allowed the

country to surpass Hong Kong and Japan in the following years.

With regard to mobile phone penetration, China had a performance compatible with

those of the four Asian economies in the High-ICT-PEN group. Among these four

economies, Hong Kong is the leader; then Singapore; Korea; and Japan. It is

interesting to note that Korea surpassed Singapore in 1998 but was surpassed by

Singapore in 2000 and has remained below Singapore since then; Japan was

overtaken by Korea in mid 1999 and by Singapore at the end of 1999.

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III. Contribution of ICT Investments to Economic Growth in Asia

A wealth of studies has examined and measured the contribution of ICT to, and its impact

on economic growth and productivity. For example, Jorgenson and Stiroh (2000), Oliner

and Sichel (2001, 2002), Whelan (2000), Jorgenson (2001), and Jorgenson, Ho, and

Stiroh (2002) capture and assess ICT contribution to growth for the US; Oulton (2001)

for the UK; RWI and Gordon (2002) for Germany; Cette et al (2002) for France;

Armstrong et al (2002) and Khan and Satos (2002) for Canada; Parham et al (2002),

Simon and Wardrop (2001), and Gretton et al (2002) for Australia; Jalava and Pohjola

(2002) for Finland; and Van der Weil (2002) for the Netherlands. Schreyer (2000),

Colecchia and Schreyer (2001), Ark et al (2002), and Daveri (2002), for EU economies;

Jorgenson (2003) for the G7 economies; and Jorgenson and Vu (2005) for 110 countries,

which point out that ICT contribution to growth is significant not only in developed but

also in developing economies although their magnitude vary largely across countries and

over time. Roller and Waverman (2001) find that telephone penetration has a significant

effect on growth and that the effect is higher when the penetration passes a critical mass;

Caselli and Coleman (2001) reveal that computer penetration significantly enhances

growth.

In this section we will use the data and results from Jorgenson and Vu (2005a) to reports

in more detail contribution of ICT investment to economic growth in Asian countries.

Figure 4 shows the distribution of countries by the magnitude of ICT contribution (in the

upper panel) and by the magnitude of Non-ICT contribution (in the lower panel) to output

growth. The figure reveals that the distribution of countries by the magnitude of ICT

capital contribution shifts decisively to the right from a mean of 0.18 (percentage points)

in period 1990-1996 to 0.42 in 1996-2003 while its variance (estimated by the width of

its bell shape) substantially enlarged. At the same time, the distribution of countries by

the magnitude of Non-ICT capital contribution shifts only slightly to the right from a

mean of 0.65 (percentage points) in period 1990-1996 to 0.86 in 1996-2003 while its

variance remains nearly unchanged. This observation implies that the growth of most

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countries has benefited from their investment in ICT but the magnitude of ICT

contribution to growth has increasingly varied over time.

The results on ICT contribution to growth for Asian economies, shown in Table 2, reveal

that:

All Asian economies have benefited from the ICT revolution. Investment in ICT has

significantly increased its contribution to the output growth in both magnitude and

share for every individual Asian economy from period 1990-1995 to period 1995-

2003.

o The magnitude of ICT contribution to growth in period 1989-1995 ranged

from the lowest level of 0.03 percentage points per annum (for Bangladesh) to

the highest level of 0.39 (for Singapore). Over period 1995-2003, this figure

ranged from 0.09 (for Indonesia) to 0.70 (for Singapore).

o The share of ICT contribution to growth in the overall rate of GDP growth for

1989-1995 ranged from the lowest level of 0.7% (for Cambodia and

Bangladesh) to the highest level of 12.1% (for Japan). Over period 1995-2003,

this figure ranged from 3.9% (for Indonesia) to 42.5% (for Japan).

Among ASEAN countries, ICT contribution to growth was most prominent for

Malaysia and Vietnam. It is worth noting that during the 1990s, thanks to its initiation

of economic reforms, Vietnam has substantially increased its level of ICT penetration

from extremely low rates, especially for fixed line telephone network

Although ICT penetration has been slow in South Asia, the ICT contribution to growth

was increasingly significant in these economies, especially for Sri Lanka and Nepal.

The contribution of ICT to growth for the High-PCPEN group are substantially higher

than for the Low-PCPEN group in both magnitude and its share in total growth rate

of GDP.

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IV. ICT and Other Sources of Economic Growth: India vs. China

Figure 5 depicts the per capita growth paths for the four Asian most populous countries,

China, India, Pakistan, and Indonesia. It is interesting to note that China was significantly

below India on GDP per capita until 1985 (in US$ measure) and 1990 (in PPP$). That is,

China just recently overtook India on this important indicator.

The main drivers for China to catch up and bypass India were originated from the

profound economic reforms in China initiated in 1979. The growth in India has

substantially picked up since early 1990s when the country started its economic

liberalization. However, India has always been behind China on economic growth since

1980. It is also interesting to note that India underperformed the other most populous

countries in a long period of time (Indonesia, over 1967-1996; and Pakistan, 1965-1990)

on GDP per capita growth and India just overtook Pakistan on the level of GDP per

capita (in US$ term) in 2003.

Table 2 and Figure 6 reveal the following important observations:

During the first period, 1989-1995, China’s GDP growth rate averaged at 9.94%, for

which 2.29% points were from the contribution of capital inputs (0.17% from ICT

and 2.12% from Non-ICT capital); 1.33% points from labor inputs; and 6.33% from

TFP growth. The large contribution from TFP growth was mostly thanks to the

success of economic reforms initiated in 1979 and substantially deepened in the late

1980s and early 1990s, which unleashed enormous assets and resources heavily

invested in the past but used to be mismanaged under the command system. India also

launched its full-scale economic liberalization during this period and achieved an

average GDP growth of 5.03%, for which 1.27% points came from capital inputs

(0.09% from ICT and 1.18% from Non-ICT); 1.70% from labor inputs; and 2.06%

from TFP growth.

During the second period, 1989-1995, China’s GDP growth rate averaged at a lower

rate of 7.13%, for which 3.80% points came from the contribution of capital inputs

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(0.63% from ICT and 3.17% from Non-ICT capital); 0.84% points from labor inputs;

and 2.49% from TFP growth. Thus, to the growth of China, the contribution of capital

inputs, particularly ICT capital, has substantially has increased, while that of TFP

growth has sharply dropped. For India, the average GDP growth rate in the second

period rose to 6.15%, for which 2.03% points come from capital inputs (0.26% from

ICT and 1.77% from Non-ICT), 1.63% from labor inputs, and 2.49% from TFP

growth. That is, India enhanced its growth from the first to the second period through

all sources of growth.

In both periods, TFP growth is one of the major sources for both China and India. In

particular, in the second period, the contribution of TFP growth was similar for the

two countries at 2.49% points. In both periods, the contribution of capital inputs was

much larger for China than for India. This finding suggests that India has to make

more comprehensive efforts to improve its business environment to more effectively

mobilize domestic and foreign investments in capital input to catch up with China on

growth.

The contribution of ICT capital has increased much more rapidly for China than for

India in both magnitude and share in output growth:

o The magnitude of ICT contribution to growth in China rose from 0.17 %

points during 1989-1995 to 0.63% during 1995-2003, while this figure for

India increased from 0.09% in the first period to 0.26% in the second period.

o The share of ICT contribution to growth in the overall rate of GDP growth for

China rose from 1.7% over 1989-1995 to 8.8% over 1995-2003, while this

figure for India increased from 1.8% in the first period to 4.1% over the

second period.

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V. Fostering ICT Diffusion: Policy Issues for Developing Asia

As discussed in the previous sections, the contribution of ICT to economic growth from

investment in ICT is significant and rapidly increasing. However, the pace of ICT

penetration has varied largely across countries and this variation tends to rise over time.

Therefore, examining the factors underlying the variations of ICT penetration may shed

light on the policy challenges that each developing Asian country must consider in

implementing their national agenda to foster ICT penetration.

V.1. Determinants of ICT Diffusion

It is observable that the diffusion of an ICT asset such as personal computers or mobile

phone in a country is facilitated by the level of income and education and fostered by the

increasing need for international communication and exposure to the globalization;

furthermore, the magnitude of effect by these factors may change after 1996 when the

cost of investment in ICT sharply declined and the potential benefits from investing in

ICT have dramatically risen but largely depend on the capability and commitment of the

investor.

We examine the impacts of these factors on the diffusion of PCs and mobile phones,

using the following specification:

[M-1] dcit = + X i, t-1 + EAi + SAi + Xi, t-1* T + i,t

Where

dci,t is the absolute change in the penetration level of the ICT asset being examined in

country i from the end of year t-1 to the end of year t (dci,t = ci,t - ci, t-1). The variable

dci,t, thus, is a measure of the diffusion the ICT asset in country i in year t.

X i, t-1 is the vector of explanatory variables, including the following:

o The initial level of the penetration level of the ICT asset;

o The initial level of the per capital income;

o The initial level of the national educational attainment, measured as measured as

the average number of schooling years for the population aged 15 and over in

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1995 from the data on educational attainment, constructed by Barro and

Lee(2000); and

o The initial level of the openness, which is measured as the ratio between the total

trade and GDP.

EAi and SAi are the dummy variables for East Asia and South Asia as described for

specification [M-1] above.

T is the dummy variable for years after 1996, which equals 1 t 1996, and 0

otherwise. Xi, t-1 * T is the interaction term between the vector Xi, t-1 and the dummy

variable T. For convenience we label the variable T as“After96”.

i,t is the random error, which we assume independently and identically distributed

among economies and time.

Results

The results from regressions based on model [M-1] are summarized in Table 3A for PC

and Table 3B for mobile phone. All the regressions use the robust estimator of variance

to correct for heteroskedasticity. The results lead to the following conclusions on the

determinants of PC and mobile phone diffusion:

1. The initial level of ICT Penetration is a key determinant but its impact significantly

decreased in the second period, 1996-2003:

a. For PCs (Table 3A), the coefficient on the initial level of PC penetration is

positive and significant at the 1% level in all three regressions; however, the

interaction term PCpen_lag1*After96 has a negative sign and it is significant at

the 1% level; that is controlling for other factors in the specification, the effect of

the initial level of PC penetration in a country significantly lessened in the second

period, 1996-2003.

b. For mobile phones (Table 3B) results similar to those for PC are observed.

2. The effect of the initial level of per capita income is very strong on the diffusion of PC

but very weak on the diffusion of mobile phones. How ever, this effect does not reduce or

accelerate in the second period of 1996-2003.

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a. For PCs (Table 3A), the coefficient on the initial level of per capita income is

significant at the 1% level in all the three regressions; moreover, this effect does

not increase or lessen in the second period as indicated by the fact that, the

interaction term Income_lag1*After96 is not significant.

b. For mobile phones (Table 3B), the coefficient on the initial level of per capita

income is insignificant in all the three regressions although the interaction term

Income_lag1*After96 is significant only at the 10% level.

3. The openness has a strong effect on the diffusion of PCs in all the two periods and on

the diffusion of mobile phones only in the second period.

a. For PCs (Table 3A), the coefficient on the openness is significant at the 1% level

in all the three regressions; however, the interaction term Openness_lag1*After96

is not significant; that is, this factor has not showed an accelerated impact in the

second period as one might expect.

b. For mobile phones (Table 3B), the coefficient on the openness is insignificant in

all the three regressions. However, the interaction term Income_lag1*After96 is

significant at the 1% level; that is this factor has a strong effect in the second

period.

4. Education has a strong effect on ICT penetration in both the periods and its effects

have accelerated in the second period on the diffusion of both PCs and mobile phones.

c. For PCs (Table 3A), the coefficient on the education is significant at the 1% level

in all the three regressions and the interaction term Education*After96 is also

significant at the 1% level. Similar results are fond for mobile phones as shown in

Table 3B.

19

5. Controlling for the other factors in the specification, the region-specific effects of East

Asia and South Asia are not significant on the diffusion of PCs and negative and

significant on the diffusion of mobile phones, especially for South Asia.

a. For PCs (Table 3A), the coefficients on the dummies for East Asia and South are

insignificant.

b. For mobile phones (Table 3B), the coefficient on the dummy for East Asia is

negative and significant at the 10% level; the coefficient on the dummy for South

Asia is also negative but significant at the 1%.

c. These findings imply that, although Asia is home to several leading ICT adopters,

such as Singapore, Hong Kong, Korea, Malaysia, and China, other Asian

countries have not performed better than the world average on promoting the

diffusion of PCs and mobile phones, controlling for the key factors discussed

above.

V.2. ICT Diffusion in Asian Economies: The Predicted vs. Actual Performance

To further investigate how the determinants and policy can affect ICT diffusion in

individual Asian countries, we predict the level of penetration for PCs and mobile phones

based on the four key determinants discussed above, the initial penetration level, GDP

per capita, openness, and education (the results of these regressions are summarized in

Table 4).

The predicted penetration level of an ICT asset for a country can be considered as the

country’s (feasibly) potential level given its current constraints on the determinants. If the

actual penetration of this ICT asset in a country is above the potential level, it means the

country has implemented some effective policy to foster the penetration of the ICT

product beyond its feasible potential. Vice versa, if the actual penetration of this ICT

20

asset in a country is below the potential level, it means the country has not been effective

in facilitating the penetration of the ICT product to reach its feasible potential8.

Graphing the actual level against its predicted level of PCs and mobile phones for

individual Asian countries, as shown in Figure 7A, reveals the policy performance of

each country in facilitating ICT penetration. These observations are summarized in Table

5. The notable points include the followings:

China, Korea, Singapore, and Malaysia have appeared to be highly effective in

promoting PC penetration, especially after 2001.

Many countries in the developing Asia did not made progress in facilitating the

diffusion of mobile phones until recent years (2000 for Indonesia and Thailand; 2001

for India; 2002 for Sri Lanka and Pakistan).

The PC and mobile phone penetration levels in India and Pakistan are heavily

determined by their levels of per capita income, openness, and educational

attainment.

Vietnam, Bangladesh, have not been effective in mobilizing their full potential for the

diffusion of PCs as well mobile phones. Indonesia has also been in this situation since

1997 for PCs while Sri Lanka has gotten out of this situation since 2002, when the

country initiated its major efforts on removing regulatory obstacles and launched the

e-Sri Lanka initiatives.

Table 6 points out that China’s superior performance on ICT penetration relative to India

is not only due to a higher degree of effectiveness in its national ICT policy but also

thanks to the higher levels of openness and education (measured as average years of

schooling of population aged 15 and over and the literacy rate of population aged 15 and

over). In 1990, the PC penetration rates in the two countries were nearly neglectable and

their GDP per capita income levels were nearly the same; however, there were significant

8 This conclusion, however, should not apply to the countries for which the mobile phone penetration ratehave exceeded 500—the rate close to the saturated level.

21

and increasing gaps between the two countries on the degree of openness and education.

As a result, the gap in ICT, in particular PCs, has been rapidly widened.

V.3. National ICT Market Efficiency

The pace of ICT penetration depends not only on the level of ICT expenditure as a

percentage of GDP but also on the efficiency of its ICT and related products and services

markets. The following notable observations standout from Figure 8 in combination with

the figures on the bottom panels of Figures 3A and 3B:

ICT expenditures as a percentage of GDP over 2000-2004 of China was higher but

fairly close to that of India but the pace of ICT penetration was much higher for

China than India over the same period.

Among the South Asian countries, Pakistan has the highest level of ICT expenditures

as a share of GDP but its pace of ICT penetration has been the lowest.

The Philippines has the level of ICT expenditure much higher than that of Thailand

but the pace of ICT penetration in the latter has been much higher than the former.

These observations suggest that the efficiency of a country’s market, especially its ICT

market has a considerable impact on ICT penetration. Domestic market distortion caused

by higher import tariffs and import protection, poor infrastructure, inefficient import-

export services, and rampant corruption in a country appear to be the prominent factors

that make ICT products more expensive and of lower quality in the country relative to the

products available in international markets.

V.4. Policy Implications

Rapidly deepening the penetration ICT not only raises the economic growth rate and

efficiency but also builds the solid foundation for a knowledge-based economy in a

country. For example, as pointed out by Srinivasan (2005), although the ICT penetration

is far lower for India in comparison to China, India has managed to achieve miracle

22

achievements in IT-Enabled services. India would undoubtedly achieve a lot more in the

development of its ICT-enabled sectors if the country has a deeper level of ICT

penetration. This suggests that fostering ICT penetration is crucial to the future growth

and development of a country.

The results from sections V.1-V.3 suggest three interrelated sets of polices for fostering

ICT penetration, in particular personal computers and mobile phones, in a country.

The first set of policies aims to deepen the determinants of ICT penetration, including the

per capita income level, openness, and education. That is, policies promoting economic

growth, globalization, and education will be highly effective for fostering ICT

penetration. This set of policy appears very important for India and Pakistan, where the

low ICT penetration was heavily determined by their low levels of the key determinants,

especially the education and openness.

The second set of policies concentrates on the initiatives to facilitate ICT penetration in a

country given its constraints. China, Korea, and Singapore have shown their impressive

success on this endeavor. The countries such as Vietnam, Bangladesh should pay serious

attention to this of policy because their actual ICT penetration level is still below their

potential. This set of policy should aim to:

Increase the benefits of investment in ICT, especially PCs by encouraging firms

and individuals to invest in the services that better exploit the Internet and ICT.

Encourage investment in ICT infrastructure and deepen the regulatory reform for

the telecommunication industry to enhance the quality and lower the costs of ICT

services.

The third set of policies should focus on liberating the market and fostering the business

environment, which can substantially enhance the efficiency of the domestic market,

especially the market for ICT and its related products and services.

23

VI. Conclusion

In this paper we provide a global view on the diffusion of ICT and its contribution to

economic growth in Asia. The findings reveal that the “digital divide” challenge is

magnified in Asia. In particular, there is a clear divergence trend on the diffusion of

personal computers (and therefore, the Internet) among the Asian developing countries.

China has been among the leading performer while India remains a laggard in ICT

diffusion in Asian as well as global pictures. As a result, the contribution of investment in

ICT to economic growth is much more significant for China than India in both magnitude

and share in total output growth.

In examining the factors underlying the variations in ICT penetration across countries, we

point out that per capita income, openness, and education are the key determinants, of

which the impact of education has significantly accelerated since 1996. We also show

that the effectiveness of ICT agenda and efficiency of the ICT market has a strong impact

on the diffusion of ICT in a country. The findings suggest three sets of policies for

promoting ICT penetration in a developing country: (i) deepening the key determinants

(income, openness, and education); (ii) fostering the conditions for reaping higher

benefits/profits from investments in ICT; and (iii) enhancing the efficiency of the

domestic market, especially the market for ICT.

24

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27

Table 1: The Convergence Trend of ICT Penetration: Asia vs. the World

Low-ICT-PEN GroupAsian Economies All Economies

1990 1996 2003 1990 1996 2003Personal ComputerMean 2.4 10.4 41.9 3.7 16.8 57.4Standard Deviation 2.9 11.5 52.9 3.3 14.5 50.1-Convergence 1.17 1.11 1.26 0.89 0.86 0.87

Mobile PhoneMean 0.8 16.3 190.4 0.4 11.6 233.5Standard Deviation 1.7 24.7 166.2 1.0 17.2 191.1-Convergence 2.18 1.52 0.87 2.63 1.48 0.82

TelephoneMean 19.5 48.6 87.3 52.3 92.2 138.7Standard Deviation 28.8 55.8 71.0 47.0 79.0 104.9-Convergence 1.48 1.15 0.81 0.90 0.86 0.76

High-ICT-PEN GroupAsia Economies All Economies

1990 1996 2003 1990 1996 2003Personal ComputerMean 85.5 221.7 576.4 75.4 191.4 430.0Standard Deviation 74.9 89.5 150.3 46.8 93.6 198.9-Convergence 0.88 0.40 0.26 0.62 0.49 0.46

Mobile PhoneMean 14.3 155.6 770.9 12.8 122.7 810.0Standard Deviation 9.5 61.7 204.3 14.7 81.1 185.3-Convergence 0.66 0.40 0.27 1.15 0.66 0.23

TelephoneMean 418.1 504.8 528.2 412.4 488.7 521.4Standard Deviation 94.9 77.8 68.8 136.8 122.5 129.8-Convergence 0.23 0.15 0.13 0.33 0.25 0.25Source: Author’s calculation from WDI-OnlineNote: Penetration rate is per 1,000 inhabitants

28

Table 2. The Sources of Economic Growth of Asian Economies, 1989-1995 vs. 1995-2003

Period 1989-1995 Period 1995-2003Sources of Growth (% points) Sources of Growth (% points)Capital Capital

Share of ICTContribution in the Rate

of GDP Growth

EconomyGDP

Growth(%) ICT Non-ICT

Labor(H+Q)*

TFPGDP

Growth(%) ICT Non-ICT

Labor(H+Q)

TFP1989-1995 1995-2003

China 9.94 0.17 2.12 1.33 6.33 7.13 0.63 3.17 0.84 2.49 1.7% 8.8%India 5.03 0.09 1.18 1.70 2.06 6.15 0.26 1.77 1.63 2.49 1.8% 4.1%ASEAN EconomiesCambodia 7.48 0.06 1.89 2.33 3.21 6.01 0.35 2.76 1.89 1.02 0.7% 5.8%Indonesia 6.82 0.10 1.62 2.07 3.04 2.41 0.09 1.47 1.32 -0.47 1.4% 3.9%Malaysia 8.45 0.28 2.27 2.50 3.40 4.33 0.44 1.91 2.16 -0.17 3.3% 10.2%Philippines 2.57 0.11 0.63 1.96 -0.13 3.91 0.20 0.94 1.78 0.98 4.2% 5.1%Thailand 8.58 0.10 2.22 1.53 4.74 2.19 0.12 1.00 0.74 0.34 1.1% 5.5%Vietnam 6.49 0.20 1.39 1.80 3.10 6.76 0.47 2.43 1.71 2.16 3.0% 6.9%South Asian EconomiesBangladesh 4.91 0.03 1.22 2.20 1.46 4.66 0.20 2.32 1.73 0.41 0.7% 4.3%Nepal 4.62 0.11 1.18 1.81 1.51 3.91 0.43 1.35 2.07 0.06 2.3% 11.0%Pakistan 4.10 0.20 1.17 1.97 0.76 3.47 0.27 0.73 1.95 0.52 4.9% 7.9%Sri Lanka 5.24 0.08 1.26 1.77 2.13 2.77 0.39 1.27 2.14 -1.04 1.5% 14.2%Asian Economies in the High-ICTPEN groupJapan 2.56 0.31 1.16 0.15 0.94 1.39 0.56 0.26 -0.11 0.67 12.1% 40.5%Hong Kong 5.42 0.33 1.61 1.00 2.48 2.50 0.65 1.56 0.97 -0.67 6.1% 25.9%Singapore 7.95 0.39 1.80 2.07 3.69 3.91 0.70 1.62 1.24 0.35 4.9% 17.9%South Korea 7.48 0.29 2.31 1.76 3.13 4.09 0.46 1.67 1.11 0.85 3.8% 11.2%Taiwan 6.59 0.23 1.95 1.18 3.23 4.06 0.54 2.15 0.67 0.70 3.6% 13.2%

Source: Based on the results reported in Appendix Table 2 of Jorgenson and Vu (2005b)Note: Labor contribution, (H+Q), is the summation of the contribution to output growth of hours worked (H) and labor quality (Q)

29

Table 3A. Determinants of PC Penetration

Dependent Variable: Change in the PC Penetration level (dPCpen)Explanatory Variable (1) (2) (3)

Initial level of PCpenetration (Pcpen_lag1)

0.065***(p-value=0.000)

0.103***(p-value=0.000)

0.105***(p-value=0.000)

Initial level of GDP PerCapita (Income_lag1)

0.276***(p-value=0.000)

0.250***(p-value=0.000)

0.250***(p-value=0.000)

Initial level of Openness(Openness_lag1)

0.026***(p-value=0.000)

0.026***(p-value=0.000)

0.023***(p-value=0.008)

Education 0.839***(p-value=0.000)

0.414***(p-value=0.004)

0.391***(p-value=0.001)

After1996 -- -1.479(p-value=0.264)

-1.436(p-value=0.271)

Pcpen_lag1*After96 -- -0.052***(p-value=0.003)

-0.053***(p-value=0.001)

Income_lag1*After96 -- 0.073(p-value=0.697)

0.073(p-value=0.695)

Openness_lag1*After96 -- -0.005(p-value=0.691)

-0.005(p-value=0.687)

Education*After96 -- 0.836***(p-value=0.006)

0.841***(p-value=0.007)

East Asia -- -- 0.991(p-value=0.503)

South Asia -- -- -0.382(p-value=0.276)

Intercept -3.87***(p-value=0.000)

-2.987***(p-value=0.000)

-2.836***(p-value=0.000)

N 1073 1073 1073R2 0.60 0.61 0.61

30

Table 3B. Determinants of Mobile Phone Penetration

Dependent Variable: Change in the Mobile Phone Penetration Level (dMbpen)Explanatory Variable (1) (2) (3)

Initial level of MobilePhone penetration(Mbpen_lag1)

0.154***(p-value=0.000)

0.459***(p-value=0.000)

0.461***(p-value=0.000)

Initial level of GDP PerCapita (Income_lag1)

0.122(p-value=0.343)

0.027(p-value=0.398)

0.013(p-value=0.707)

Initial level of Openness(Openness_lag1)

0.094***(p-value=0.000)

0.001(p-value=0.820)

-0.000(p-value=0.958)

Education 0.726**(p-value=0.014)

-0.038(p-value=0.548)

-0.052(p-value=0.528)

After1996 -- -13.833***(p-value=0.006)

-13.992***(p-value=0.005)

Mbpen_lag1*After96 -- -0.400***(p-value=0.000)

-0.402***(p-value=0.000)

Income_lag1*After96 -- 0.658*(p-value=0.095)

0.672*(p-value=0.088)

Openness_lag1*After96 -- 0.197***(p-value=0.000)

0.200***(p-value=0.000)

Education*After96 -- 4.883***(p-value=0.000)

4.855***(p-value=0.000)

East Asia -- -- -2.680*(p-value=0.099)

South Asia -- -- -3.658***(p-value=0.000)


0.331(p-value=0.394)

1.085**(p-value=0.027)

N 2316 2316 2316R2 0.40 0.51 0.51Note: the regressions are with robust standard errors

31

Table 4. Regressions for Predicting the Level of ICT Penetration

Dependent VariableExplanatory VariablePC Mobile Phone

Initial level of Penetration 0.065***(p-value=0.000)

0.154***(p-value=0.000)

Initial level of GDP PerCapita

0.276***(p-value=0.000)

0.122(p-value=0.343)

Initial level of Openness 0.026***(p-value=0.000)

0.094***(p-value=0.000)

Education 0.839***(p-value=0.000)

0.726**(p-value=0.014)


-4.484***(p-value=0.006)

N 1073 2316R2 0.99 0.97Note: the regressions are with robust standard errors

32

Table 5. ICT Penetration Level: Actual vs. Potential by Country

PC PenetrationThe Actual Level Relative to The Potential LevelCountry

Significantly Below Nearly the same Significantly AboveChina Before 1997 1997-2001 Since 2001India No All the years NoPhilippines 1990-02 Since 2002 NoIndonesia All the years, but the gap

has significantly enlargedafter 1997

No No

Vietnam All the years No NoSri Lanka 1990-02 Since NoBangladesh All the yearsPakistan No All the years (the actual is

slightly below the potential)No

Thailand 1990-2000; the gapenlarged during 1997-00.

Since 2002

Malaysia No 1990-94; 1996-00; Since 2002 1994-96; 2000-01Japan No All the years NoKorea Since later 2003 1990-1998 1998-2003Hong Kong No All the years NoSingapore No 1990-93; 1998-01 1994-98; since 2001

Mobile Phone PenetrationThe Actual Level Relative to The Potential LevelCountry

Significantly Below Nearly the Same Significantly AboveChina No Before 1998 Since 1998India No 1990-2001 Since Mid-2001Philippines No 1990-1999 (the actual was

slightly below the potential)Since 1999

Indonesia No 1990-2000 (slightly below) Since 2000Vietnam 1990-00 Since 2000 (slightly below) NoSri Lanka 1990-00 2000-2002 Since 2002Bangladesh No All the years NoPakistan No 1990-02 Since 2002Thailand 1997-00 1990-97 Since 2000Malaysia No 1990-94; 1996-00; Since 2002 1994-96; 2000-01Japan Since 2000 1990-94; 1998-00 1994-98Korea Since 2000 1990-96 1996-00Hong Kong 1990-94; Since 2000 1994-96 1996-00Singapore Since 2001 1990-96 1996-01

33

Table 6: PC Penetration and its Determinants: India vs. China

Country 1985 1990 1995 2000 2003China -- 0.4 2.3 15.9 40.1PC Penetration per 1000

inhabitant India -- 0.3 1.3 4.5 8.9

DeterminantsChina 259.1 350.3 581.2 824.6 1,027.6+ GDP Per CapitaIndia 266.3 324.4 381.0 462.9 527.7China 24.1 31.9 45.7 49.1 66.1+ OpennessIndia 13.2 15.7 23.2 28.5 30.5China 4.9 5.9 6.1 6.4 --+ Years of Schooling*India 3.6 4.1 4.5 5.1 --China -- 78.3 -- -- 89.9+ LiteracyIndia -- 49.3 -- -- 61.0

Sources: WDI-Online, except * from Barro and Lee(2000).

34

Figure 1A: PC Penetration: Period 1996-2003 vs. 1990-1996 by Group

THE LOW-ICTPEN GROUP1990-1996 1996-2003

Adjust R-Square=0.91 Adjust R-Square=0.76

PC

PE

N19

96

PC PENETRATION: 1996 vs. 1990PCPEN1990

*** Fitted values

0 3.6 5 10

0

5

16.8

30

50

*

*

*

*

China *

*

*

Indonesia

India*Sri L

*

Malaysia

Pakistan

Philippines

*

*

*

*

Thailand

*

*

*

*

PC

PE

N20

03

PC PENETRATION: 2003 vs. 1996PCPEN 1996

*** Fitted values

0 10 16.8 50

010

57.4

100

175

*

*

*

*

China

**

*

IndonesiaIndia*

Sri L

*

Malaysia

Pakistan

Philippines

*

*

*

*

Thailand*

*

*

*

THE HIGH-ICTPEN GROUPAdjust R-Square=0.75 Adjust R-Square=0.83

PC

PE

N19

96

PC PENETRATION: 1996 vs. 1990PCPEN1990

*** Fitted values

10 75 230

100

191.4

450

*

**

*

*

*

*

*

*

*

*

*

*

Hong Kong

*

*

*

Japan

S. Korea

*

*

Singapore

*

United States

*

PC

PE

N20

03

PC PENETRATION: 2003 vs. 1996PCPEN 1996

*** Fitted values

100 191 400

100

430

780

*

*

*

*

*

*

*

*

*

*

*

*

*

Hong Kong *

*

*

Japan

S. Korea

*

*

Singapore

* United States

*

35

Figure 1B: Mobile Phone Penetration: 1996-2003 vs. 1990-1996 by Group

THE LOW-ICTPEN GROUP1990-1996 1996-2003

Adjust R-Square=0.66 Adjust R-Square=0.49

MB

PE

N19

96

MB PENETRATION: 1996 vs. 1990MBPEN1990

* Fitted values

0 .38 2 5

05

11.6

80

*

*

*

*

China

**

*

IndonesiaIndia*

Sri L

*

Malaysia

Pakistan

Philippines

*

***

Thailand

*

*

*

*

MB

PE

N20

03


* Fitted values

0 5 11.6 80

50

233.5

500

800

*

*

*

*

China

**

*

Indonesia

India*

Sri L

*

Malaysia

Pakistan

Philippines

*

*

*

*

Thailand

*

*

*

*

THE HIGH-ICTPEN GROUPAdjust R-Square=0.63 Adjust R-Square=0.015

MB

PE

N19

96


* Fitted values

0 12.8 30 60

50

122.7

200

320

*

*

*

*

*

*

*

*

*

*

*

*

*

Hong Kong

*

*

*

Japan

S. Korea **

Singapore

*

United States

*

MB

PE

N20

03


* Fitted values

50 122.7 200 320

200

810

1100

*

*

*

*

*

*

*

** *

*

**

Hong Kong

*

*

*

JapanS. Korea

*

*

Singapore

*

United States

*

36

Figure 2. ICT Penetration: China vs. IndiaP

Cpe

r10

00in

habi

tant

s

PC Penetration: CHINA vs. INDIAyear

China India

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

.2

5

10

20

30

40

50

Mob

ileph

ones

per

1000

inha

bita

nts

Mobile phone penetration: CHINA vs. INDIAyear

China India

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

15

50

100

200

Inte

rne

tUse

rsp

er

100

0in

hab

itan

ts

Internet Penetration: CHINA vs. INDIAyear

China India

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

0

5

10

20

30

40

50

Bits

per

Per

son

International Bandwidth per Capita: India vs. Chinayear

China India

2000 2001 2002 2003 2004

510

25

50

75

Mai

nlin

ete

leph

one

per

1000

inha

bita

nts

Telephone penetration: CHINA vs. INDIAyear

China India

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

1

50

100

200

Pec

enta

geof

GD

P(%

)

ICT Expenditure as Pecentage of GDP : India vs. Chinayear

China India

2000 2001 2002 2003 2004

1

2.5

5

7.5

10

37

Figure 3A. ICT Penetration: China and India vs. ASEAN Economies9

***

PC

per

1000

inha

bita

nts

PC Penetration: China and India vs. ASEANy ear

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

.1135

10

20

30

40

50

***

Mob

ileph

ones

per

1000

inha

bita

nts

Mobile phone penetration: China and India vs. ASEANy ear

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

1

50

100

200

300

9 Malaysia is excluded from this figure for graphing convenience because its levels of PC and mobile phonepenetration, especially in 2003, are too high relative to other ASEAN countries.

India

Thailand

China

Philippines

Indonesia

Vietnam

India

Thailand

China

Philippines

Indonesia

Vietnam

39

Figure 3B. ICT Penetration: China and India vs. South Asian Economies

***P

Cpe

r10

00in

habi

tant

s

PC Penetration: China and India vs. South Asiay ear

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

.1135

10

20

30

40

***

Mob

ileph

ones

per

1000

inha

bita

nts

Mobile phone penetration: China and India vs. South Asiayear

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

1

50

100

200

300

India

China

Sri Lanka

Bangladesh

Pakistan

India

China

Sri Lanka

Bangladesh

Pakistan

40

Figure 3C. PC and Mobile Phone Penetration: China and India vs. Asian Economiesin the High-ICTPEN Group.

PC

spe

r1

00

0in

hab

itan

ts

PC penetration: China and India vs. Asian Economies of High-ICTPENyear

Japan KoreaHong Kong Singapore

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

030

100

300

500

700

900

Mo

bile

ph

on

es

pe

r1

00

0in

hab

itant

s

Mphone pen.: China and India vs. Asian Economies of High-ICTPENyear

Japan KoreaHong Kong Singapore

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

030

100

300

500

700

900

China

India

China

India

41

Figure 4: Contribution to Economic Growth over 1990-1995 and 1995-2003: ICT vs.Non-ICT Capital

Den

sity

ofC

ount

ries

ICT Contb. to Grow th, % points

Period 1989-95 Period 1995-03

.01.05 .1 .18 .3 .42 .57 .8 1 1.2

1

5

10

Den

sity

ofC

ount

ries

Non-ICT Contb to Grow th, % Point

Period 1989-95 Period 1995-03

-2.2 0 .65.86 3.4

1

2

3

4

5

Source: graphs drawn from results provided by Jorgenson and Vu (2005b)

42

Figure 5. GDP Per Capita Growth, 1960-2003: India vs. China

Panel A: GDP Per Capita Growth Path, Measured in US$

GD

Ppe

rca

pita

,19

95U

S$

GDP Per Capita Growth: Asian Most Populous Countriesy ear

China IndiaIndonesia Pakistan

1960 1965 1970 1975 1980 1985 1990 1995 2000 2003

100

250

500

750

1000

Panel B: GDP Per Capita Growth Path, Measured in PPP$

GD

Ppe

rca

pita

,19

95P

PP

$

GDP Per Capita Growth: Asian Most Populous Countriesy ear

China IndiaIndonesia Pakistan

1975 1980 1985 1990 1995 2000 2003

500

1000

2000

3000

43

Figure 6. China vs. India: Sources of Growth, 1995-2003 vs. 1989-1995

Panel A: Sources of Output Growth in Magnitude

9.94

7.13

0.17

0.63

2.12

3.17

1.33

0.84

6.33

2.49

5.03

6.15

0.09 0.26

1.18

1.77 1.70 1.632.06

2.49

0.0

2.0

4.0

6.0

8.0

10.0

12.0

89-95 95-03 89-95 95-03 89-95 95-03 89-95 95-03 89-95 95-03

ICT Non-ICT Labor TFP

GDP Growth *************************************Sources of GDP Growth*************************************

Per

cen

tag

eP

oin

ts

China India

Panel B: Shares of the Sources in Output Growth

1.7% 1.8%

8.8%4.1%

21.3% 23.4%

44.4%

28.9%

13.3%

33.8%

11.8%

26.5%

63.7%

41.0% 40.5%35.0%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

China India China India

1989-1995 1995-2003

ICT Non-ICT Labor TFP

44

Figure 7A. PC Penetration in Asia: Actual vs. Predicted levelP

Cpe

r10

00in

habi

tant

s

Chinayear

pc data Fitted values

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

1

10

20

30

40

PC

per

1000

inha

bita

nts

Indiay ear


1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

1

10

20

30

40

PC

per

1000

inha

bita

nts

Philippinesyear


1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

1

10

20

30

40

PC

per

1000

inha

bita

nts

Indonesiay ear


1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

1

5

10

20

30

40

PC

per

1000

inha

bita

nts

Vietnamyear


1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

1

5

10

20

30

40

PC

per

1000

inha

bita

nts

Sri Lankayear


1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

1

5

10

20

30

40

PC

per

1000

inha

bita

nts

Bangladeshyear


1990 1992 1994 1996 1997 1999 2001 2003

1

5

10

20

30

40

PC

per

1000

inha

bita

nts

Pakistany ear


1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

1

5

10

20

30

40

45

Figure 7A. PC Penetration in Asia: Actual vs. Predicted level (Cont’)P

Cpe

r10

00in

habi

tant

s

Thailandyear


1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

1

5

10

20

30

40

PC

per

1000

inha

bita

nts

Malaysiay ear


1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

15

10

20

30

40

100

150

PC

per

1000

inha

bita

nts

Japany ear

pc data Fitted v alues

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

10

200

300

400

500

PC

per

1000

inha

bita

nts

Koreay ear

pc data Fitted v alues

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

10

200

300

400

500

PC

per

1000

inha

bita

nts

Hong Kongyear


1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

10

200

300

400

500

PC

per

1000

inha

bita

nts

Singaporey ear


1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

10

200

300

400

500

46

Figure 7B. Mobile Phone Penetration in Asia: Actual vs. Predicted levelM

obile

phon

epe

r10

00in

habi

tant

s

Chinayear

Mobile Phone Penetration Fitted values

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

1

50

100

200

MB

per

1000

inha

bita

nts

Indiay ear


1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

1

50

100

200

MB

per

1000

inha

bita

nts

Philippinesyear


1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

1

50

100

200

MB

per

1000

inha

bita

nts

Indonesiay ear


1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

1

50

100

200

MB

per

1000

inha

bita

nts

Vietnamyear


1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

1

50

100

200

MB

per

1000

inha

bita

nts

Sri Lankay ear


1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

1

50

100

200

MB

per

1000

inha

bita

nts

Bangladeshyear


1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

1

50

100

200

MB

per

1000

inha

bita

nts

Pakistany ear


1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

1

50

100

200

47

Figure 7B. Mobile Phone Penetration in Asia: Actual vs. Predicted level (Cont’)M

Bpe

r10

00in

habi

tant

s

Thailandyear


1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

1

50

100

200

300

400

500

MB

per

1000

inha

bita

nts

Malysiay ear


1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

1

50

100

200

300

400

500

MB

per

1000

inha

bita

nts

Japanyear


1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

1

50

100

200

300

400

500

600

700

MB

per

1000

inha

bita

nts

Koreay ear


1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

1

50

100

200

300

400

500

600

700

MB

per

1000

inha

bita

nts

Hong Kongyear


1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

150

100

200

300

400

500

600

700

MB

per

1000

inha

bita

nts

Singaporey ear


1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

150

100

200

300

400

500

600

700

48

Figure 8. ICT Expenditure as Percentage of GDP in Developing Asia

Pec

enta

geof

GD

P(%

)

ICT Expenditure as Pecentage of GDP : China and India vs. South Asiayear

China IndiaSri Lanka Pakistan

2000 2001 2002 2003 2004

1

2.5

5

7.5

10

Pec

enta

geof

GD

P(%

)

ICT Expenditure as Pecentage of GDP : China and India vs. ASEANyear

China IndiaIndonesia Thailand

2000 2001 2002 2003 2004

1

2.5

5

7.5

10

IndiaThailand

China

Philippines

Indonesia

IndiaChina

Sri Lanka

Bangladesh

Pakistan

49

Appendix 1A. ICT Penetration in the Low-ICT-PEN Group (Density per 1000 Inhabitants)

Personal Computer Mobile Phone Telephone InternetCountry1990 1996 2003 1990 1996 2003 1990 1996 2003 1990 1996 2003

Hungary 9.6 44.1 123.2 0.3 46.3 768.8 96.0 259.6 348.6 0.0 9.8 232.2Chile 9.4 38.8 133.7 1.1 22.2 511.4 66.0 149.2 221.0 0.0 6.9 272.0Malaysia 8.4 35.9 166.9 4.9 71.8 442.0 89.3 178.1 181.6 0.0 8.5 344.1Mexico 8.2 30.5 97.8 0.8 10.7 291.1 64.8 92.8 157.7 0.0 2.0 118.5Poland 7.9 31.1 142.0 0.0 5.6 450.9 86.4 169.1 318.7 0.0 12.9 232.5Argentina 7.2 42.6 83.9 0.4 16.5 163.8 93.1 181.1 214.0 0.0 1.5 119.2South Africa 7.0 35.4 75.8 0.2 23.6 363.6 93.4 105.6 102.8 0.0 8.8 72.6Turkey 5.3 17.5 48.8 0.6 12.9 394.4 121.5 227.9 267.5 0.0 1.9 84.9Thailand 4.2 17.2 48.4 1.2 31.7 394.2 24.3 71.6 104.9 0.0 2.3 110.5Philippines 3.5 11.6 35.3 0.0 13.7 269.5 10.0 25.5 41.2 0.0 0.6 49.9Russia 3.4 23.7 104.9 0.0 1.5 249.3 140.0 175.7 258.7 0.0 2.7 69.2Brazil 3.1 21.5 88.9 0.0 15.8 263.6 65.0 95.7 222.9 0.0 4.7 99.2Senegal 2.5 9.3 21.2 0.0 0.2 55.6 6.0 11.1 22.1 0.0 0.1 21.7Romania 2.2 15.5 96.6 0.0 0.8 324.2 101.9 140.5 199.4 0.0 2.2 184.0Ukraine 1.9 10.0 19.7 0.0 0.6 135.9 135.6 180.9 220.1 0.0 1.0 52.3Pakistan 1.3 3.6 4.3 0.0 0.5 17.5 7.5 18.5 26.6 0.0 0.0 10.8Indonesia 1.1 6.6 12.8 0.1 2.8 87.4 5.9 21.1 39.4 0.0 0.6 37.6Algeria 1.0 4.6 8.4 0.0 0.4 45.6 32.5 44.7 69.3 0.0 0.0 20.4China 0.4 3.6 40.1 0.0 5.5 214.8 5.9 44.1 209.0 0.0 0.1 63.2Kenya 0.4 1.9 7.3 0.0 0.1 50.2 7.9 10.2 10.4 0.0 0.1 30.6India 0.3 1.6 8.9 0.0 0.3 24.7 6.0 15.5 46.3 0.0 0.5 17.5Sri Lanka 0.2 3.4 18.6 0.1 4.0 72.7 7.4 14.5 49.0 0.0 0.6 11.7Burkina Faso 0.1 0.5 2.1 0.0 0.1 18.5 1.8 3.3 5.3 0.0 0.0 3.9Ghana 0.0 1.4 4.3 0.0 0.7 35.6 2.9 4.4 13.5 0.0 0.1 11.8Group Mean 3.7 16.8 57.4 0.4 11.6 233.5 52.3 92.2 138.7 0.0 2.7 94.6

Source: ITU (from WDI-Online)

50

Appendix 1B. ICT Penetration in the High-ICT-PEN Group (Density per 1000 Inhabitants)

Personal Computer Mobile Phone Telephone InternetCountry1990 1996 2003 1990 1996 2003 1990 1996 2003 1990 1996 2003

United States 217.9 360.7 694.6 21.2 164.4 543.0 547.3 616.2 621.3 8.0 168.0 555.8Australia 149.8 289.4 619.1 10.8 217.9 719.5 456.3 500.8 542.3 5.9 32.8 566.7Denmark 114.9 304.7 614.4 28.9 250.7 883.2 566.9 619.1 669.3 1.0 57.1 563.2United Kingdom 107.7 216.0 449.4 19.4 123.3 917.5 440.7 521.7 587.6 0.9 40.8 577.4Canada 107.1 253.1 519.7 21.6 121.3 416.8 564.9 623.1 629.0 3.7 69.3 556.4Sweden 104.8 294.0 687.8 53.7 281.8 980.5 680.8 682.0 717.9 5.8 90.5 631.4Finland 100.0 272.8 460.7 51.6 292.7 909.6 534.2 553.7 492.0 4.0 167.6 533.8Netherlands 93.6 231.3 508.2 5.3 65.3 767.6 464.2 541.6 614.3 3.3 96.4 521.9Germany 89.9 208.5 484.7 3.8 67.2 785.2 440.8 537.7 657.3 1.4 30.5 472.5Belgium 87.9 192.0 318.2 4.3 47.1 792.8 392.6 474.0 489.2 0.0 29.5 385.6Switzerland 87.3 339.4 736.5 18.2 93.7 843.4 573.9 646.4 745.4 5.8 45.5 463.3Ireland 85.6 209.6 453.1 7.1 79.6 879.6 280.6 383.3 491.3 0.0 22.1 316.7France 70.5 162.0 366.6 5.0 42.4 695.9 495.2 567.0 566.0 0.5 25.9 365.6Singapore 65.6 258.8 761.2 17.0 117.4 852.5 345.9 425.8 450.3 0.0 81.7 508.8Austria 64.8 173.7 407.1 9.5 74.3 878.8 417.6 484.1 480.7 1.3 68.2 462.0Israel 63.3 156.3 239.5 3.2 181.9 960.7 343.2 440.9 458.2 1.1 20.8 373.8Japan 59.9 162.1 407.7 7.0 213.8 679.0 441.1 508.9 471.9 0.2 43.7 482.7Hong Kong 47.3 186.5 460.7 24.4 211.6 1079.2 450.2 536.3 558.9 0.0 46.6 471.8South Korea 36.8 140.6 558.0 1.8 70.9 700.9 306.0 437.2 538.3 0.2 16.3 609.7Italy 36.4 92.4 273.2 4.6 111.9 1017.6 387.6 440.2 484.0 0.2 10.2 336.7Spain 27.6 78.9 228.3 1.4 76.3 909.1 316.0 392.5 433.8 0.1 13.4 239.1Portugal 26.5 67.4 134.4 0.7 66.8 898.5 242.6 384.7 411.1 0.0 30.2 256.1Greece 17.2 35.3 82.2 0.0 50.8 902.3 388.6 508.7 453.9 0.0 14.3 150.0Czech Republic 11.6 67.9 214.6 0.0 19.4 964.6 157.6 273.1 360.3 0.0 19.4 308.0Venezuela 10.3 30.8 70.6 0.4 25.6 273.0 76.3 117.4 110.6 0.0 2.5 60.3Group Mean 75.4 191.4 430.0 12.8 122.7 810.0 412.4 488.7 521.4 1.7 49.7 430.8

Source: ITU (from WDI-Online)

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