ICT Investment Effect on Economic Growth in European and Asian Countries
Research Proposal — Using Most Different Case Study Design
Keywords: ICT, ICT Investment, Economic growth, Asian countries, European countries, Most different case study, Comparison, Economic Growth
Aim of Research:
Information Communication Technology (ICT) being most rapidly growing industry across globe catches eye of economists, public policy practitioners and researchers. There is much talk on importance of ICT infrastructure, third industrial revolution and future of workforce. Aim of this research is to see effect of regional distribution on ‘economic growth as result of ICT investments’. From literature we know that ICT investment helped countries grow and also all developed countries have invested in ICT infrastructure and R&D. Our specific aim is to contribute by considering various factors in ICT sector that may or may not lead to economic growth and prove that Asian and European Countries differs in all those factors, but there is only one common aspect that countries of both regions have invested and do invest in ICT and it helped them in their economic growth. Based upon two most different case studies (Argumentation across the Social Sciences: Ch 5, David L. Rousseau) featuring European and Asian countries, our research question (Posing the research question, Lehana Thabane) is that “How an ICT investment does lead to economic growth of Asian and European countries”.
Hypothesis: ICT investment leads to economic growth in Asian and European Countries
Alternative hypothesis: ICT investment leads to economic growth only in European Countries
Null Hypothesis: There is no statistically significant relationship between ICT investment and economic growth in Asian and European countries.
This research also opens doors for future research as ICT is considered public good and do not rely on geographical location, people from one region or country help ICT sector of some other region/country grow. Telecommunication sector of Pakistan and UAE, and software services sector of India and China are examples of this.
Research Plan:
We’ll first present Literature review (Doing a Literature review, Jeffery W. Knofp) for this qualitative research (A Tale of Two Cultures, James Mahoney) followed by details of Methodology adopted and Data sources and Sample selection in both cases under observation. Then we’ll discuss the case selection and design followed by detail of variables under consideration, their type, measurement, references from literature etc. Finally, measurement of Independent Variable and control variables and their effect on dependent variables will be presented.
Literature Review:
Technological development is considered the main driver behind economic growth. Increased innovations for information and communication technologies (ICTs) have, in particular, been discussed to be the primary transformer for economic processes during recent decades (World Bank, 2017a). ICT is a stand-alone sector as well as it is integrated part of almost every sector ranging from agriculture to space science, health science and economics and its growth depends on many factors like availability of telecommunication devices, computing devices, electricity, ICT research etc. “ICT sector is new and has developed rapidly over the last fifteen years”. That’s why states like US has supported ICT and has played an entrepreneurial role by building ICT infrastructures, ICT adoption techniques, cutting taxes on ICT , spending on R&D, funding projects, providing funds for commercialization etc. State can play an important role for spurring innovation in various technological sectors (Arther ,2009).
“The essence is the diffusion of ICT across the society and ensuring that it furthers Socio-economic development.” ICT role is no longer bound to just connecting people and providing them information but it also need to go for creation for new markets, cost efficiency, enhanced productivity, improved procedures and contribution to economic growth.
Ever since the growth in productivity rates for many developed countries during the 1990’s, the increased utilization of ICT capital has been exceptional. The World Bank estimates that almost half of today’s population live in regions provided with internet connection, but only 1 out of 7 inhabitants in least developed countries can use it (World Bank, 2017a). Since many of the ICT related devices are reliant on internet connection, they argue for the expensive access and an underdeveloped infrastructure in developing countries to be the main obstacles in ICT investments (World Bank, 2017a). Although the implementation of digital agendas is becoming a governmental priority worldwide, the use is very dispersed across countries and regions. (Travis C. Pratt, Assessing Macro-Level Predictors)
Investment in ICT sector can be done by State, by private sector or by foreign funding. Best suitable according to available literature following examples of US state’s entrepreneurial role and Pakistani , Indian and Chinese State’s national innovation systems and state’s entrepreneurial role in R&D , technology absorption & adoption , development of ICT infrastructure and related technological and financial infrastructure, fostering an enabling entrepreneurial ecosystem and support SMEs in ICT (and in general) to grow help us understand that State’s investment along with its entrepreneurial role is the “required investment” in ICT sector.
We know that private firms are there to make profits and pursue their own specific agenda and hence they might be reluctant to spend much on R&D that yields innovation as it might not earn them profits in short term. This way, firm may allocate all their funds to production leaving no budget for innovation and adoption of innovative processes. Also, there is evidence that small and start-up firms face higher cost of capital than their larger competitors and hence that there is room for such policies.
Although private firms don’t invest much on Basic research in ICT and introducing product, process or organizational innovation but there are always risk taking entrepreneurs and innovative firm across the globe who do it for the sake of their own benefit and most often that innovation become available for everyone globally, firm usually bring incremental innovation and entrepreneurs tend to bring radical innovation and disruption. So, if they market is open and welcoming to innovation and state have a policy for it, in will continue to create value for investors and will continue creating more and more jobs and skilled and knowledge workers where they can get paid well and not only work with innovative tool, technologies and processes but can also be a part of some incremental or radical innovation. The US market remained dynamic and enjoyed it all (Dedrick, 2007).
State investment is required (irrespective of private investment in this sector) as ICT sector work in coordination with other state departments and to grow economy, the integration in mandatory, that is only possible in case of State investment.
An example of state’s entrepreneurial role for small businesses in particular — the Small Business Innovation Research (SBIR) program — played a critical role in catalysing broader economic transformation. In this three phase program, trends shows that it supported small businesses with seed funding, series A funding and commercialization. As compared to venture capital funds , the role of SBIR and STTR was much higher and the reason is that VC are not risk loving, the need short term benefits and huge profits and they don’t usually invest on research that can bring innovation (that has potential to disrupt the way things are been done today) (Matthew, 2013).
State also need to come forward in ICT investment because it not only directly adds to economic growth through exports, enhanced productivity, easy access to data, better information management systems, better tracking of Govt. spending and decision making but Information is also a precursor to effective decision making; therefore information is one of the most important aspects of social welfare practice (Geoghegan, 2004). The effects of information and communication technology (ICT) are less understood in terms of social welfare (Geoghegan, 2004).
“Today it is very important to know the role of the State in the economy” (Mariana, 2013).
Government has potential to do things on bigger scale, can take risks and should try things that are never tried before. Government should not be doing thing that are already being done by individuals in an effective way but should do them in new ways and on large scale, rectifying the Impact.
A common conclusion is that investments in internet, broadband and infrastructure for telecommunications are significantly correlated with output growth in developed economies.
Country-specific characteristics effects investment decisions (North, 1991). The common conclusion among previous studies investigating the impact of ICT is that increased investments in these assets do have positive effects on growth. The contributions to income among countries at different stages of development are however somewhat mixed.
Literature have seen relation of ICT investment and growth and in general, shows a very positive trend, we have also seen in work of Röller & Waverman that ICT investment role in economic growth slightly differs in Developed and Developing countries. But what we don’t know here is results of ICT investment in different regions. What factors make countries of one region i.e. Asia differ from countries in other region i.e. Europe. In Literature we read about success of US states entrepreneurial role and ICT investment, and also there are comparisons of Indian, US, Chinese and Egyptian ICT sector (Kearny, 2009). Comparison (A Comparative Analysis, Scott Straus) and analysis is either done on basis on development status of country or her ICT exports, but not the overall trends in a region (with mix of developed and developing countries and a mix of exporting/importing countries). There is also need of inter-regional comparison.
Our study, aims to contribute by considering various factors in ICT sector that may or may not lead to economic growth and prove that Asian and European Countries differs in all those factors, but there is only one common aspect that countries of both regions have invested and do invest in ICT and it helped them in their economic growth. Based upon two most different case studies featuring European and Asian countries, our research question is that “How an ICT investment does lead to economic growth of Asian and European countries”.
This research also opens doors for future research as ICT is considered public good and do not rely on geographical location, people from one region or country help ICT sector of some other region/country grow.
Methodology used in cases:
Analysis on, how the contribution to GDP growth differs amongst country groups and try to explain what might causing these potential differences with help from previous research. The approach is inspired by the earlier studies of Yousefi (2011) and Niebel (2014) and follows the empirical methodologies outlined in their papers. This will analyse a greater amount of countries and an increased time span consisting of 21 years. Data primarily collected from a comprehensive database by the Conference Board.
Variables & estimation:
They employ an augmented Cobb-Douglas production function which consists of explanatory variables like ICT capital, non-ICT capital, employment growth and additional variables as exports and labour quality.
Data Source & Sample (in selected cases): (Gronick 1993)
Data is taken from World Economic Situation and Prospects WESP (United Nations, 2017). Where data of all Asian and European countries is provided except very few (Missing Data, Joseph L. Schafer)
Case Selection:
To achieve a comparative analysis of ICT sector we have cases of India, China and US in literature. We also have an analysis where countries were put in four income group and countries with low-middle income group (including Developing Asian countries) were selected. The same study also provides a case study (Tayba Ayub, 2015) for European (all) countries. In another case study (Kamran Zafar, 2017) analyse Asian (all) countries. As, we are interested in making a regional comparative study that is not based upon exports or ICT advancement but want to compare two entire regions based on inter-regional similarities and dissimilarities in ICT sector but not intra-regional. We choose cases of Asia and Europe because of our research design, and our interest in Asian ICT sector while using Europe case as reference as it is most advanced in ICT and related technologies. We are not taking US as a case because US comparison with India and China is available in literature as comparisons of countries, while we’re interested in regions, but not countries.
Case Design:
To achieve our goal, we selected a “most different case study design”. As, this is the relationship between cases selected. We selected most different cases, as we want to establish an argument to prove our hypothesis that ICT investment leads to economic growth and cases having this attribute similar and all other attributes different to each other, are best suitable for this.
Variables:
Dependent Variable: Economic growth as a continuous variable, we have used real GDP as a measure of economic growth and dependent variable of study. GDP is measured in in current U.S. dollars (USD). The variable is also used Feenstra et al., (2015) in their study. GDP data is obtained by World Bank.
Independent Variable: ICT investment as a continuous variable, we have used % of GDP as a measure of ICT investment and Independent variable of study. The variable is also used M Afzal et al., (2018) in their study. Source is World Governance Index.
Control Variables:
· National innovation system: This factor is control variable also used by Xiaobo & Revi in their comparative study. In our study it takes a binary value if innovation trajectories are same or not.
· Role of Government: This factor is independent, binary variable and takes value of 1/0 that 1 in case of India & China and it is also referred by R. Raman & D. Chadee in their comparative study.
· Political Stability: In our study, political stability is taken as a dummy variable and it is also being used by Jan & Pisar in their study related to ICT employment. The index is an average of several other indexes from the Economist Intelligence Unit, the World Economic Forum, and the Political Risk Services.
· Related and Supporting Industries: This factor is an independent, categorical variable taking value in predefined categories and is also used by R. Raman & D. Chadee in their comparative study.
· Demand Conditions (Offshore demand & Domestic demand) : This factor is an independent, continuous variable measured in US$ million and is also used by R. Raman & D. Chadee in their comparative study.
· Factor Endowments (Human resources & Physical, technological, financial infrastructure): This factor is continuous variable that is also used by R. Raman & D. Chadee in their comparative study. And it is an Independent variable measured in millions for Human resources and in Billions of USD for Infrastructure spending.
· Firm Strategy, Structure and Rivalry (Growth strategy, Industry structure, Rivalry): This factor is an independent, categorical variable measured in categories of firms “relatedness” and is also used by R. Raman & D. Chadee in their comparative study.
· Chance Factors: Includes Y2K, international language proficiency, and abundance of human resources. This factor is control, continuous variable and in measured upon size of the two country’s populations — and their relative youth in millions. It is also used by R. Raman & D. Chadee in their comparative study.
· Entrepreneurial score: This factor is control, categorical variable and in measured by number of startups, ICT SMEs, incubators, accelerators and communities in country. It is also used by Zaeem (2019) in his study and (Maryam , 2019) in her research.
· Country dummy
· Time dummy
· Error term
Estimation Strategy & Descriptive Analysis: (Hina Khalid, Political and Governance Challenges)
As we have datasets available in selected cases and we need to see them separately, in this qualitative case study design, we can either analyse results for selected case studies to prove our hypothesis OR we may have a mix of quantitative regression analysis of case Asia, and case Europe can be very helpful understand differences in both regions and establishes our hypothesis that despite all differences the independent variable ‘ICT Investment’ yields a positive outcome in dependent variable ‘economic growth’. (Nested Analysis as a mixed method strategy, Evan S. Lieberman)
EGeu = α0 + α1 (ICT)it + α2 (ICT)it + α3 (PS)it + α4 (RSI)it + α5 (DC)it + α6 (FE)it + α7 (FSR)it + + α8 (CF)it + α9 (ES)it + α10 (NIS)it + α11 (G)it + τi + γt + εit
EGas = α0 + α1 (ICT)it + α2 (ICT)it + α3 (PS)it + α4 (RSI)it + α5 (DC)it + α6 (FE)it + α7 (FSR)it + + α8 (CF)it + α9 (ES)it + α10 (NIS)it + α11 (G)it + τi + γt + εit
(Special Symposium on Qualitative and Mixed-Methods for Policy Analysis, Kathryn Edin)
Conclusion:
Few countries specialize in IT services and focuses on providing integrated business solutions to clients globally. In comparison, other focuses on the development of software to service its strong local IT hardware sector. Whether it is through direct ICT exports or enhanced productivity, reduced cost , enhanced efficiency or welfare of society (Impact Evaluation in Practice, Paul J. Gertler), ICT investments are made in both Asian and European region and yield positive economic growth trends in both regions despite a lot of differences in ICT sector of both regions. (Impact Evaluation in Practice: Ch 13, Paul J. Gertler),
Timeline:
Our research proposal (capstone project) took 1 month and 3 days to get completed. Timeline starts from 1st December 2019 and ends on January 3rd 2020. All the tasks are completed by single resource i.e. Hamid Saeed. Time allocated for tasks is real and no “estimation” is used. Relatively small sub-tasks are not mentioned as their time is covered with task.
Future Recommendations:
In future, we can add variables like gender disparity, no. of internet users, e- governance index etc. We can also explore a dimension that which country felt a need of ICT sector establishment and expansion after being developed and which country got developed as a result of ICT investments. Overall, ICT investment yields economic growth but we need to see what makes a country spend on ICT at first place.
Related to Study material:
Concepts related to study material are cited inline (where possible), overall this research proposal relates to Data type i.e. Panel data that is used in selected cases. It is related to Case study design and most different case study design. Concept of Research Question and Hypothesis is also used. Literature review section is written considering the recommendation of study material (i.e. importance, what’s known, what’s unknown, contribution to literature). Sampling techniques and strategies and missing data is also observed. Lastly estimation and analysis part is there from study material.
Bibliography
Arther, W. B. (2009). The Nature of Technology; What It Is and How It Evolves. The Penguin Group.
Dedrick, Jason and Kenneth L. Kraemer (2007). Globalization of Innovation: The Personal Computing Industry. In J.T. Macher and D.C. Mowery, eds., Running Faster to Stay Ahead? Globalization of Innovation in U.S. High-Technology Industries. Washington DC: National Academies Press, 2008.
Geoghegan, L., Lever, J., & McGimpsey, I. (2004). ICT for social welfare: A toolkit for managers. Bristol, UK: Bristol University Press. doi:10.2307/j.ctt1t89965
Impact of Information Communication Technology on Economic Growth: Evidence from Asian Economies / Kamran Zafar — Islamablad. CUST, 2017.
Information and Communication Technology (ICT) and Economic Growth Nexus: A Comparative Global Analysis/ Tayba, Tariq — Pakistan Journal of Commerce and Social Sciences, 2018. Vol. 12 (2), 443–476
Kearny, A. T. (2009) The Shifting Geography of Offshoring, http://www.atkearney.com/images/global/pdf/
Global_Services_Location_Index_2009.pdf (downloaded 26 April 2010).
Mariana Mazzucato (2013). The Entrepreneurial State; Debunking Public vs. Private Sector Myths. Anthem Press.
Matthew R. Keller, Fred Block, Explaining the transformation in the US innovation system: the impact of a small government program, Socio-Economic Review, Volume 11, Issue 4, October 2013, Pages 629–656, https://doi.org/10.1093/ser/mws021
Maryam : Startup ecosystem report (2019) http://invest2innovate.com/download/1280/
North, D. (1991) Institutions. The Journal of Economic Perspective (1986–1998, 5(1), 97.
The ICT poloicy in providing equitable access to entrepreneurial ecosystem for aspiring entrepreneurs in Punjab: Analyzing the performance of Plan9 / Zaeem Yaqoob Khan(MSDEVS17003) — Lahore: Information Technology University, 2019. — 147 pages; illustrations,
World Bank. 2017a. World Bank Annual Report 2017 (English). Washington, D.C. : World Bank Group. http://documents.worldbank.org/curated/en/143021506909711004/World-Bank-Annual-Report-2017
Wu, Xiaobo & Revi, Aromar & Doshi, Hiren. (2009). The Comparison of China and India: National Innovation System.
Yousefi, Ayoub. (2011). The impact of information and communication technology on economic growth: Evidence from developed and developing countries. Economics of Innovation and New Technology. 20. 581–596. 10.1080/10438599.2010.544470. (Paul N. Edwards, How to Read a Book, v5.0)
Credits :
Author of this “Most Different Case Study analysis” Mr. Hamid Saeed is CEO Shahruh Technologies (PVT) LTD. The research proposal is done as part of research at Information Technology University, Lahore Under the supervision of Dr. Hina Khalid for the course of Research Methodology.
