The Infra4Dev Conference, jointly organized by the World Bank and the International Growth Centre on March 3rd-4th 2022, brought together the academic and policy-making community to exchange knowledge and insights regarding the roles that infrastructure can play in catalyzing development. Professor Jonas Hjort (Columbia University and University College London) provided the framework presentation on our current state of knowledge regarding how internet penetration affects economic development.
The world before the internet was very different from today. Over the past 40 years, there has been a steady rise in key economic development indicators across much of the developing world. GDP growth has coincided, among other things, with rapid expansion of internet connectivity, which picked up in the 1990s. Roughly half the world today uses the internet, including over one-third of Africans and nearly a quarter of South Asians – while access has accelerated in low-income countries (LICs). Worldwide there are 14 broadband subscriptions per 100 people.
As we can see in this aminated GIF, the globe is now tightly wrapped in a complex, growing web of submarine cables that link up even its most remote corners.
Given the growing focus on internet infrastructure development and telecoms regulatory reform of LICs’ governments – from Cambodia to Ethiopia – policymakers and academics are grappling with urgent policy questions:
Unpacking the internet-and-development nexus
Theoretically internet access can drive economic development through its impacts on both the supply-side and the demand-side of an economy.
- For example, access to internet-based technologies could help workers carry out tasks more rapidly and to higher standards of quality.
- On the demand side, an internet connection may impact sellers and buyers’ ability to access markets and the availability and quality of information on products and services being traded. For example, e-commerce may allow firms to make their products accessible to a much larger pool of consumers than what would have been possible without internet, especially in rural and remote regions.
A growing body of empirical research from developing countries has been investigating how these forces play out. We summarise some of the key findings below.
In many contexts, internet access appears to improve the productivity of workers and firms
There is growing evidence suggesting that internet technologies can increase workers’ productivity. Vietnam, Brazil, and Nigeria, research findings suggest that female workers’ labor market outcomes especially improve when firms use more ICT. A few studies also find especially beneficial impacts in rural areas. The productivity gains of internet appear to vary considerably across different contexts.A few studies also highlight interesting distributional effects of internet access. In
Secondly, findings are mixed on whether internet connectivity plays a role in building skills – a driver of worker productivity. Research from six African countries shows that firms benefitting from an internet connection are more likely to provide on-the-job training, which can lead to the “upskilling” of workers. On the other hand, the effect of internet access on students’ academic achievements is mixed. In Malawi, a recent study shows pupils with (randomized) access to Wikipedia had higher test scores, likely through providing greater access to information and improving English language skills. However, studies from Brazil and Peru find no impact of internet connectivity on educational attainment.
On firm-level productivity, internet access also seems to improve companies’ ability to leverage intangible technologies, such as organizational practices or management, to achieve better performance. Limited or no evidence is available on internet-mediated adoption of physical technologies – such as a machine or a specific material – and on the degree to which internet impacts firms' organizational and production structure, such as offshoring production.
Connectivity can increase demand for goods and services by improving market access and information
There is also evidence that internet access can reduce price dispersion and uncertainty over product quality, by enabling firms and consumers to pick their trading partners among a wider set of options.
Does internet access ultimately improve wellbeing?
Evidence on internet’s ultimate impact on welfare remains scarce. A few studies find that internet-enabled technologies, such as mobile money in Kenya, have reduced consumption poverty and increased incomes. Five studies have shown evidence that the gradual expansion of submarine internet cables and other internet infrastructure has increased incomes and consumption in Africa.
Recent evidence shows, however, that subsidizing non-users in areas that already have relatively good internet connectivity appears to be an ineffective policy option. In Kenya, an experiment found that offering data packages to individuals who already had a phone contract, but did not use data, had limited effects on consumption, employment, and a range of other outcomes. Interestingly, in the US, subsidizing internet access in contrast increased earnings and employment among low-income families. More research is needed to understand whether (and if so, how) policies aimed at encouraging use can be as effective as some forms of internet infrastructure appear to be.
An ambitious and policy-relevant research agenda ahead
Thanks to a growing body of research, we know today that internet access appears to lead to greater economic activity and other beneficial economic impacts in many, though not all, developing country contexts.
More data and studies from a wider breadth of geographies and methodologies will be crucial to better understand how these dynamics play out and under what conditions, so as to extract practical lessons that policymakers can leverage in their reform agendas.
Disclaimer: The content of this blog does not necessarily reflect the views of the World Bank Group, its Board of Executive Directors, staff or the governments it represents. The World Bank Group does not guarantee the accuracy of the data, findings, or analysis in this post.
This blog has been co-published with the International Growth Centre (IGC).
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