Telecommunications Infrastructure and Economic Growth: Evidence from Developing Countries

Often, it has been observed that telecommunication infrastructure development and economic growth proceed together. While this relationship has been studied in the context of developed (OECD) countries, in this study, we investigate this simultaneous relationship between telecommunications and the economic growth, using data for developing countries. Using 3SLS, we estimate a system of equations that endogenize economic growth and telecom penetration (respectively production function and demand for telecom services), along with supply of telecom investment and growth in telecom penetration. We estimate this system of equations separately for main telephone lines and cell phones. We find that while traditional economic factors explain demand for main line phones, they do not explain demand for cell phones. We also find significant impacts of cellular services on national output, when we control for the effects of capital and labour. The impact of telecom penetration on total output is, however, significantly lower for developing countries than that reported for OECD countries, dispelling the convergence hypothesis.