INTERNATIONAL TRADE, ICTS AND ECONOMIC GROWTH

I am not an economist, so the following is at best an approximation.

The ICT technological revolution has made possible high and improving Total Factor Productivity (TFP) in ICT industries – both those running the ICT infrastructure and those producing ICT goods and services. In those countries where that potential is realized, the ICT industries will be expected attract capital and labor. The growth of these industries with relatively high TFP of course raises the average TFP for the economy.

Moreover, the ICT revolution makes possible a more rapid increase in TFP in the rest of the economy. This again, in propitious circumstances, is likely to encourage increased employment of capital and labor, and again to raise the average TFP for the entire economy.

If the circumstances are propitious, and the improving TFP encourages more investment, one might expect to see capital deepening. This would include human capital as well as ICT capital, and other forms of capital. If you have an improving TFP and increased investment of capital and labor, there is economic growth. The discussion also suggests a changing balance in the economy, with the sectors that are most able to increase TFP utilizing ICTs tending to grow faster than those less able to utilize the technology.

Whether economic growth results in the reduction of poverty depends on the evolution of the distribution of income and wealth. The World Bank economists have documented a strong correlation between national economic growth and poverty reduction, but the data on which such calculations are based are typically from countries not much affected by the information revolution. On the other hand, the more wired countries have generally seen worsening distribution of income and wealth over the last decade or so.

The discussion above has ignored the international aspects of this phenomenon. Poor countries not only invest less in ICTs than do rich countries, but they invest a lower portion of their GDP in ICTs. If investments in ICTs are an effective way to increase average TFP, does this suggest that the technological revolution will tend to exacerbate the productivity differences among nations? Would increasing differences in labor productivity be reflected in increasing differences in wages? Increasing differences in returns to capital be reflected in increasing differences in wealth?

The comparative advantages of nations depend on the relative productivities in different economic sectors. The argument above has suggested that these will change within nations according to the degrees that different sectors are successful in harnessing ICTs to increase productivity. Perhaps the effect will be more pronounced among nations. There seems to be an indication that international trade in ICTs and high technology products is increasing, as is trade in labor-intensive products. That would be consistent with a change in comparative advantage, in which rich countries were trading ICTs and high tech products to poor countries for labor intensive products. Are there impacts on the terms of trade? What is the effect on poverty?

Here are a few papers that might illuminate the subject:

TECHNOLOGY DIFFUSION, HUMAN CAPITAL AND ECONOMIC GROWTH IN DEVELOPING COUNTRIES
http://www.unctad.org/en/docs//dp_154.en.pdf

DYNAMIC PRODUCTS IN WORLD EXPORTS
http://www.unctad.org/en/docs//dp_159.en.pdf

The Role of Information and Communication Technologies in Economic Development: A Partial Survey
http://www.zef.de/download/zef_dp/zef_dp7-99.pdf

IT TRENDS: Can we harness the Internet as an ICT tool for the development?
http://www.psgateway.org/download/155/Internet_Trends_in_Development_(PDG)_17Dec2002.doc

It’s Not What You Make, It’s How You Use IT: Measuring the Welfare Benefits of the IT Revolution Across Countries
http://www.developmentgateway.org/knowledge/dg-contribute/item-detail?item_id=284512&version_id=166135