In addition to the growth factors previously discussed, a country’s investment in information technology (IT) is an important key to economic growth. The cellular phone, the Internet and other advances in IT open opportunities for emerging economies to catch up with richer ones. New, innovative electronic technologies can be the key to a sustainable future for developed and developing nations alike.
Because the Internet cuts transaction costs and reduces economies of sale from vertical integration, some argue that it reduces the economically optimal size for firms. Lower transaction costs enable small firms in Asia or Latin America to work together to develop global reach. Smaller firms in emerging economies can now sell into a global market. It is now easier for instance, firm a tailor in Shanghai to make a suit by and for a lawyer in Boston, or software designer in India to write a program for a firm in California. On of the big advantages that rich economies have is their closeness to wealthy consumers, which will be eroded as transaction costs fall.
The Internet accelerates the process of economic growth by speeding up the diffusion of new technologies to merging economies. Unlike the decades required for many developing countries to benefit from railways, telephones, or electricity, the Internet is spreading rapidly throughout Asia, Latin America, and Eastern Europe. IT can jump start national economies and allow them to leapfrog for high levels of illiteracy to computer literacy.
The Internet also facilitates education, a fundamental underpinning for economic development. The African Virtual University which links 24 under funded and ill equipped African campuses to classrooms and libraries worldwide, grants degrees in computer science, computer engineering and electrical engineering .South Africa’s School Net Program links 1,035 schools to the Net and the government’s Distance Education programs brings multimedia teaching to rural schools.
Mobile phones and other wireless technologies greatly reduce the need to lay down a costly telecom infrastructure to bring telephone service to areas not now served. In Caracas, Venezuela, for example, where half of the city’s 5 million population lives in non-wired ms, cell phones with pay as you go cards have provided service to many residents for the first time. The Grameen bank, a private commercial enterprise in Bangladesh has a program to supply phones to 300 villages. There are only five land phones lines for every 1,000 people in Bangladesh one of the lowest phone penetration rates in the world. The new network will be nationwide putting every villager within two kilometer of a cellular phone. Already cell phone penetration doubled from 4 per 1,000 to 10 per 1,000 during the last two years.
The Internet allows for innovative services at a relatively inexpensive cost. For example, cyber post offices in Ghana offer e-mail service for the price of a letter. Tele centers in five African countries provide public telephone, fax, computer, and Internet services, where students read online books and local entrepreneurs can seek potential business partners. Medical specialists from Belgium help train local doctors and surgeons in Senegal via video linkups between classrooms and operating centers and provide them with Internet to medical journals, and databases. Traveling there to teach would be prohibitively expensive; via Internet technology, it cist practically nothing.
Substantial investments in the infrastructure to create easy to take Internet and other aspects of IT are being made by governments and entrepreneurs. Hong Kong is investing in a $1.7 billion cyber port to house high tech companies. If successful, it will cerate a new information economy and thousands of new jobs. Singapore’s broadband network beings fast digital transmissions capacity to homes and offices, allowing delivery of advanced multimedia services. Vietnam has entered the first stage or e-commerce development with the opening of a software zone in Hanoi and plans to spend $32.4 million to develop an information technology park.
India not only stands firmly at the center of many success stories in California’s Silicon Valley (Indian engineers provide some 30 percent of the workforce there) but is also seeing Internet enthusiasm build to a frenzy on its own shores. Indian entrepreneurs and capital are creating an Indian Silicon Valley, dubbed Cyberabad in Hyderabad and in Bangalore. Exports there are growing 50 percent annually and each worker adds $ 27,000 of value per year an extraordinary figure in a country where per capita GDP is about $ 500. After little more than a decade of growth the Indian industry has an estimated 280,000 software engineers in about 1,000 companies .
Similar investments are being made in Latin America and Eastern Europe as countries see the technology revolution as a means to dramatically accelerate their economic and social development. Traditional economic reforms in the 1980s and 1990s managed to stop hyper inflation and currency crises, but further change will not produce significant new growth needed to combat poverty. Governments must work to provide access to the internet and other information technologies.
The IT revolution is not limited to broad long range economic ranges, it can have an almost immediate impact on the poorest inhabitants of an emerging country.