What is the role of mobile phones in bringing about growth?

Mobile phones have been touted as one of the most transformative technologies to have brought about development by Jeffrey Sachs of Columbia University, Tom Standage, Digital Editor of The Economist magazine, the International Telecommunications Union (ITU), and others. Innovations especially in mobile banking such as Kenya's M-Pesa system have enabled banking and payment services to those who would otherwise remain without banking services, are seen as some of the ways in which Information and Communication Technologies (ICTs) are enabling development. Morawczynski and Pickens (2009) show through their ethnographic study, how the lives of people are being transformed through their use of the M-Pesa mobile banking services. For better or for worse, these technologies are here to stay. The challenge faced when studying how ICTs bring about development is in understanding how does this relationship actually take place? For example, fishermen in Kerala, India, who are able to use mobile phones to search for the best market prices for their produce, see an increase in their incomes by 8%. Since the quantity of fish brought to the market increases with the rise in farmer's income, consumer prices fall by 4% according to the Harvard economist Robert Jensen (2007). Does this mean that there could be a bi-directional relationship between ICTs and development? In that there could be a direct link between mobile phone coverage and the ability of farmers and businesses people to increase their incomes.

Alternatively, could the relationship between ICT uptake and growth of incomes and Gross Domestic Product (GDP) be a cyclical one? A cyclical relationship would mean that an increase in individual income would lead to purchase of mobile phones which would lead to the emergence of new businesses supported by the mobile phones that address the demand of certain products of services. Aker and Mbiti (2010) have shown that the use of mobile phones by farmers to search for better markets in which to sell their goods, reduces their search costs so that they do not have to spend time and money to travel to these markets. By reducing search costs, they found that the use of mobile phones actually increases the efficiency of markets. Taken a step further, such efficiencies could have a cumulative effect of increasing the income of the community as more people benefit from the jobs and income generated by the new businesses. This in turn leads to investments in infrastructure that enables more ICTs to be made available, thereby allowing more access to households, businesses and farmers using ICTs to acquire needed resources or purchase the goods and services they need.

The term ICTs has been used to depict the ways in which technologies affect the way people go about their daily lives. Technologies that are most often assessed as part of this term are the access and use of the Internet, mobile phones, and telephone land lines. Some radio and television use has also been studied as part of the term ICT. The “Information” in the ICT is often associated with the Internet as it is the vehicle for accessing needed information. Access to the Internet is carried out through telecenters, cybercafés, and some mobile devices. The “Communication” in ICT is often carried out using mobile phones that offer voice, text, and other communications services that the Internet may support. The “Technologies” encompass all of the above and telephone land lines, radio stations, television, and the telecommunications infrastructures that support these technologies. As new innovations are being taken up, this term continues to evolve. Multiple technologies are used to access increasing amounts of information that is communicated through a plethora of devices and expanding infrastructures supporting those devices. Innovations in the ways in which these ICTs are used to overcome challenges, such as access to food, water, healthcare, education, and those of limited resources leading to poverty, comprise the study of how ICTs may bring about development.

There are a number of ways in which the study of how ICTs may bring about development can be carried out. Outcomes that can be studied include but are not limited to ways in which ICTs are used to enable improvements in people's lives through increases in their ability to earn incomes, generate more goods and services, and access markets that would otherwise not be attainable. The concept of development measured in economic term studies growth in individual incomes, increases in the income of countries or their GDP. Studies, including those published in this journal, have shown that there is a relationship between an increase in the access and use of ICTs and the growth of incomes. It is not clear, however, whether incomes increase because people have access to the internet, mobile phones, land lines, or a combination thereof. Or is there an increase in the use of ICTs because when people have more money, they are able to afford to buy mobile phones, pay for internet access and land lines. The papers in this issue shed light on this illusive phenomenon by studying how ICTs influence the growth of regions, in particular, how mobile phones enable growth. They identify specific areas in an economy that stand to benefit from ICTs by bringing about improvements in the lives of people. The contributions provided by these papers have implications for how some countries can make better use of their ICT investments.

This issue begins with a paper entitled “Telecommunications development and economic growth in Africa” and is authored by Hopestone Kayiska Chavula. In this study, the author tries to assess the impact of telecommunications penetration on peoples' living standards in Africa through their impact on per capita income growth. The author seeks to find out if the telecommunications growth being experienced by African countries translates into economic growth through its impact on people's living standards. Barro's (1991) endogenous growth model is employed to estimate the impact of mobile, fixed telephone main lines and the use of the Internet on per capita income in a cross country analysis covering 49 countries in Africa. The overall results indicate that the telephone main lines and mobile telephony have a significant impact on the people's living standards in Africa, while Internet usage does not have a significant contribution towards economic growth. However, when these countries are categorized into the three groups following the 2008 World Bank classification criteria of being upper-middle, upper-low, and low-income countries, the results show that fixed telephony, mobile telephony, and the Internet usage have a significant impact on growth in the upper-middle-income countries, while only the mobile telephone penetration has a significant impact on the growth in both the upper-low-income and the low-income countries in Africa. The author found that the mobile growth effect is the largest among all the country groups.

The second paper entitled “A knowledge economy or an information society in Africa? Thintegration and the mobile phone revolution”, is authored by Pádraig Carmody. The author contends that while much has been written about the impacts of new information and communication technology in Africa and its transformational socio-economic impacts, there are some areas that need to be addressed. The penetration of mobile phones in particular has been particularly marked in the recent years. This paper seeks to interrogate the hypothesis of transformation by examining the ways in which Africa is integrated into the global mobile phone value chain, and then the uses to which this technology is put on the continent. The author states that there is a fundamental distinction between having a knowledge economy and an information society. While mobiles are having significant, and sometimes welfare-enhancing impacts, their use is embedded in the existing relations of social support, and also conflict. Consequently, their impacts are dialectical, facilitating change, but also reinforcing the existing power relations. While Africa may be an information society, it is not, as yet, developing a knowledge economy. Mobile phone usage then represents a form of thin, rather than thick, integration (“thintegration”) in the global economy, which, because it does not lead to high value-added exports, does not fundamentally alter the continent's dependent position.

The third paper in this issue entitled “Investigating factors associated with the spillover effect of investments in telecoms: Do some transition economies pay too much for too little?” is authored by Sergey Valery Samoilenko who states that one of the routes by which investments in ICT could impact a macroeconomic bottom line of economies is by contributing to total factor productivity (TFP). This, TFP, he contends is an important component of economic growth. While the more traditional “investments to revenues” resource-intensive path has been well researched, the nature of the indirect “investments to TFP” link remains much less clear. Specifically, it is not well understood what conditions must be present for economies to exhibit the relationship between investments and TFP. In the current study, conducted in the context of 18 transition economies in Europe and the former Soviet Union, the author aims to identify some of the factors associated with the presence of the relationship between the subset of investments in ICT, investments in telecoms, and two components of TFP change in efficiency and change in technology. The results of the analysis of the data set spanning from 1993 to 2002 suggest that while the presence of the link between investments and change in technology was associated with the level of investments, the presence of the relationship between investments and change in efficiency was associated with the quality of a full-time telecom workforce. The consequent analysis of the data set spanning from 2003 to 2008 supports this finding and also provides evidence of the importance of the macroeconomic strategies that balance an increase in the levels of investments with the increase in the levels of efficiency of utilization of investments and the generation of revenues.

The fourth paper in this issue entitled “On the endogeneity of telecommunications and economic growth: Evidence from Asia” is authored by John Levendis and Sang Lee. The authors suggest that the impact of mobile and fixed telephones on economic growth has been the subject of increasing scrutiny in the literature on economic development and is also of interest to theoretical macroeconomists. They posit that this impact provides a useful test of the positive network externalities that should be present if endogenous growth theory is correct. They study the relationship between teledensity and growth in Asia, as the countries there have experienced many different levels of telephone penetration per capita, and of rates of growth of GDP per capita. They estimate several econometric models, one which explicitly treats telecom as strictly exogenous, and others which treat it as endogenous. Our conclusions are robust to the econometric specification. They found that the impact of teledensity on growth is positive, and increases with the level of telephone penetration. This provides support for endogenous growth theory.

Lastly, the paper in this issue's View from Practice Section is entitled “Harnessing information and communication technologies (ICTs) to address urban poverty: Emerging open policy lessons for the open knowledge economy” and is authored by Duncan Wambogo Omole. He states that urban poverty is a complex socio-economic problem. The expected doubling of the urban population relative to rural areas by 2050 without a corresponding economic and infrastructure growth will worsen the problem, especially in emerging economies. Poor urban residents face rising unemployment and underemployment, constrained access to financial services, market exploitation, poor housing, crime, unsatisfactory health services, and scant education opportunities. Several players have attempted to address these problems through ICTs. This paper has isolated a few of these to determine critical success factors on the economic empowerment front.

Additional information

Notes on contributors

Sajda Qureshi

Editor-in-Chief