Repositioning for Increased Digital Dividends: Internet Usage and Economic Well-being in Sub-Saharan Africa

ABSTRACT

Until recently, the shortage of rigorous empirical studies has been attributed as the main cause of inadequate policy guidance in enhancing information and communications technology (ICT) and the largely underdeveloped ICT in Sub-Saharan Africa (SSA). While recently there is an increasing number of national initiatives to enhance broadband infrastructure in SSA, there is also a need for evidence-based decision-making with respect to the relationship between internet usage and economic well-being in Africa to reposition the continent for increased digital dividends. This study, therefore, examines the effect of internet usage on economic well-being for 45 SSA countries for the period 1995–2015 using panel fully modified least square (FMOLS) and panel dynamic ordinary least square (DOLS), and within a panel causality analysis. The panel FMOLS and panel DOLS analyses show that internet usage has a significant and positive effect on economic well-being. The panel causality analysis shows that there is bi-directional causality between internet usage and economic well-being in the short and long run, meaning that internet usage plays significant roles in increasing economic well-being, and economic well-being also plays significant roles in the expansion of internet usage both in the short and long run. Interestingly, the study shows that internet scams have a significant and negative effect on economic well-being, meaning that growing internet scams lead to lower economic well-being in SSA.

KEYWORDS:

• Digital dividend
• internet usage
• economic wellbeing

JEL Code:

• K23
• O47
• L96

Notes

1. Digital divide, a term introduced in the late 1990s, describes differences between the ‘haves’ and ‘have-nots’ and is concerned with inequalities in connectivity between developed and developing countries, and what social impacts these differences would likely produce (Norris, 2001; OECD (Organization for Economic Co-operation and Development), 2001; Riddlesden & Singleton, 2014).

2. In 1937, Ronald Coase, who received the Nobel Prize in Economics in 1991, published the book “The Nature of the Firm,” which popularized the idea of transaction costs. Most of the Coasian transaction costs can be attributed to the costs of acquiring and sharing information (Coase, 1937). Today, the Internet has drastically reduced many of these costs, with significant implications for market and nonmarket exchanges among people, businesses, and governments.

3. Economic well-being is defined as having financial security which includes the capacity of individuals, families, and communities to consistently meet their basic needs (including food, housing, health care, and utilities), and to have complete control over their finances (Council on Social Work Education, 2016; Lawn, 2003). It also includes the capacity to make economic choices, feel a sense of security and satisfaction with one’s personal finances, absorb financial shocks, and maintain adequate income throughout the life-span (Osberg, 1985).

4. Internet usage is the action of using the world-wide public computer network that provides access to communication services including the World Wide Web and carries email, news, entertainment and data files.

5. GDP per capita declines as internet usage grows for two large countries: South Africa and Ghana. In South Africa, the decline was as a result of a fall-off in activity in the agriculture, mining and manufacturing industries. In Ghana, it was due to the slump in mining and oil production.

6. Economic well-being is not synonymous with welfare. Human development index (HDI) is usually used as a proxy for welfare. Economic well-being is defined as having financial security which includes the capacity of individuals, families, and communities to consistently meet their basic needs, while welfare is the level of prosperity and quality of living standards in an economy (Council on Social Work Education, 2016; Evans & Kelikume, 2018; Lawn, 2003).