Telecommunications infrastructure and usage and the FDI–growth nexus: evidence from Asian-21 countries

ABSTRACT

This paper examines causal relationships between telecommunications infrastructure and usage (TEL), foreign direct investment (FDI), and economic growth in the Asian-21 countries for the period 1965–2012. TEL is defined in terms of the prevalence of telephone main lines, mobile phones, internet servers and users, as well as the extent of fixed broadband. These measures are considered both individually and collectively in the form of a composite index of TEL. We report results on long-run relationships between TEL, FDI, and economic growth. We also use a panel vector auto-regression model to reveal the nature of Granger causality among the three variables. Results from these causal relationships provide important policy implications to the Asian-21 countries.

KEYWORDS:

• Adoption and diffusion of IT and rate of uptake
• development issues
• sustainable development in developing and transition economies
• IT policy
• IT strategies for development (national and sectoral)

Acknowledgements

We are grateful to the editors Mina Balliamoune and Sajda Qureshi for their constructive suggestions. Two anonymous reviewers of this journal also provided much helpful advice on two previous drafts of this paper.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes on contributors

Rudra P. Pradhan is a SAP Fellow and an Associate Professor at the Indian Institute of Technology Kharagpur, India, where he has been associated with Vinod Gupta School of Management and RCG School of Infrastructure Design and Management. Pradhan is affiliated with various professional journals like Telecommunications Policy, Cities, Empirica, Neural Computing and Applications, and Review of Economics and Finance. He has been a visiting scholar to University of Pretoria, Republic of South Africa and a visiting professor to Asian Institute of Technology, Thailand.

Mak B. Arvin is a Full Professor of Economics at Trent University, Peterborough, Ontario, Canada, where he has been a faculty member for the past 30 years. Arvin’s research has resulted in over 150 publications in journals, edited volumes, and books. He has served on the editorial board of over dozen professional journals and is the Editor-in-Chief of the International Journal of Happiness and Development. Arvin has been a visiting professor to Boston College and a consultant to the IFO Institute for Economic Research, Germany. His latest book, Handbook on the Economics of Foreign Aid (with Byron Lew), was published in 2015.

Mahendhiran Nair is the Deputy President (Strategy) at Monash University Malaysia and a Professor of Econometrics & Business Statistics – School of Business at Monash University Malaysia. He is a Fellow of CPA (Australia). Mahendhiran leads a research team that studies the impact of ICT and innovation ecosystems on socioeconomic development in emerging countries. He has published his research work in leading international journals and presented in high-impact conferences and forums. He has been a subject matter expert on the knowledge economy and the development of innovation ecosystems for government agencies, public policy organisations and ‘think-tanks’ in Malaysia and the Middle East.

Jay Mittal is an Assistant Professor of Planning and Real Estate at the Auburn University, Auburn, AL, USA. His area of research includes real estate development, economic development, GIS and urban infrastructure where he focuses both issues in the USA and in the developing world. He has published his research in several prominent refereed journals such as Journal of Sustainable Real Estate, Habitat International, Current Urban Studies, and has presented his research at over two dozen national and international peer reviewed conferences on variety of topics. He has also lectured at several prominent universities worldwide, such as Peking University, China; National University of Singapore, Singapore; CEPT University, India; University of Cincinnati; and Iowa State University to name a few on many topics.

Neville R. Norman is an Associate Professor and Honours Economics Co-ordinator at The University of Melbourne, Official Visiting Scholar in Economics at Cambridge England and the 2010 Honorary Fellow of the Economic Society of Australia. He has a Ph.D. from Cambridge, and Honours and Masters degrees from Melbourne. Neville specialises in the trade-policy industrial economics intersection, with a focus on theory, econometrics, data generation and policy analysis, with publications, public addresses and evidence in these areas in many countries.

Notes

1. See also Arvin and Pradhan’s (2014) investigation relating to the causal relationships between broadband penetration, degree of urbanization, foreign direct investment, and economic growth using a panel data set covering the G-20 countries. The present study instead concentrates on the telecommunications infrastructure and usage generally and its association with economic growth and foreign direct investment in Asian countries.

2. The adoption of telecommunications technology from abroad and inflows of FDI have links on obvious and intuitive grounds.

3. TII is constructed using PCA. PCA linearly transforms the variables so that they are orthogonal to each other (Lewis-Beck, 1994). It is ideally suited because it maximizes the variance, rather than minimizing the least square distance. In sum, PCA transforms the data into new variables (i.e. principal components) so that they are not correlated. This approach is described in most textbooks and is used in several articles including Pradhan, Arvin, Norman, et al. (2014) and Pradhan et al. (2013b). The approach is outlined in Appendix B.