Institutional development in an information-driven economy: can ICTs enhance economic growth for low- and lower middle-income countries?

ABSTRACT

The information and communication technology (ICT) revolution has brought positive spill-over effects on institutions and economies across the globe, but it has also increased the information gaps between countries. A key characteristic that may explain these widening gaps is the deepening endogenous relationships between ICT infrastructure, institutions of governance, and economic growth in many developing countries. Thus far, the links between these variables have not been discernible in developing economies, so few studies have explored them. In this paper, we investigate the possible Granger causal relationships among institutional quality, economic growth, and ICT infrastructure development for a sample of developing countries for the period from 2005 to 2019. The application of a vector error-correction model reveals strong inter-relationships between all the variables in the short run. In the long run, institutional quality and ICT infrastructure development stimulate economic growth. These complex relationships are explored and lessons are drawn for policymakers.

RESEARCH HIGHLIGHTS

• We assess interactions between institutional quality and ICT infrastructure as well as economic growth.

• We deploy a panel Granger causality test for low- and lower middle-income countries from 2005 to 2019.

• We show that there is Granger causality between the variables in the short and the long term.

• For each case and specification, there is support for the hypothesis that ICT infrastructure and institutional quality both Granger-cause growth in the economy.

• In the short run, we note a feedback relationship between institutional quality and economic growth. Other short-run results are more varied, based on the particulars proxies for institutional quality and ICT infrastructure.

KEYWORDS:

• Institutional quality
• economic growth
• ICT infrastructure

JEL CLASSIFICATION:

• O11
• O14
• O33
• O43

Acknowledgement

The authors appreciate helpful comments from two anonymous reviewers of this journal, which have improved the quality and presentation of this paper.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 There is no single accepted definition of infrastructure. Torrisi notes that two conditions need to be met for classifying something as infrastructure: first, that it is a capital good, and second, that it is a public good (although it does not have to be owned by the public sector to meet this condition).

2 Most of the current research indicates positive relationships, but some studies report negative or no relationships.

3 Throughout our discussion, the construct of causality is used in terms of temporal or statistical sense, based on the definition of causality advanced by Granger.

4 Electronic government development is the level to which the interactive structures of the World Wide Web (WWW) and Internet technologies are recycled to conduct governments’ business (West, 2004).

5 This panel unit root test was chosen based on cross-sectional dependency testing which confirms that there is no cross-sectional dependency among the variables.

Additional information

Notes on contributors

Rudra P. Pradhan

Rudra P. Pradhan is an SAP Fellow and an Associate Professor at 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 Cities, Technological Forecasting and Social Change, Technology in Society, Telecommunications Policy, and Review of Economics and Finance. He is associate editors of Helioyn, International Journal of Innovation and Technology Management, and Journal of Economic Development. 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

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 3⁣6 years. Arvin's research has resulted in over 180 publications in journals, edited volumes, and books. He has served on the editorial board of over a dozen professional journals and is the former Editor-in-Chief of the International Journal of Happiness and Development and the International Journal of Education Economics 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 is the Handbook on the Economics of Foreign Aid published in 2015 (with Byron Lew).

Mahendhiran Nair

Mahendhiran Nair is a Full Professor in Econometrics and Pro-Vice Chancellor (Research Engagement & Impact) at Sunway University. He is a Fellow of CPA (Australia) and Fellow of Academy of Sciences Malaysia. He is a member of the National Science Council of Malaysia and High-Tech Council of Malaysia. 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 innovation ecosystems for government agencies, public policy organisations and 'think-tanks' in Malaysia and the Middle East.

John H. Hall

John H. Hall is a Full Professor of Finance and Head of the Department at Department of Financial Management, University of Pretoria, Republic of South Africa. He has been an academic for more than 20 years and has presented numerous papers (some of which has received best paper awards) at national and international conferences. Hall is a South African National Research Foundation rated researcher.

Sara E. Bennett

Sara E. Bennett is an Associate Professor of Finance in the School of Business and Economics at Lynchburg College in Lynchburg, VA, USA. Her areas of interest include macroeconomics, financial development, ICT infrastructure, corporate financial management, and financial derivatives. She is the author of several papers and reviews in refereed journals in the area of finance.