On the relationship between telecommunications investment and economic growth in the United States

Abstract

Using a time series of 50 years, the relationships between investment by telecommunications firms and Gross Domestic Product in the United States are examined. Granger-Sims causality tests are conducted, with proper allowance for both the non-stationarity of the data and lag length. These tests indicate that investment by telecommunications firms is caused by, but does not cause, economic activity, and the findings are robust across lag lengths. The evidence suggests that policies aimed at stimulating the US economy by accelerating investment by telecommunications firms may not be successful.

Keywords:

• Telecommunications
• growth
• Granger causality

Acknowledgements

The authors are grateful for the helpful comments and suggestions of Sunwoong Kim and two anonymous referees. All remaining errors are the responsibility of the authors. The views expressed in this paper are those of the authors alone and do not necessarily reflect those of Z-Tel Communications, its executives or its employees.

Notes

Related studies on this topic include Johnson & Takeyama (2001) and Nadiri & Nandi (2003).

Investment data are reported for ‘Telephone and Telegraph Services’ under the ‘Communications’ heading. The data are expressed in real (1996) dollars, and we employ the data as reported. The data are available at www.bea.gov. GDP data are also in 1996 dollars. Investment does not measure the capital stock, but additions to it. This definition of investment is consistent with the current policy debate regarding policies aimed at increasing capital expenditures by telecommunications firms in an effort to stimulate the economy.

We use the critical values provided by Enders (2004: 441).

The tests include the Ljung-Box Q statistics, leverage effects, and White's test for heteroscedasticity (Enders, 2004: 149).