Empirical Observations on the Role of Telecomunications on Socio-Economic Development

Many economists have observed a positive correlation between the level of telecommunications use and some index of economic well being. Jipp (1963) studied the relationship between the income of a nation and telephone density, using data for different countries, and found a positive correlation between the two. Bee and Gilling (1976) also studied the relationship between telephone facilities and their use and economic performance using data from 29 countries at different stages of development. They constructed three indices: a telephone index representing the availability of telephone facilities and their use, an economic performance index and a development support index representing other supporting factors needed in economic development. Their analysis shows a strong positive correlation between the telephone index and the economic performance index and also explains the role of supporting factors in enhancing the contribution of telecommunications to economic development. Moss (1981) and Hardy (1980) also found a strong positive correlation between telephones facilities and economic development at the macro level" (Nandi 2002:6). All these studies illustrate that growth theorists who have studied the impact of telecommunications on economic development have identified a positive impact of the former (telecommunications) on the latter (economic development).

Furthermore, Nandi (2002) states that Dholakia and Harlem (1994) showed the relationship between investment in telephone infrastructure and economic development. They (Dholakia et al) examined the connection among a number of factors such as education, energy, telephones, other physical infrastructure and economic development. The results of their multiple regressions suggest that simultaneous investment in development inputs such as education; telecommunications and other physical infrastructures are complementary in helping to promote economic growth. Saunders, Warford and Wellenius (1994) conducted several studies examining the correlation between the density of telephone lines and economic development (Nandi 2002). The latter also mention Madden and Savage (1998), who empirically examined the relationship between gross fixed investment, telecommunication infrastructure investment and economic growth for a sample of transitional countries of Central and Eastern Europe. Their (madden & Savage) estimated results suggest a strong relationship between investment in telecommunications and national economic growth. However, these studies did not establish a causal relationship. Furthermore, economists have acquired empirical evidence showing that investment in telecommunications enhances efficiency of economic activity and at the same time economic growth stimulates the demand for telecommunications.