Catalyst: A Multidisciplinary Review of Undergraduate Scholarship

Table of Contents

Mission Statement

Letter from the Editor

Submit to Catalyst

Information Technology Asymmetries Among and Between Nations

Shahira Ali

Johansson and Quigley (2004), recognizing transaction costs associated with distance, states that since the 1980s there have been many improvements to coordinate activities across space. The improvements were caused to a great extent by the advent of developments in information technology and its widespread usage. Johansson and Quigley explain that as far as business is concerned, the new information technology has reduced the real cost of communication across distance (The Economist 1999), as well as allowed the coordination of spatial arrangements of activities not possible in times past. Although technology does provide numerous benefits to society, there is an issue of the uneven distribution of technological innovations among countries of different developmental classifications. The issue is further complicated by the fact that such a gap in technology is not only present, but it is also widening. In this paper, the benefits of technological innovation will be discussed briefly, followed by an analysis of the distribution of technological innovations among countries of different developmental classifications.

Aside from benefits to business, the new technologies provided diversification in consumption. Johansson and Quigley give the example of the possibility of viewing French films that were in the past only available in reasonably large cities but are now available for any isolated consumer. Other examples are the accessibility of out-of-print books and the capacity to competitive chess tournaments online.

“Although all countries are showing growth in their technological development, some countries are advancing faster then expected while others are progressing slower than anticipated, as evidenced by the country’s residuals.”

Clark, Rycroft and Doed (2003) address in particular the use of the World Wide Web by college students. They state that out of a sample of five million full-time students in four-year colleges in the United States, 90 percent use the Internet daily. Many classes have Web pages and professors routinely make February 9, 2007 2:56 PM>9, 2007 2:36 PMr connecting with old friends and making new ones. The Internet has also made possible the creation of new markets. In January 2001, $3.8 billion in transactions were made using the Internet. In the same month, 169 million people in the United States had access to Internet either at home or at work. It is estimated that by the year 2003, 774 million people around the world will have access to the Internet.

Although many earlier studies revealed that technological innovation had little significant impact on economic development, in today’s information-driven economy that is no longer the case. Businesses poured billions of dollars into information technology before the mid-1990s with little impact on the overall economy. This is largely due to the lag of the positive effects of technology. Although an innovation may be created one year, a country will not fully reap the benefits of that innovation until a few years later when the technology has been fully exploited. Take for instance, the computer. Computers have been around for quite a while, yet they left little imprint on the overall economy until recently. However, as the use, efficiency, and speed of the computer increased, so did its role in boosting a region’s economy.

In a speech before the National Technology Forum, Federal Reserve Chairman Alan Greenspan discussed the crucial role that technology has played in the rising U.S. economy. According to Greenspan (2000), new technologies that have evolved from the cumulative innovations of the past half century have now only begun to bring about dramatic changes. Technological innovations have affected the way goods and services are produced, the way they are distributed to the final consumer and everything in between. Greenspan (2000) believes that the essential contribution of information technology is the expansion of knowledge and the reduction of uncertainty. He states that prior to advances information technology, businesses had limited and delayed knowledge of customers’ needs, the location of inventories flowing through their supply chain, and any number of other pertinent bits of information. Now suppliers, retailers, and customers can know exactly where any product is at any point in time through the use of virtual supply chains. By utilizing information technologies, decisions can be made based on current up-to-date information, instead of information that is hours, days, or even weeks old.

The influence of information technology has gone far beyond the factory floor and distribution channels and can now be felt in many sectors of the economy. For instance, the time and cost required to design items ranging from cars to airplanes to skyscrapers has been dramatically reduced through computer modeling. Medical diagnoses have become more reliable, more thorough, and much faster than in previous years because of the ability to store and process huge amounts of data. According to Greenspan (2000), the financial sector has also seen great improvements due to technological innovation. Financial instruments have been developed that allow risk to be reallocated to the parties most willing and able to bear that risk. Greenspan notes that although the risk inherent in real assets cannot be reduced, technology allows them to be redistributed in ways that encourages more investment in real assets. More investment leads to higher productivity and standards of living. It is through information technology that the creation, valuation, and exchange of these financial products are made possible on a global level.

While the pictures drawn above lend to an optimistic view of the accessibility of the new information technologies to producers and consumers, there is still the question of the uneven distribution of these technologies among countries. Kim (2003) points to the fact that such an uneven distribution creates serious gaps between and within countries. This question is also investigated in this paper.

The purpose of this paper is to identify the gaps in technological innovation and the human development level between a large number of countries. The source of data is the Human Development Report (UNDP 2003). The variables under consideration are the following: Telephone Mainlines per 1,000 people (TM) for 1990 and 2001,Cellular subscribers per 1,000 people (CS) for 1990 and 2001, Internet users per 1,000 people (IU) for 1990 and 2001, Patents granted for residents per million people (PG) for 1999, Receipts of royalties and license fees, in U.S. dollars per person (RL) for 2001, Research and development expenditures as percent of GDP (RD) for 1996-2000, and Scientists and engineers in R and D per million people (SE) for 1996-2000.

Two methods are utilized to determine the gaps among and between groups of countries catFebruary 9, 2007 2:56 PM, medium, and low. The first approach is testing equality of means. When data are available, this method compares each group over two periods of time, as well as to compare the three groups for each of the seven variables outlined above. This method employs regression analysis by regressing 2001 data on 1999 data. It will tell whether discrepancies over time between and among the same groups for the three different groupings are significant.

The second approach is to use the concept of convergence, data permitting, to find out whether the differences are narrowing over time. According to Cheshire and Malecki (2004), poorer countries with an abundant supply of labor catch up economically with rich countries with an abundant supply of capital.

When comparing countries with various development rankings, the differences can be colossal. For instance, in 2001 Denmark, a highly developed country, had 722 telephone mainlines, 740 cellular subscribers, and 429.5 Internet users per 1,000 people. Denmark also had 3,476 scientists and engineers devoted to research and development. On the other hand, Chad, coded 3 on the development scale, had 1 telephone mainline, 3 cellular subscribers, and .5 Internet users per 1,000 people. No statistics were available on the number of scientists and engineers or the percentage spent on research and development in Chad. Although the differences are great now, the widening gap between the two groups (rich and poor) in the future is of greater concern. The average change in number of telephone mainlines, cellular subscribers, and Internet users from 1990 to 2001 can also be examined. While all three technologies experienced tremendous growth, when all the countries are taken together, the amount of cellular subscribers saw the largest increase. In 1990 the average number of cellular subscribers was only four. In 2001 that average increased to 216, a 5,300 percent difference. The average increase of Internet users was also substantial at 2,333.3 percent. However, when compared to the increases in cellular subscribers and Internet users, the increase in telephone mainlines looks minuscule. In 1990, the average number of telephone mainlines was 125 per 1,000. In 2001 that average increased to 197 per 1,000, a 58 percent difference.

When looking at the countries by level of development, however, the results are quite different. High-development countries only experienced a 45 percent increase in telephone mainlines, while their number of Internet users increased 5,242 percent. For instance, the United States progressed from having 547 telephone mainlines per 1,000 in 1990 to having 667 in 2001, a mere 22 percent increase. Such numbers appear insignificant when compared to the large growth of Internet usage. The United States went from eight Internet users per 1,000 in 1990 to having 501.5 in 2001, an impressive 6268.5 percent increase. The above results of high-income countries can be attributed to the different stages of each technology. Because home telephones are in the maturity stage of the product lifecycle, many people already have them, and there is not a lot of room to grow. In contrast, cell phones are now becoming more popular and convenient and in many households are replacing home telephones. The Internet is also becoming more efficient and more accessible to mainstream society.

However, in low-income countries, such advanced technological innovations are not readily available to the mainstream. For instance, in Nepal there were no Internet users in 1990. In 2001 there were 2.6 Internet users per 1,000. In contrast, the change in the number of telephone mainlines showed only a little change, increasing from four to nine per 1,000. When looking at the medium- and low-development countries, the average number of cellular subscribers and Internet users is less than in high-development countries. For instance, medium-development countries had an average of 88 cellular subscribers and 32 Internet users per 1,000 in 2001 as compared to the 527 cellular subscribers and 641 Internet users per 1,000 in high-development countries.

Another interesting finding is the widening gap between different classifications. For example, in 1990 the difference between high-development and medium-development countries was only nine Internet users per 1,000. While in 2001, that gap had grown to 609. The widening gap is not exclusive to the Internet; it can be seen in all the variables discussed. The numbers illustrate how medium- and low-income countries are getting left behind in the technological revolution. While in the 1990s, all countries had relatively low access or no access at all to the different technologies, in 2001 the use of technology in high-development countries soared past the other countries.

The amount of money spent in other areas of technological development is also interesting. In the 37 medium-income countries, on average, there were 13 patents granted per million. In Brazil, a medium-income country, there were three patents granted per million. On the other hand, in the 48 high-development countries sampled, 103 patents were granted per million. Austria had 159 patents granted per million, more than the average of the medium- and low-developed countries combined. The same trend can be seen when looking at the remaining variables. For instance, medium- and low-developed countries combined averaged only three recipients of royalties and license fees per person, while in high-development countries, that average was 42. When looking at research and development, the numbers are more proportionate across the development boundaries. The high-development countries spent 2 percent of GDP, but there were 43 countries in the sample. There were only two medium-developed countries and one low-developed country sampled and both individually spent 1percent of GDP on R and D. Although the amount of money spent on research and development may be similar between the groups, the number of scientists and engineers devoted to R and D is skewed. All the high-development countries combined have almost double the medium-development countries’ average of 2,372. Belgium alone has 2,953 scientists and engineers in R and D per million.

When testing for equality of means, the results show that both telephone mainlines and cellular subscribers are significant for all the countries together and for each separate development group. However, the higher p-value of Internet users proves that the increase/decrease of this technology is not very significant for high-income countries. There was some significance present in Internet users of medium-income countries. The test was not even possible for low-income countries because many of these countries did not have any access to the Internet in 1990.

Convergence was experienced in telephone mainlines for all the countries combined and each country separately, evidenced by the values 0<1. The same trend is seen with cellular subscribers, except in the low-income countries where the test could not be performed due to missing data. The conclusion from these values indicates that these two technologies are converging between and across countries. For Internet users, the results are mixed. In high and medium countries divergence is seen.

By observing the residuals, with significance level a = 0.10 the t-value for large samples is ± 1.28. Countries that scored the above residuals established statistical significance of the change of position. The results illustrate which countries had significant t-values of the residuals (Yt-Y’t). The t-values are positive if performance is above the regression line. This would mean the countries’ progression was greater than expected. Negative t-values indicate that the countries’ progression was less than predicted. Therefore, when comparing all countries, Croatia, Czech Republic, and Finland were among the countries that showed better than expected growth in telephone mainlines. On the other hand, Canada, Sweden, and France had less telephone mainlines growth than expected.

When analyzing the residuals of cellular users among all countries, the same denotations are employed. Countries such as Austria, Ireland, Italy, and Slovenia improved their positions in cellular users. However, Denmark and Sweden did not live up to the expectations. The residuals for Internet usage were difficult to evaluate because 131 of the cases contained missing values. Sophisticated telecommunication technologies have made globalization possible in today’s society. However, some countries have more of these technologies at their disposal than do others. Many factors contribute to the level of technological advancement of a country. The main factor studied in this paper is the country’s development status.

Although all countries are showing growth in their technological development, some countries are advancing faster then expected while others are progressing slower than anticipated, as evidenced by the country’s residuals. When looking within the developmental classifications, convergence is the obvious trend, with the exception of the Internet user results.

Statistical tests prove that the gaps between high-developed and low-developed countries are expanding. There can be many reasons for the widening gap of technological development between countries, however, one of the main factors here is that as technology becomes more accessible, the higher-income countries have more resources to take advantage of and expand on the new discoveries. For example, in the 1990s there was a level playing field due to the fact that the new information technologies were not yet tapped into. All countries had relatively low or no access to such emerging technologies as the Internet. However, as new advancements were introduced, the high-development countries had more resources to acquire and utilize them in a short time span, thus leading to the widening gap between the three different developmental classifications.

References

Cheshire, D.C. and E.J. Malecaki. 2004. “Growth, Development, and Innovation,” Papers of Regional Science, 83: 249-267.

Clark, C.L., Rycroft, R.S., and M.R. Dowd. 2003. Hits on the Web, Mason, Ohio:Thomson Custom Publishing.

The Economist. 1999. “The Net Imperative: A survey of Business and Internet (26 June).

Johansson, B. and J.M. Quigley. 2004. “Agglomeration and Networks in Spatial Economics,” Papers in Regional Science, 83: 165-176.

Kim, Y.J. 2003. “A Theory of Digital Divide: Who Gains and Loses from Technological Changes?” Journal of Economic Development, 28: 1-22.

UNDP. 2003. Human Development Report, New York: Oxford University Press.

Shahira

Shahira

Shahira Ali is currently pursuing a master’s in business administration and serves as a graduate assistant for the economics department. She is scheduled to graduate with her master’s in August 2005. Shahira’s undergraduate major was in management information systems and her minor was sports administration. Her numerous undergraduate activities included The University of Southern Mississippi varsity women’s soccer team, University Activities Council, Freshman Associates, Honors College Ambassador, Premier director, resident assistant, VISION, Golden Key International Honor Society, Phi Kappa Phi Honor Society, Beta Gamma Sigma Honor Society, Lambda Sigma Honor Society, Omicron Delta Kappa National Leadership Honor Society, and the Honors Student Association. Some of Shahira’s many undergraduate honors were The University of Southern Mississippi Hall of Fame inductee, Most Outstanding Freshman Female Award, Leadership Scholar, Student Athlete Olympic Gold Academic Honor, Lowery Woodall Foundation Scholarship, President’s List, Department of Residence Life Scholastic Award, National Residence Hall Honorary, Business Advisory Council Research scholar, and Business Foundation Scholarship recipient.