Increasing Broadband Internet Penetration

In the OIC Member Countries

broadband (also called the “construction effect”). Effect 2 depicts the impact of broadband on

business productivity by reducing transaction costs and enhancing the efficiency of enterprises

(sometimes referred as “spill over effect”). Effect 3 posits the increase in average household

income as a result of enhancing the capacity of the population to market its skills. Effects 2 and

3 contribute in turn to GDP growth. Effect IV, which is not captured in the GDP statistics, has to

do with an increase in consumer surplus, is measured as the value created to consumers when

they access the Internet (for example, to use e-Government and e-Health applications, or

download information and entertainment). This section will present the results of research

conducted over the past twenty years in support of the argument that broadband technology

has a significant impact on economic growth and job creation.

Broadband impact on GDP growth

The measurement of the economic and social contribution of broadband technology has faced

three types of methodological challenges. First, since broadband has been deployed in such a

short time-span, it is only very recently that researchers have gained access to sufficiently

large disaggregated data sets that allow identifying quantitatively the conditions under which

broadband has a social and economic effect. Second, considering that broadband is an access

technology, its economic contribution only materializes with the information that it is

supposed to transmit. In other words, broadband penetration does not result in an automatic

impact on economic growth: content and information processing capacity are critical enablers

for this contribution to materialize. The third methodological challenge has to do with the

determination of the direction of causal impact: does broadband have an impact on economic

growth or is it economic development that triggers an increase in broadband consumption

Over time, researchers have been able to overcome these challenges providing policy makers

with increasing evidence that broadband technology should be considered a general purpose

technology, meaning that its adoption can affect an entire economy, potentially altering

societies through its impact on pre-existing economic and social structures. Initially, due to

limitations on data availability, the majority of the studies focused on the impact of fixed

broadband on OECD countries (Bojnec & Ferto, 2012; Czernich et al., 2011; Koutroumpis,

2009) or particular statistics-rich developed countries – for example, the United States

(Crandall, Lehr, & Litan, 2007; Shideler, Badasyan, & Taylor, 2007; Thompson and Garbacz,

2009). When more data became available for countries in the emerging world, researchers

were able to begin generating evidence of broadband impact in developing countries (Kumar

et al., 2016 for China, Chavula, 2013 for Africa, and Katz et al, 2012, 2013, 2014 for several

developing countries in Africa, Asia, and Latin America). The first body of evidence of the

positive effect of broadband focused on fixed technologies since they were the first to be

adopted (see Table 2).

The implication of this statement is critical since if it is economic growth that leads to broadband penetration, policy

makers should not implement initiatives aimed at fostering broadband adoption; they should emphasize conventional

economic development policies which would lead over time to a diffusion of broadband.