Technological Progress Is Generally Considered Commerce Essay

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The general idea behind this quote is that one who will not adapt with a new technology revolution, will lag behind in the process of development. Peter A.Kwaku agrees with this thought in his work where he has mentioned that "History reveals that societies that recognize the importance of new technologies and harness them succeed and those that are deprived of access to them or societies that resist the tide of Technological evolution often fail to advance in human progress" (Kwaku Kyem, 2010). It is evident that technology has shaped the world today with advances in water power,steam power,electricity,plastics and motorization (Freeman & Louca, 2001, p. 306).On a broader level, Technology is a " complex social enterprise" that extends the human abilities to transform the world. So far it has been the most powerful tool in the process of development of civilizations.There are evidences from pre-historic times till today where the human society has used Technology to improve their welfare (Kwaku Kyem, 2010).

Technological Revolutions

Technological progress is generally considered to be a slow process,which takes small incremental steps in existing technology.But when the pace of this progress exceptionally speeds up it gives rise to a technological revolution (Hornstein, 1999, p. 1). From a historical perspective the First Industrial Revolution in the eighteenth century is considered to be the landmark event in the course of technological progress. As quoted in the work by Å imurina & Tica , this was the era when machines substituted human skills and gave rise to a "modern economy" (Å imurina & Tica, 2006, p. 4). Although the agrarian revolution started off the trend of economic prosperity by improvements in productivity, the First Industrial revolution remains the breakthrough from the agrarian society only because of technological progress which made it possible to escape the Malthusian trap (See Appendix A). "Technological revolutions are defined by a powerful cluster of new and dynamic technologies, industries and products, plus associated infrastructures,and together be capable of bringing about a long-term upsurge of productivity and development" (N.K.Hanna, 2011, p. 31).Nevertheless, every technological advance has its own lifecycle and once it lives its life, it is replaced by another technology.But this is a time consuming process. Å imurina & Tica say that "these processes are more evolutionary than revolutionary" (Å imurina & Tica, 2006) .The Second industrial revolution thus can be seen as a extension of the first industrial revolution with further improvements in existing material technologies and new innovations (Å imurina & Tica, 2006) .The next technological revolution, the so called Information and Communication Technology (ICT) Revolution is being considered to have an impact no less than the impact of the First industrial revolution.With the technological advances in ICT, the humankind has put its first step into a new era of information age. As put forward by Alexander G. Flor in his publication "Developing Societies in the Information Age: A Critical Perspective", there has been a "global shift in resources of power from land, labour, and capital to information" (Flor, 2009, p. 11). Where "Land was the basis of society-from economy to culture, from family to politics" in the Agricultural age. Then came the Industrial age, which was dominated by machines and capital was the most important resource. Similarly, the Information age is characterised by information as its core resource (Flor, 2009, pp. 11-12). This information age with information as its central resource and the information and communication technologies as its vital tool has resulted in an economic paradigm known as the "New Economy" (Argandoña, 2003, pp. 3-22). Sonia Jurich in her paper "The Information Revolution and the Digital Divide" argues that raw material and cheap labour is not enough for the sustainability of this New Economy.She believes that the ICT's have a pivotel role to play in the New economy because they have reduced the virtual distance between countries and hence permit production in any corner of the world.She further states that its the Knowledge and not the labour that helps economies sustain in such a global economy (Jurich, 2000). Matti Pohjola has also discussed about the notion of "New Economy" in her research paper "The New Economy: facts, impacts and policies" wherein she states that around the 1990's the entire world had started believing that the world economy was undergoing a structural change. She further adds that this change was brought about by globalization and ICT revolution and from then onwards the resulting "superior economic structure" was known as the New Economy (Pohjola, 2002).Infact there have been multiple names that have been interchangeably used with "New Economy" in the vast literature on ICT like a 'knowledge economy', a 'digital economy' ,'post-industrial society', an 'information society', an 'innovation economy', a 'network economy', a 'weightless economy', and an 'e-economy' (Cohen, et al., 2000). The evidence of such a New Economy was first seen in the United States of America post 1990 where ICT accounted for a quarter of the Economic growth. Its effects were across all other industries as well. The productivity had increased and costs had reduced. It was termed as a "transcendent technology" just as the railways and automobiles in the 19th and 20th century respectively (Shephard, 1997).

ICT's and Productivity Paradox

However before the 1990's, there was a lot of scepticism about the potential of Information and Communication Technologies. For instance in 1987, the Nobel Laureate Robert M. Solow criticized the large investments in information technology by stating that 'you can see the computer age everywhere but in the productivity statistics' (Pohjola, 2002, p. 135).At the same time there were even optimists like Paul David who believed that the productivity surge caused by ICT's was accompanied by a time lag just like the earlier technologies. An example are the electric motors which did not result in productivity benefits in the beginning but were later responsible for a productivity surge in the 1920's in the U.S manufacturing industry (J.Gordon, 2000, p. 3).Nicholas Crafts from London School of Economics has conducted a study to compare the contribution of steam, electricity and ICT to economic growth. And as opposed to the popular belief of many, he concludes that, "Even before the mid-1990s, ICT had a much bigger impact on growth than steam and at least a similar impact to that of electricity in a similar early phase" (Crafts, 2001). He further adds the Solow's productivity paradox is based on "unrealistic expectations" (Crafts, 2001, p. 15) .On the other hand in a recent study Robert D. Atkinson and Daniel D. Castro have highlighted in their paper that there are sceptics who still question the ability of Information and Communication Technologies to match up with the material technologies of the past which changed the world. Although Atkinson and Castro strongly disagree with this idea and believe that innovation in material technologies have exhausted and it is not wise to expect any more path breaking big innovations in these areas. They say that the world is still in a very early phase of ICT revolution and " is producing a world that functions in radically different and better ways, with individuals and organizations able to access and use a vast array of information to improve their lives and society..." (Atkinson & Castro, 2008, p. 3). They think that comparing ICT and the technologies of the past is unfair because they are totally different and there cannot be a common measure of comparing their impacts (Atkinson & Castro, 2008, p. 3). Although a lot has been discussed about the uncertainty surrounding the short term impact of ICT on economic growth but its long term impact is still typically underrated (N.K.Hanna, 2011).

Technology and Economic Development

Whatever be the case, it is interesting to notice that economic historians and growth accountants have always been keen to study the effects of technology on economic growth and development. Hulten highlights in his research that, for the past 200 years , the technological revolutions have had a huge impact on Economic progress (Hulten, 2000, p. 1).According to Homstein, it is essential to understand the impact of technological progress on productivity growth because productivity growth defines the economy's long-term growth (Hornstein, 1999, p. 1).According to Carlota Perez this relation between Technological revolutions and Economic development can very well be explained by introducing the concept of Techno-Economic Paradigm. But before that let us have a brief understanding of the term Technology Revolution. Technology Revolution can be defined as, "...a set of interrelated radical breakthroughs, forming a major constellation of interdependent technologies; a cluster of clusters or a system of systems" (Perez, 2010, p. 189) .For instance the ICT Revolution is marked by a system of technologies that were developed around semiconductors and microprocessors. Then came the inter-related and interdependent set of technology systems like personal computers, telecom, internet, software's etc. The case has been similar for all the earlier revolutions which started with a single innovation and with a wide market acceptance gave rise to a series of other related innovations. However not every collection of innovations or interrelated technologies can be called a Technological Revolution. Technological Revolution is characterised by the influence of a Techno-Economic Paradigm which has the capacity to transform the existing industries, activities, infrastructures or for that matter the Economy as a whole. As defined by Perez a techno-economic paradigm is, "a best practice model for the most effective use of the new technologies within and beyond the new industries" (Perez, 2010, p. 189). Another definition provided by N. K. Hanna in her book Transforming Government and Building the Information Society says that "Each technological revolution provides a new set of general-purpose, pervasive technologies and a corresponding set of new organizational practices for a significant increase in productivity in existing sectors. This combined best practice is referred to as a techno-economic paradigm." (N.K.Hanna, 2011, p. 30).With the concept of techno-economic paradigm Perez states an elaborate definition of technological Revolution, "a technological revolution can more generally be defined as a major upheaval of the wealth-creating potential of the economy, opening a vast innovation opportunity space and providing a new set of associated generic technologies, infrastructures and organisational principles that can significantly increase the efficiency and effectiveness of all industries and activities" (Perez, 2010, p. 189). Diffusion of the technologies that constitute a technological revolution and its related techno-economic paradigm is a slow and long process. Once the economy and the society start absorbing its effects, the productivity increases and leads to "great surges of development" (Perez, 2010). The world is currently experiencing such a paradigm shift due to the Information and Communications Technologies ( (N.K.Hanna, 2011, p. 30). A publication by United Nations University WIDER reinstates the commonly held belief among economists that technology is an important driving force for economic growth. It further states that "as ICT is widely regarded as the current manifestation of the ongoing sequence of technological revolutions, ICT is now seen as the key factor driving economic growth in the current global economy" (Clarke, 2003, p. 9).


As discussed above, the impact of technological progress on economic growth and development has been the focus of a long running debate in the economic literature. (Heshmati & Yang, 2006).Since the 1980's this debate has centred on Information and Communication Technology triggered by the concept of "Productivity Paradox". This originated from the popular belief that technology contributes to economic growth by improving productivity. However, there was hardly any productivity growth in the United States despite huge investments in Information and Communication Technology (Kraemer & Dedrick, 1999) (See Appendix B).This issue was also applicable to other developed countries during the decade. Nevertheless, many economists and scholars continued to study the effects of ICT on productivity during the last decade of the 20th century to find out if the effects were persistent. These studies showed that the GDP growth and productivity was low but positive during the early 1990's, however it accelerated during the late 1990's. (OECD, 2002) .A report by The United States Department of Commerce claimed that ICT was responsible for about 50% increase in productivity during the second half of 1990 (The U.S Department of Commerce, 2000, p. vi).

A lot of these studies around 2000, indicate that the return to investment in Information and Communication Technology have actually resulted in significant productivity increase and overall growth ( (IMF, 2001) (Dedrick & Kraemer, 2001)). Some of the recent studies also blame incorrect productivity measurement, mismanagement problems, delays due to technology installation and inadequate use of technologies for the issue of "Productivity paradox". Moreover, some of them totally refute the existence of any Productivity Paradox in the first place ( (Dedrick & Kraemer, 2001) ; (D.Pilat, 2004)). A common thread that connects most of the literature from 1990's to early 2000's is the fact that most of them talk about the effects of Information and Communication Technology on productivity and growth in developing/industrialised countries. It has been highlighted that Information and communication technologies (ICTs) carry a great potential of creating development opportunities. The Human Development Report of 2001 was focused on making use of new technologies for Human Development and recognised Information and Communication Technology as tool for economic development.

Michelle Fong has given an exhaustive account of how ICT's are useful at different levels in his research work .Starting at the firm level, ICTs can "facilitate communications and coordination of processes within a firm or between firms in a supply chain such as through e-collaboration" (Fong, 2009, p. 3707). ICT's also aid in the decision making processes for managers by organising information in a better and faster way. This results in "scale economies, cost-savings, increased productivity, and improved competitiveness". Further he says that at industry level, ICTs can "improve the functioning or governance of market" (Fong, 2009, p. 3707). At the social-economic level, ICTs can improve living standards, healthcare and education services, and "create economic opportunities for any underprivileged population groups" (Fong, 2009, p. 3707) .The aggregate effects of ICT are eventually reflected at the national level in better productivity, economic growth and development (Fong, 2009, p. 3707). It is obvious that with such economy wide effects, the relation between Information and Communication Technologies and economic development has received significant attention by economists, policy makers ,international organisations and researchers (Mitchell & Gillis, 2002).However, it is extremely surprising that here have been very limited resources in the literature and very scanty research as far as developing nations are concerned (Kamel, et al., 2009). In some studies, which did consider developing nations, it has been evident that the returns to Information and Communication Technologies in developed countries is substantial and positive, but not in developing countries( (Heshmati & Yang, 2006); (Nasab & Aghaei, 2009) ).A Cross country study by Dewan and Kraemer for the period of 1985-1993, which focussed on 36 countries across different continents established a positive correlation between Information and Communication Technology and economic growth for developed countries but found no evidence of such a relation for the developing countries (Dewan & Kraemer, 2000). A study by International Monetary Fund (IMF) on some of the Asian developing countries around the 1990s shows that majority of them experienced declining growth rates (Lee & Khatri, 2003). It has been observed that comparatively low levels of investment in ICT and lack of complementary infrastructure in developing nations has been the reason behind these low growth rates (Nasab & Aghaei, 2009).In one of the policy recommendation brief by the United Nations University it has been emphasized that "Developing countries can no longer rely on low-cost manufacturing to secure economic development" (Clarke, 2003). After the recent evidences of the triumph of developed nations like the United States and many OECD countries it is a widely accepted fact that developing nations trying to catch up in the process of development can gain a competitive advantage only if they embrace technological and organisational innovations to enhance productivity and growth rates (Clarke, 2003). The United Nations Millennium Development Goals (MDGs) recognize the potentials of ICT for development calls "to develop a global partnership for development and, in cooperation with the private sector, make available the benefits of new technologies - especially information and communication technologies." (Braund, et al., 2006). In fact it is being said that as compared to previous technologies, ICTs develop faster while reducing costs at the same time, a characteristic that can be highly relevant and useful for developing economies (Jurich, 2000).However, Mina Baliamoune-Lutz, is sceptic about the effect of Information and Communication Technology on human development in developing countries in her research paper "An analysis of the determinants and effects of ICT diffusion in developing countries" (Baliamoune-Lutz, 2003). Her scepticism arises from the fact that there has been very little empirical research on the link between Information and Communication Technology and economic development in the context of developing countries. She also doubts that developing countries will have the same experiences as the developed countries with Information and Communication Technology revolution. She firmly states that this ambiguity about the relation between ICT use and economic growth in developing countries needs to be addressed with relevant empirical research (Baliamoune-Lutz, 2003).

As many have discussed about the positive effects of the transformational capability of Information and Communication Technology in the context of economic development, some have also highlighted the risk of "Digital Divide" if developing nations are unable to exploit this transformational capability of Information and Communication Technology. Digital Divide is "uneven diffusion of technology and inequality in access to technologies with significant social, economic and political consequences" (Hameed, 2007) (See Appendix C). However, W.L .Fong remains optimistic on the issue of Digital divide in his recent study in the year 2009. He says that, "Developing countries are generally latecomers to the ICT revolution, but if they can emulate industrialized countries in their adoption of ICTs, they will be afforded the same technological opportunities" (Fong, 2009). He believes that the wide gap between developing and developed countries can be narrowed if developing countries seize the opportunity to leap frog into the next generation Information and Communication technology. He further adds that Information and Communication Technologies have a great potential to reduce poverty and contribute to overall human development which can help developing nations to surpass even the most developed and industrialised nations. Nevertheless he admits that there is very little empirical research to support the idea that leapfrogging can rapidly help developing countries achieve economic development (Fong, 2009).

As discussed in the preceding paragraphs, there has been very little research on whether ICT can help the developing countries to catch up with the developed countries in the process of development. Nevertheless, developing countries have drastically amplified their investments in Information and Communication Technology. For example in the year 1998, statistics show that China had less than 10 million Personal Computers and not more than 1 million Internet users (Dedrick & Kraemer, 1998).Whereas, according to Forbes (Forbes, 2011) and Internet World Stats (Internet World Stats, 2010), today China is the world's largest market for PCs. It has surpassed the United States which was earlier the largest market for Personal Computers. China has the maximum number of Internet users as well. Moreover, according to a research by Heeks and Kenny the spending on Information and Communication Technology doubled towards the end of the 20th century in developing countries as compared to OECD countries (Heeks & Kenny, 2002). However, unlike the developed countries, developing countries face the huge challenge of balancing between providing basic needs and investing in Information and Communication Technology. It is being questioned if it is wise to divert resources towards Information and Communication Technology when there are more basic needs to be fulfilled (Kamel, et al., 2009). Therefore, there is an increasing need to reassess the link between ICT and economic development from a developing country perspective.

As per the research done for this thesis, there have not been many significant empirical studies on this topic specially after the early 2000's, except the study by Dewan, S. and K. L. Kraemer's "Information Technology and Productivity: Evidence from Country-Level Data" in 2000 across developed and developing countries, Matti Pohjola's "Information Technology and Economic Growth: A Cross-Country Analysis" in 2000 and Lee & Khatri's "Information Technology and Productivity Growth in Asia" in 2003.Moreover, these studies have discussed about the trends only up to the end of the 20th century. None of them have exclusively focussed on the experiences of developing countries after these countries have actually started investing heavily on Information and Communication Technology. Moreover, all of them have concluded that there is no positive relation between ICT's and Economic growth. There has been a long gap of about a decade, post 2000 during which not many have written about the controversial issue of "productivity paradox" or in other words payoff's from ICT investments, which forms that basis of the motivation behind this thesis .This paper will primarily try to study the correlation between Information and Communication Technology and Economic growth, which will be accomplished by studying the case of India. Precisely, it will evaluate the impact of ICT investment on GDP growth of India. India's case is interesting because it is one of the very few developing countries which have stood up among the developed countries as far as Information and Communication Technology is concerned in spite of its low income and development levels. This thesis will further try to find out if there exists a growth paradox just like the productivity paradox in the case of U.S, for India. This will be done by studying the effects of ICT investment on real GDP over a time span of 11 years. With the example of India, this study will try to answer some broader questions like, are ICT's an instrumental tool for developing economies in the 'catch up' process?

Aim, Contribution and Scope of Research


Based on the discussions above, the general aim of the thesis is to study the importance of ICT's in the process of economic development for the developing economies. It tries to revisit the research topic of ICT's for development with a new perspective and most recent data available. It also aims to contribute to the slowly growing but still sparse body of literature available on impacts of ICT's on economic growth of a developing country.

The specific aim of this thesis is to test the correlation between ICT investment and economic growth in terms of real GDP for the country of India.

Alternatively, the objective of the thesis is to study the productivity functions and analyze the impact of various inputs to the economic growth of a country. Further, this analysis will be specifically used to observe the role of ICT in economic growth of India. A subsidary objective of this study is to find out if there is a similarity or contradiction in the experiences of developed and developing countries.


This paper contributes new findings to existing literature in development and technology studies surrounding the issue of productivity paradox. However, unlike earlier studies it tries to search for a different form of productivity paradox relevant to the developing nations only. Many international organisations, governments, aid agencies and NGO's have been promoting the idea of "Information and Communication Technology for development", (Harris, 2004) .A United Nations Publication quotes that "Technology per se does not solve social problems. But the availability and use of information and communication technologies are a pre-requisite for economic and social development in our world" (Castells, 1999) . With the example of success stories of many of the developed nations, developing countries are also following the suit and investing in Information and Communication Technologies. But are these investments having any real impacts on the growth statistics? Are the developing countries facing any paradox like the United States? This study will try to contribute to the answers for these questions. Moreover, this kind of study not only fulfils the research need for appropriate policy measures of the developing countries , but it could also prove to be worthwhile for the least developed countries which are pinning their hopes of economic development through investments in Information and Communication Technology. In the last decade, there have been many political, social, economic and technological changes like globalisation, more open markets, emerging middle classes in developing countries, new connectivity platforms like 3G, and so on. Thus from a research perspective this study will update the available information base on the relation between ICT and development but it will differ from the earlier studies in the sense that the relation is now tested under a new set of conditions.


The scope of this thesis will be limited to analysing the role of ICT's in the development of developing economies. Due to time and data limitations, the study will not include all the developing economies for analysis. It will focus on only one country as a proxy for the entire category. The study will use qualitative and quantitative data from available and accessible online databases, journals, books and websites. It will attempt to build a simple empirical model and analyse the correlation between two variables (ICT investment and GDP). The analysis will be purely based on the facts and figures presented in the thesis. Finally, this study will be conducted within the limits of classroom knowledge of the author in the area of development studies, economics and statistics.

Structure of Thesis