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Internet Widening Economic Gap Of Rich Poor Countries

Info: 3694 words (15 pages) Essay
Published: 25th Apr 2017 in Economics

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The Internet has penetrated many aspects of business and culture in developed countries, but there is limited availability in many poor countries. Do you think that this technology is going to widen the economic development gap between rich and poor countries? Is there a way that developing countries can use such technologies as a tool for economic development? Justify and illustrate your arguments by referring to appropriate case study examples.

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Technology plays an important role and is the vital force in the modern form of business globalization. It has revolutionized the global economy and has become critical competitive strategy. (REF, 2008) says that technology has given the global market a major boost as it has helped the markets to overcome obstacles like trade barrier, lack of

Common ethical standard, transportation cost and delay in information exchange, which are brought by globalization thereby improving the market place. The advancement in technology has majorly supported the creation and growth of global economy for developing and developed nations. (REF) Technology has made it possible for organisations situated in completely different corners of the world to communicate with each other smoothly through the internet.

The internet is global in design as it jumps territorial boundaries (Scholte, 2006), because it provides standards for worldwide connectivity, and its impact on business and commerce has been quite enormous (REF). The impact of IT on economy-wide measures of productivity is also increasingly evident, for example over 150 million people access the web site of companies with product or service to sell on the Net (REF). This is because many organizations are developing electronic customer/supplier relationships, resulting in a dramatic increase in efficiency. Internet technology holds substantial promise especially for developed and developing nations, who can really benefit from its communication and information delivery capabilities (Sadowsky,2006). The accelerating transition of information to electronic media is making information resources of the world available to an increasingly global audience through the Internet. (REF)

Christy Van der Merwe argues that the physical economy is gradually being supplemented by an online economy (Merwe, 2008). The internet allows many business activities to be done more efficiently from sharing and editing documents collectively to outsourcing and offshoring. In 2005, services worth an estimated 25 billion had been conducted over the internet, with potential growth to 260 billion (UNCTAD, 2009). The United States leads the way in using the net for customer service: online sales in manufacturing, wholesale, retail and selected services accounted for nearly 10% of these sectors’ total revenue in 2004. Online sales were most important in manufacturing (approaching 25%), followed by wholesaling (nearly 15%). (REF)

Economies of both developed and developing nations have been influenced by the development of IT applications. (Wilson, 2008) mentions that internet opens up greater opportunities for the exploitation of economies of scale and scope. It also allows flexible production and use of labour and equipment (REF), internet has proved to promote the internationalization of production and markets, it also offers greater mobility and flexibility in capital and financial flows and services of economies. (REF) Information system developments are constantly being applied to increase the productivity, quality, and efficiency of finance, banking, business management, and public administration. In manufacturing, and to some extent in agriculture, many processes have been automated, some requiring highly flexible, self-regulating machines, or robots.

There limitations on internet technology in developing countries are discussed in this essay are discuss i.e. poverty, infrastructure, Financial support, government regulations and lack of knowledge.

Poor Communication infrastructure: The state of the physical communications infrastructure is crucial for internet to survive in a country. Many developing nation have limited or no telecommunication networks and for Internet to operate there has to be is a minimum level of telecommunication infrastructure (REF) Teledensity (number of telephone line per 100 people) is perhaps the largest constraint (REF) as the average teledensity among developing nations is just 1.5. In very low-income countries like Papua new Guinea, ivory cost, Ethiopia, Liberia and Somalia, the staggering figure is 0.0001 or as simply put by Mark, CEO of Unitel Africa one telephone for every 600,000 people. (Unitel Africa, 2008). A recent BBC broadcast on internet in Africa, a figure of one telephone per 100 people was given as being an average for the African continent (BBC, 2009).

Financial Support: The price for internet access is an important factor that influences Internet take-up. Many of the countries that have a high level of Internet penetration also have low access charges for using the service (REF). Prices are of even greater significance in developing countries since the incomes are considerably lower, because in developing nations the local usage tariffs are sometimes high (REF). The average cost of a low volume Internet account in Africa is about 45 per month for the lowest priced services like email, compared with below 9 per month for full services in the United Kingdom. Since the average local call charge for developing nations especially Africa for 20 hours usage is about 24, the average Internet usage cost including monthly subscription charges is probably over 100 per month. (REF)

Monopolistic government regulations: In at least a dozen African countries, Internet services are still provided under the monopoly control of the national carrier who operates under government wing (REF). Governmental restrictions are common in many developing countries and several countries have a politically motivated policy of making Internet access unaffordable to all but commercial users.(REF) For example access to the Internet in Benin, which is subject to tight regulations, costs around $79 a month (Jamulola, 2008). Tim Njogu, CEO of one of Ghana’s ISP provider says that the government controls who can enter the internet market place . (REF) The control aspect is different in Kenya, while there is no control on the information that can be downloaded, the government controls the information that can be uploaded from Kenya. (REF) All ISPs and other internet users must go through government network to upload content on the internet. (REF)

Lack of technological knowledge and skills: In developing countries, lack of adequate knowledge of network administration and network design is one of the most significant obstacles to effective internet operation. (REF) Ayieku (2008) argues that the skills required for the establishment and operation of internet links and network, depend on the complexity of the telecommunications structures, data communication hardware and protocols and the ability to deal with them. Lack of expertise in internet networking operation is often not noticed in poor countries, and in the absence of new technological ideas, people tend to carry on with old techniques and procedures without conscious knowledge of alternatives. (Sadowksy, 2008). A research carried by International Labour Organization (ILO) showed that specialized knowledge is often missing or in short supply in developed nations (REF) and this is due to brain drain of particular countries.

Poverty and Lack of Financial Support: Poverty is the biggest hindrance in any development especially to the poor nations. (REF) Their economies are subject to wide-ranging performance fluctuations due to factors beyond countries immediate control. Most developing nations suffer from low levels of both financial assets and national income. Some are not viable without sustained development aid (REF)

Digital divide

Poor technological progress which leads to the economic development gap or the digital divide (REF), is one of the major factors driving the recent increase in inequality across countries. This factor alone supports the view that new technology, in both rich and poor countries, increases the premium on skills and substitutes for relatively low-skill inputs (REF). Interestingly, among developing countries, the effect of technological progress is stronger in Asia than in Latin America, possibly reflecting the greater share of technology-intensive manufacturing in Asia (REF). In 2009, the internet connected 100, 000 separate networks with an estimated 1.9 Billion users world-wide (Petrazzini and Kibati, 2009). A study conducted by United Nation Human Development in 2008, showed that countries in Northern America, Oceania, Australia and Europe were leading in internet development, this resulted in 80 percent of web sites being in English and 30 percent of Americans using the internet, whereas only 4% of people in least developed country using the internet (REF). Moss (2008) stated that the US has more computers with internet access than the rest of the world combined Moreover, while an American can buy a computer with a month salary, someone living in a poor nation e.g. sub-saharan africa would need 5 year income to afford to buy one. (REF) Some economists argue that the recent reductions in economic inequality are likely to continue in the twenty-first century, this has a severe impact on the developing nation as they try to catch up with the west.


The table above clearly shows

The world bank has predicted that the world economy would double between 2005 and 2030, growing from 30 trillion to 70 trillion. Global growth would be slightly faster than in the previous 25 years. With accelerating growth, developing countries would triple outputs from 6 trillion to 20 trillion and increase their global share from 23% to 33%. (REF) Despite the developing nations getting stronger due to high technology especially the internet, Mercey (2009) says that the least developed countries are still struggling behind, trying to catch up with the west. Adrian Wood, an economist, argues that under its baseline Africa would miss by miles the world millennium target of internet access to everyone (Wood, 2008). The target would be met for the world as whole but not for Africa (REF). Worsely (2007) supports Woods sentiments by stating that the global technologically pressures is still widening the gap between the rich and poor countries. A report published in 2009 by the IMF, indicated that increases in technology with a better financial integration are to blame for the growing problem(REF) However this essay looks at this from a different positive angle i.e. the poor nations are able to catch up with west.


Research conducted by UNCTAD suggest that what appear to be key determinants of the Internet, penetration in more developed country settings have almost no explanatory power for developing countries. (UNCTAD, 2007) If this situation persists most of the continued diffusion of Internet technologies will occur in wealthy countries, and the likelihood increases, based on the historical impacts of earlier network technologies that economic inequality will increase in the world (REF). The gap in average incomes between rich and poor societies became much wider. Consider the three most populous nations in the world today, China, India, and USA. Together the three have about 40 percent of the world people. In the United States, a rich country, the average income is approximately 30 times the income of the average person in these other two countries. (REF)

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Many organisations have also taken advantage of opportunities to connect to the information highway and to telecommunications options that just years ago were not available. Also, many on-line services have various options for accessing the information infrastructure. In a recent article, Robert Lucas, a prominent economic theorist and Nobel laureate, developed a model predicting that economic inequality in the world would be far lower a hundred years from now than it is today (Lucas, 2000).

As there are evidence that how the internet has played a vital role in economic development of the developed country…give some statistics so the same can be done in the developing countries to by adapting the use of internet technology for the economic development….

Economic Development via the internet for LDC

The Internet is good tool for promoting economic growth (REF) hence it has to be successfully integrated into the economy. Hermenking (2007) said that most developing countries have much to gain from the revolution in communication and information access. Recent theories of economic growth suggest a significant role for technological change is the driving force behind economic development. (Romer, 1990). There is growing body of literature show that there is a link between a nation s economic growth and use of internet. (Heeks, 2004). The spread of internet can have a fairly strong positive effect on economic efficiency, functioning of markets and economic development in general (Freund and Weinhold 2002, 2004). A pioneering article in this regard is Jones [2003], who examined the link between the internet and economic development. Jones found a direct relationship between the spread of the internet and other aspects of development. Sturgeon [2009] argues, in this day and age, developing nation s access to the Internet is correlated with the factors that help to explain average growth performance . From this it is clear that there is a positive relationship between internet and economic development.

This essay will have an in depth look into areas that developing countries can use internet as tool for economic development.

Commercial, Manufacturing and Agricultural Sectors

The Internet enhances the possibility for developing economies to participate in the emerging digital economy (REF) or electronic commerce (E-Commerce). Vulkan (2007) emphasizes that E-Commerce is likely to promote economic growth and welfare in developing countries significantly. A case study conducted shows how Indonesian’s Small Medium Enterprises (SME) have adopted e-commerce in order to help their businesses expand (MacGregor et al. 2002). Indonesian SMEs have proven to be the most dynamic and vibrant sector, especially during the time of the financial crisis in 1997 (Urata, 2000). Indonesia has obtained enormous benefits from their investment in e-commerce. This includes, improvement in information sharing and communication with the use of email, global reach to access more customers and suppliers, improved trading partner relationships, reduced trading cycles, transaction cost reduction, extended business hours and improved supply chain management (Barnes and Hunt 2001). Both theoretical and practical economic and business development literature acknowledge the key contributions of SMEs to the development of both national and international growth of economy (REF).

A case study example of Philippines, In Bacold, Philippines economic development practitioners decided to attract new businesses to make Bacold s job base more diverse. An appropriate broadband infrastructure was built. This enabled them to attract an American telemarketing firm (Asquix) that would utilize the broadband infrastructure. They also encouraged local firms to take advantage of this new infrastructure. This example illustrates the importance of coordinating activities by members of the community for Internet-based economic development. Turban (2009) sums this up by saying that since telemarketing uses hi-tech services, it will foster technology-oriented knowledge in rural residents, which will lead to better skills for future employment

E Commerce/ E Supply Chain Management system (which connects farmers/ware houses/international suppliers)

The manufacturing industries in developing countries can benefit a lot by using internet technology to lower the operational costs. Internet can enables manufacturing and production to be performed on a real time basis. This leads to processes being streamlined, inventory reduced and increasing customer demands met [REF]. Electronic Data Interchange, which is one application of the internet, can be used to help major manufacturing companies to reduce inventories REF].

Education : The incorporation of internet in the education sector can increase the innovative capacity of a nation’s economy, in this rapidly changing technological world. Specific internet applications can positively impact student knowledge, skills and attitudes, as well as teaching practices, school innovation, and community services. (Freund, 2005). Wagner (2005) notes that “internet is currently being used widely to aid education in many developing countries, and it appears that there is increasing demand for its use in education by policymakers in those poor countries. Internet breaks international barriers and thus people have access to access high-quality, modern materials and are thus able to develop their expertise. Howitt (1998) further supports this by adding that, the new knowledge on new internet technologies, products and processes promotes growth in the economy both nationally and internationally. The collaboration of education and internet especially in higher education facilitates the diffusion and transmission of knowledge needed to understand and process new information and to implement successfully new technologies devised by developed countries (Spiegel,1994). knowledge derived from internet leads to increased labor productivity and thus transitional economic growth towards a higher equilibrium level of output (as in augmented neoclassical growth theories, cf. Mankiw, Romer, and Weil (1992)). A case study on Democratic Republic of Congo, showed that the internet was used an engine of economic growth by channeling it in education sector, it helped to combat challenges like poor education opportunity for girls and desperate poverty (REF) The Internet can also improve collaboration and interaction with research groups in other institutes, regions or countries contributes to quality of research and education.

Health Sector: The advent of technology especially internet has enabled medical services between poor and rich nations to be available as doctors and nurses in poor nations are able to interact with physicians and resources in rich countries. (REF) Telemedicine breaks down geographic barriers and can be cost effective by treating patients on numerous remote sites who may not have good access to a comprehensive hospital. REF (2009) strongly agrees that telemedicine has a profound impact on developing countries.

Government: The governments in poor nations can incorporate internet technology in governance or as Lerner (2008) simply puts it E-government . The governments in third world country can use the internet tool to assess the information capacity of its country and hence determine the needs of its citizens, organize and synthesize information, to meet the needs of the public, private sectors and the daily needs of the general public. The government can also use the internet in areas such as customs operations, public procurement and tax collection, with better and continuous contacts. Aspects of and other internet applications can provide powerful ways to fight corruption, Yaung (2009) and strengthen democracy of a country. Du Ross (2008) believes that when poor nation s government embrace the internet, there is greater transparency and accountability in public decisions, hence the government is able to obtains benefits like cost effectiveness and save significantly.

Research, development and Innovation: Developing nations can use internet to further innovation, Research and development as these are some of the keys not only to economic progress, Lee, (2007) but also to identify new solutions to pressing social issues, such as an ageing population or environmental degradation. The mastery and expansion of opportunities in scientific and technical progress has become a vital source of innovation generating high value-added in developing countries. (REF) Developing countries can use innovation to adopt technologies that are already available, Aubert (2007) insists that developing countries use innovation to build up competitive activities by adapting existing technologies and also able to design and produce technologies of a worldwide significance. This will lead to increased income to young entrepreneurs whose ideas contribute to economic development (REF)


This essay has thoroughly analysed the impact of technology globally, the digital divide between developed and developing nations and finally how developing countries can use internet as a tool for economic development. Even though there is a technology gap between the rich and poor nations, research proves that this gap can be shrunk and that the poor nations are fast catching up with the rich nations. The Internet has considerable potential in developing countries, it is important that government supports and allocate finances for internet infrastructure in their budget. The case studies and examples mentioned in this report provide insights on how internet can effectively be used to benefit a poor country. Faux (2005) claims that Africa does not need to pass through the needle of industrialization like Europe but actually experience a leap to gaining developmental growth through technology. For technology like the Internet to gain a foothold in developing countries, the governments first need to resolve the problems of bureaucracy, dictatorship, economic stagnations, war, literacy crisis and cultural importations.


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