Can Information and Communication Technologies Make a Difference in the Development of Transition Economies

Abstract

This article investigates the potential of information and communication technologies (ICT) for faster convergence of seven transition economies from Central and Eastern Europe (CEE) and Russia (CEER) with the EU-15 and the U.S. income level. First, the article argues that ICT accelerated the convergence of the four new EU member states with the EU-15 (the case of technological leapfrogging) but decelerated convergence of Romania, Russia, and, to a lesser extent, Bulgaria and Slovakia (the case of a growing digital divide). This divergence was mainly because of the lower quality of the economic and institutional environment, which inhibited the diffusion of ICT. Second, the article shows that ICT has a large potential to increase long-term growth in transition countries. Third, it argues that the use of ICT has an important role in stimulating productivity growth at the industry level and that it offers considerable potential for faster productivity growth in non-ICT-using, “old economy” industries. Realizing this potential, however, will crucially depend on far-reaching structural reforms, business reorganization, investment in human capital, and well-designed public “push strategy.” These lessons are pertinent not only to transition economies, but also to most advanced developing countries.