Telecommunication capital and productivity growth: further insights using network characteristics and nonlinearities

Abstract

Recent literature gives emphasis on the services provided by telecommunication capital which might be subject to internal and external-networking effects, as well as costly irreversible investment pointing out to a more important and complicated effect from these services on productivity and growth. The objective of this paper is to model these effects using a production function framework, along with a newly constructed dataset. A TFP growth approach is employed taking into consideration all the above characteristics, and a smooth coefficient semiparametric model is used. From the analysis, we observe that the services of telecommunication capital depend on the level of telecommunication capital stock. There is a significant positive, but heterogeneous, relationship between telecommunication capital and country productivity. Even though the effect is positive, it diminishes with its level but increases with networking, captured by number of users. Also, telecommunication capital growth and its own effect appear to be raising income in all countries used in our sample, even those who experienced output reduction. These characteristics should be taken into consideration when new telecommunication investment policy is considered within a country.