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Archives of Business Research – Vol. 10, No. 3
Publication Date: March 25, 2022
DOI:10.14738/abr.103.9233. Khater, A. M. (2022). African’s Information and Communications Technology (ICT), Innovations and Economic Growth- Towards
region integration: Empirical Evidence of Dynamic GMM Panel Data Approach. Archives of Business Research, 10(03). 52-63.
Services for Science and Education – United Kingdom
African’s Information and Communications Technology (ICT),
Innovations and Economic Growth- Towards region integration:
Empirical Evidence of Dynamic GMM Panel Data Approach.
Ahmed Mohammed Khater
Assistant Professor of Econometric
College of Business Administration, Taibah University – Saudi Arabia
ABSTRACT
Current literature on economic growth and development uniformly affirms the
consensus that Information and Communication Technology ICTs (here defined as
the composite index using 11 indicators as developed by (ITU)) is indispensable for
economic growth and enhancing a wide range of development indices. It is common
knowledge today that Information and Communication Technology (ICT) -whether
embodied in human skills, capital goods, practices and organizations—are the key
drivers of economic growth and sustainable development of nations and regions.
The integration, growth and competitiveness of the economies of the East African
Community (EAC) depend on Information and Communication Technology (ICT)
and innovation. This paper examines the impact of Information and Communication
Technology (ICT) use on economic growth using the Generalized Method of
Moments (GMM) estimator within the framework of a dynamic panel data approach
and applies it to five East Africa community Countries (EAC) countries over the
period 2000 to 2018.The results indicate that there is a positive relationship
between real GDP Growth and ICT Development index (as a composite index
measured by the number of indicators which are, ICT readiness reflecting the level
of network infrastructure and access to ICTs, ICT intensity reflecting the level of use
of ICT in the society and ICT (skills) impact reflecting the result/outcome of efficient
and effective ICT user). This implies that if these countries seek to enhance their
economic growth, they need to implement specific policies that facilitate ICT
development. The five Partner countries of the EAC should make closer cooperation
strategies, systematic and significant regional integration arrangements in the
generate and application of new knowledge and technological innovations, their
ambitions to grow their economies, achieve Millennium Development Goals (MDGs)
targets, deepen economic and political integration and attain sustainable
development.
INTRODUCTION
Information and communications technology (ICT) is one of the key factors explaining growth
differentials across countries. Investment in ICT contributes to overall capital deepening and
therefore helps raise economic growth. Rapid technological progress in the production of ICT
goods and services may contribute to more rapid growth in the ICT producing sectors. Almost
all firms and consumers use computers and Internet connection for economic purposes, such
as providing consumers with a more diversified and customized products, improving product
quality, and selling goods and services. However, country data on computer, cell phone, and
Internet users illustrate different ICT diffusion rates across countries and between regions,
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Khater, A. M. (2022). African’s Information and Communications Technology (ICT), Innovations and Economic Growth- Towards region integration:
Empirical Evidence of Dynamic GMM Panel Data Approach. Archives of Business Research, 10(03). 52-63.
URL: http://dx.doi.org/10.14738/abr.103.9233
even among those with the same levels of economic development. The greater use of ICT may
help firms reduce their costs, enhance their productivity and increase their overall efficiency,
and thus raise economic growth. Moreover, use of ICT may contribute to network effects, such
as lower transaction costs, higher productivity of knowledge workers and more rapid
innovation, which will improve the overall efficiency of the economy. Regional integration is
crucial to reducing non-tariff requirements and improving cross-border infrastructure and
coordination, which in turn reduce trade costs and improve trade performance. The African
Union supports regional integration through eight Regional Economic Communities (RECs),
which have some overlapping membership. Some of these have implemented free trade zones
and four (COMESA, EAC, ECOWAS and SADC) have implemented or are implementing custom
unions, with further progress anticipated towards common market principles. The remaining
RECs have failed to achieve comparable integration.
After the neoclassical revolution, the major contribution to development economics came from
Schumpeter (1942) and Solow (1956), it is well understood how important the technology is in
economic growth and development. But it is very difficult to identify and assess its role in
empirical terms because it is not directly observable. Most of times, technology is embodied in
productive inputs or disembodied as neutral technical progress and shifts in total factor
productivity (TFP). In a neo-Schumpeterian endogenous growth model, the fundamental
engine of growth is tied to technological progress (see, for example, Grossman and Helpman,
1991; Aghion and Howitt, 1992 and 1998).
Considering the effects of technology on economic growth, i move to focus on the Information
and communication technology (ICT). ICT could affect output and economic growth in the
following three basic ways. First, the production of ICT goods and services forms part of the
total value added generated in an economy. Second, the use of ICT capital as an input in the
production of all goods and services generates economic growth. Finally, ICT can enhance
economic growth via the contribution of ICT industries to technological change. Besides their
direct contribution to GDP, ICT industries are also an important source of technological
progress. But this impact is even harder to assess than the output contribution because
industry-level data on the factors of production are needed to estimate the sources of total
factor productivity. If the rapid growth of ICT production is based on efficiency and productivity
gains in these industries, this contributes to productivity growth at the macroeconomic level as
well.
The problem, however, is that this impact cannot be directly deduced from the estimation of
the production function. The estimation of the impact of ICT investment has been approached
in three principal ways in the literature: production function estimation, growth accounting and
applied growth theory.
Over the past decade, most developing countries have searched for ways to increase their
Information and Communications Technology (ICT) infrastructure capacity to enhance the rate
of economic growth and to narrow the gap of economic activity with the developed countries.
Lee et al. (2005) argue that a developing country may make considerable investments in ICT
infrastructure due to the notion that jumping onto the ‘ICT bandwagon’ accelerates economic
growth. However, far too little attention has been given to examining whether ICT investment
contributes to the economic prosperity of EACs countries. Since 1990s, EAC countries have
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Archives of Business Research (ABR) Vol. 10, Issue 3, March-2022
Services for Science and Education – United Kingdom
witnessed an increase in telecommunication infrastructure capacity and developments in
information technology to benefit from ICT contribution. However, two questions arise. Does
ICT development lead to economic growth? To what extent is ICT shaping economic growth in
the EACs countries?
The purpose of the present study is to empirically examine the impacts of ICT development as
a central driver of economic transformation and global competition a cross section of six GCC
countries using the data over the period 2000-2015. Panel data analysis is carried out to
examine the factors affecting economic growth. To understand the current state of ICT and
macroeconomic situation of six of EAC countries, a comprehensive review of pertinent statistics
related to ICT and economic growth is examined to find common stylized facts in the economies.
The remainder of the paper is organized as follows. The next section reviews the empirical
works concerning ICT pay offs in economic growth. Section three provides an overview of ICT
infrastructure in EAC countries. Section Four describes the theoretical frame work and is
followed by a description of the econometric methodology in Section Five. Then the empirical
results, discussion and policy implication; and conclusions are presented in the remaining two
sections, respectively.
LITERATURE REVIEW
In the last three decades, numerous studies have been undertaken to examine the impact of ICT
on a country’s economic performance For example, Robert Solow’s (1957) seminal work
argued that the United States (US) economic growth during 1950s and 1960s was attributed
mainly to ‘technological change’ as opposed to the conventional factors of labour and capital.
Many Studies for developed economies have commonly employed the Cobb-Douglas
production function to estimate the contribution of the ICT investment to economic growth.
The conclusions drawn from these studies are mixed – some found positive impact while others
found negative relationship. In the context of negative findings, Berndt et al. (1992) examined
the contribution of ICT capital to US industries’ productivity growth and found a negative
relationship. Parsons et al. (1990) argued that Canadian banks did not reap good benefits from
their ICT capital investments. Similar findings were reported by Morrison (1997) whom
reported insignificant relationship between ICT and economic growth of the US firms.
Some of the studies had found positive and significant relationship between ICT and economic
growth. In early 1990s, Lau and Tokutsu (1992) investigated the relationship between ICT and
economic growth in the US over the period 1960 to 1990 using the production function
approach. The empirical result showed that nearly half of the growth in the aggregate national
output in the US was attributed to ICT investment than non-ICT capital or labour. Schreyer
(2000) estimated the impact of ICT on labor productivity amongst G7 nations. He found that
the employed sample countries (i.e. Germany, Canada, Italy, Japan, US and UK) had benefited
significantly from ICT investment in terms of remarkable average annual labour productivity
growth over the period 1990 to 1996. Daveri (2000) updated Schreyer's (2000) research work
and extended it to another eleven OECD countries. Apart from using similar data, Daveri also
added software to ICT capital. Here, the author found similar results - ICT contributed
substantially to economic growth during the later part of 1990s for all the sample countries
(though the magnitudes differ greatly across the countries). Thompson and Garbacz (2007)
reported that the development of ICT has a significant positive impact on productivity growth
to the world as a whole, but particularly so for developing countries, by improving the efficiency