Better Connectivity is Supposed to Drive Economic Growth. Does It?

One example of the belief that “connectivity drives economic growth” is provided by a new report issued by the Canadian  Information and Communications Technology Council. “In our research, we determine that for each additional mobile subscription per 100 population, the GDP growth rate increases by 0.0311 percent,” say the authors of a report issued by the The Information and Communications Technology Council.

The implication is that one way of increasing the rate of economic growth is to increase mobile adoption. In other cases, one might use the same reasoning to argue that increasing faster internet access services should cause more growth.

The key assumption here is that mobility drives economic growth.

That assumption arguably is widespread for most technologies. “It stands to reason that adopting a new technology would increase a nation's wealth,” says Carmen Nobel in the Harvard Business Review.  

One might make a similar argument that education leads to economic growth. Likewise, internet access is correlated with cross domestic product and per person income.  So too with mobile broadband adoption and life expectancy, correlated with income.

But the correlation between internet use and economic growth might be weaker than one thinks, despite the common assumption broadband causes growth.

Economists disagree about whether demand or supply produces economic growth. That matters when we try to figure out whether faster internet causes economic growth, or perhaps, not.

The unstated assumptions always seem to be that growth is caused by adding more workers to the workforce and improving the productivity of that workforce. So better internet works by increasing productivity.

It probably is equally true that increased productivity, which leads to growth, also leads to higher incomes, which in turn produce more demand for better internet access.

The point is that even if most of us seem to believe internet deployment and usage drives growth, we cannot be sure this is the case. It might be that pre-existing growth has caused higher income, which then leads to higher disposable income which in turn leads to demand for faster internet access.

We might hypothesize that faster internet increases productivity. The issue is how much impact there is, and what other preconditions must exist to ignite economic growth. Even if we grant that better internet contributes to growth, how much does it contribute, compared to other conditions such as the quality and size of the workforce (skills); natural and other resources; capital availability; overall technology development; social and political factors (rule of law, currency stability; cultural factors; social stability and cohesiveness); level of interest rates; consumer confidence; asset prices and real wages.

In fact, compared to all the other factors, the specific contribution of any connectivity service might be quite slight. It always will be hard to measure. Harder still is the other way of looking at causation.

Since education, income, wealth, geography and disposable income all are correlated with consumption of higher-quality connectivity services, we might conclude that economic robustness and communications robustness develop together, but not necessarily in a strict causal way. In other words, quality communications and economic growth together are “caused” by a whole lot of other things.

We might be legitimately skeptical that “better” communications of any sort “causes” economic growth. Whatever combination of factors leads to economic growth, also produces in its wake better communications infrastructure.

That leaves open the possibility that better communications might have some, or almost no stimulative effect on overall economic growth in any specific area.