The number of Internet users as percentage of population varies significantly across transition countries. While some transition countries post penetration rates that exceed the performance of Western European laggards, most lag well behind Western European performance. Take-up growth is very rapid in a number of countries but, as the base is very low, convergence, if any, is likely to take some time. Broadly similar stylized facts emerge from a review of the spread of Internet hosts and number of PCs per 100,000 inhabitants. The paper examines empirically the key economic, social and institutional determinants of Internet usage in transition countries, along the lines of a recent study by Wallstein for the telecom sector1, and the potential convergence in take-up rates between EU countries and transition countries, and draws major policy lessons for transition countries. In a first part of the study, α convergence, absolute β convergence and relative β convergence in Internet take-up rates (defined as either the estimated number of users or the number of domain hosts) in EU countries and transition countries will be examined to determine whether a new digital curtain is likely to arise in Europe and stimulate appropriate policy responses. The approach builds on the large empirical economic growth literature and the lessons learnt from this work, but focuses exclusively on the Internet take-up rates. In the second part, in addition to taking account of typical explanatory variables such as income, education, price, etc the study focuses on the general state of transition and the nature of the Telecom regulatory regime, and competition in the telecom sector (using the telecommunications transition indicators published annually by the EBRD), the state of the Internet supply and the state of the telecom infrastructure and more general policy variables (openness to foreign influences, economic and political freedom, etc.) The purpose of focusing on these additional variables is to identify potential areas for priority action by policy-makers. The final section brings together the key policy lessons that flow from the empirical results and identifies priority action area for transition countries and the international community.
