Regulation and Internet Use in Developing Countries

Concerns about a worsening "digital divide" between rich and poor countries parallel the hope that information technology (IT) could increase economic growth in developing countries. Little research, however, has explored the role of public policies, and of regulation in particular, in IT growth. I use data from a unique new survey of telecommunications regulators and other sources to measure the effects of regulation on Internet development. Controlling for income and other factors that affect demand, I find that countries requiring formal regulatory approval for Internet service providers (ISPs) to operate have fewer Internet users and hosts than countries that do not require such approval. Moreover, countries that regulate ISP prices have higher Internet access prices than countries without such regulations. These results suggest that developing countries' own regulatory policies can have large impacts on IT penetration.