Telecommunications infrastructure and economic development: a simultaneous approach

In this paper we investigate how telecommunications infrastructure affects economic growth. This issue is important and has received considerable attention in the popular press concerning the creation of the information superhighway and its potential impacts on the economy. We use evidence from 21 OECD countries over the past twenty years to examine the impacts that telecommunications developments may have had. We estimate a structural model which endogenizes telecommunication investment by specifying a micro-model of supply and demand for telecommunication investments. The micromodel is then jointly estimated with the macro-growth equation. After controlling for country-specific fixed effects, we find evidence of a positive causal link, provided that a critical mass of telecommunication infrastructure is present.