London Business School, Law and Economics Consulting Group (Waverman), University of Toronto (Fuss)

October 2005

In October 2005, the Annenberg Research Network on International Communication (ARNIC) at the University of Southern California (USA) held a workshop - "Wireless Communication and Development: A Global Perspective" - as part of a multi-disciplinary effort to study the emergence of new communication infrastructures, examine the transformation of government policies and communication patterns, and analyse the social and economic consequences.

In this 32-slide presentation, one of 12 at the event, Leonard Waverman, Meloria Meschi, and Melvyn Fuss ask "how important is a good communications system for economic growth?" They outline the economic impact of communications systems by highlighting its contribution to the organisation of business life, organisation of household and community life, and productivity of firms and workers. Communications systems - particularly those that are two-way (telecoms) rather than one-way (broadcasting) - lower transaction costs and widen buyer and supplier networks. Thus, the authors claim that a solid communications network is a key contributor to social overhead capital (SOC) - roads, telephones, electricity grids, etc. - which is, in turn, crucial for economic growth. Despite evidence to support this claim, the development debate "fails to prioritise communications - 'Millennium Development Report' only mentions [it] in passing."

Throughout their analysis, the authors cite a number of global and regional communication trends in mobile telephony, such as:

• Worldwide mobile penetration has grown rapidly since 1995, with a much faster rollout than fixed lines.
• Africa is the fastest growing region in the world for mobile phones: Sub Saharan Africa grew 67% last year compared with 10% in Western Europe. In 2004, there were more new mobile phone customers in Africa than in North America.
• Growth rate of mobiles per 100 population was 64% in 1996-2003; gross domestic product (GDP) growth was 2%.
• Fixed line deployment is low and slow-to-grow in developing countries; that said, penetration was also low in France, Portugal and Italy in early 1970s.
• In short, mobiles - unlike personal computers (PCs) and wireline networks - are being rolled out at a faster rate in developing countries than developed ones, thereby "closing the 'digital divide'."

The authors cite evaluation challenges in assessing the impact of this growing communication system on economic growth. Specifically, they note that better communications networks seem to lead to higher income - but higher income seems to engender better communications networks. There is, then, a problem of causality. H. Roeller and L. Waverman (in the American Economic Review, Sept. 2001) managed to disentangle these two effects, in the authors' estimation. Roeller and Waverman found that a good communications network widens markets, creates better information flow, lowers transaction costs, and substitutes for costly physical transport (which can be significant in rural Africa; an African trader might spend 20% to 40% of his or her gross income on renting a bicycle for 1 year).

Drawing on Roeller and Waverman, the authors engaged in research that found the impact of mobiles around the world to be significant. For instance, doubling mobile penetration from its average level of 8% leads to 10% increase in output. They point, in particular, to the growth potential of mobiles in African countries, noting that South Africa and Morocco have exceptional performance in mobiles rollout and that faster growth is expected here, especially if political stability is maintained. Pointing to business success stories like Celtel and Orascom, they argue that locally run and owned mobile companies can thrive even in the economically poorest of nations, but that a good investment climate, solid rule of law, and less corruption need to be in place.