Information and Communications Technologies for Development and Poverty Reduction by Maximo Torero

Information and Information and Communication Communication Technologies for Technologies for Development and Development and Poverty ReductionPoverty Reduction

Maximo [email protected]

IFPRI

Geneva 2nd of October 2013

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Cellular Phone subscription per 100 inhabitants in Developing Countries, by Region *

* EAP = East Asia and Pacific; ECA = Europe and Central Asia; LAC = Latin America and the Caribbean; MENA= Middle East and North Africa; SA = South Asia; and SSA = Sub-Saharan Africa. High-Income (OECD and non-OECD) are excluded from the sample. Source: Mobile phone subscriptions are from the International Telecommunication Union (ITU) and country categories are from the World Bank.

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% Urban % Rural % All

Bolivia (2007) a/. 77.6% 18.7% 57.0%Brazil (2009) a/. 83.3% 53.2% 78.8%Colombia (2010) a/. 90.2% 71.7% 86.0%Ecuador (2010) a/. 82.9% 59.7% 75.5%Mexico (2007) a/. 66.6% 45.0% 55.2%Peru (2010) a/. 82.2% 47.1% 70.4%India (2011) b/. 76.0% 51.2% 59.2%Bangladesh (2010) c/. 82.7% 56.8% 63.7%Tanzania (2010) d/. 77.5% 34.2% 45.4%Kenya (2010) e/. 71.9% 55.0% 59.8%South Africa (2008 / 09) f/. 87.5% 82.0% 85.7%Liberia (2009) g/. 69.0% 20.7% 43.2%Malawi (2010) h/. 72.7% 32.3% 39.0%Ghana (2010) i/. 63.4% 29.6% 47.7%Nigeria (2009) j/. 88.3% 60.3% 70.6%Egypt (2008) k/. 54.1% 27.8% 40.5%Ehtiopia (2011) l/. 65.2% 12.8% 24.7%Uganda (2011) m/. 86.8% 53.1% 59.4%Senegal (2011) n/. 95.4% 81.7% 88.4%Mozambique (2011) o/. 66.8% 20.0% 34.1%Nepal (2011) p/. 91.6% 71.9% 74.7%Zimbabwe (2011) q/. 90.1% 48.0% 62.2%Rwanda (2010) r/. 71.8% 35.1% 40.3%Cambodia (2010) s/. 90.1% 56.2% 61.9%China (2010) t/. 76.3% 60.7% 67.9%

Percentage of Households that Own a Mobile Phone, by Residence Area

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International Comparison of the costs of a low volume basket of mobile traffic in 2009 US$ PPP

Source: Galperin (2009). “Tarifas y brecha de asequibilidad de los servicios de telefonía móvil en América Latina y el Caribe”. Buenos Aires, Argentina: Universidad de San Andrés.

Land Lines and BroadbandLand Lines and Broadband

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Four QuestionsFour Questions

What link exists between ICT growth and economic growth?

Do weak institutions block effective use of ICTs?

Have ICTs been adapted to low-income countries, and have they had an impact?

Can ICTs play a role in providing pro-poor public goods and services?

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Evidence of link between ICT growth Evidence of link between ICT growth and economic growthand economic growth

Tele-density positively associated with growth and investment

Telecom infrastructure appears to boost investment by reducing uncertainty associated with monetary shocks (e.g. Norton, 1992)

Impact of tele-density on growth is restricted to developed countries (Roller and Waverman, 2001)

Minimum threshold of telecom density (around 24 percent) required for positive growth effects

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Results for fix phones: Roller, and Waverman (2001) and Torero, Chowdhury and Bedi; (2004):

• Estimates based on 113 countries

• Positive causal relationship between telecommunications infrastructure and GDP.

• 1 % increase in the telecommunications penetration rate 0.03% increase in GDP.

• Nonlinear effect of telecommunications infrastructure on economic output.

• Particularly pronounced impact for middle-income countries


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Results for Mobile Phones: Waverman, Meschi and Fuss (2007):

• All else equal, in the “low income” sample, a country with an average of 10 more mobile phones for every 100 people would have enjoyed a per capita GDP growth higher by 0.59 percent.


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Do weak institutions block effective use Do weak institutions block effective use of ICTs? of ICTs?

Importance of specific characteristics of ICTs:

• High fix cost and low marginal cost

• Complementarities

• Network externalities

• Pervasive

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• Natural Monopoly versus Access pricing

• Natural Monopoly framework implies that a multi-firm industry is inefficient due to a less than optimal scale of production

• Access pricing seems to be the answer but this requires initial infrastructure, or what we call minimum critical mass


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Average Cost

Utility

Network Size n1 n2 n3 n Critical Private Exit mass point Optimum Point

Growth by Self-sustained Growth by

external growth external

subsidy subsidy

Source: Noam (2001)

Entitlement growth

(directed growth)

Do

lla

rs


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Service shortfalls in some rural and peri-urban areas can be solved without government subsidies

• regulatory reforms are needed to let the market work well

But even in well-working markets service will not be commercially viable in some peri-urban areas and in most rural areas

• subsidies may be justified to extend services beyond the market


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• Recommend regulatory changes to enable the market to work better

• increased competition

• open to new technologies

• open to new business models

• Outline an approach to subsidies to extend services beyond the market

• using market forces

• minimal regulation


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• Distinguish two types of urban service shortfalls:• market efficiency gap• real access gap

• For the market efficiency gap:• identify current regulatory problems that the regulatory agency

can address• examine new technologies that could help to reduce costs

• For the real access gap:• draw on best practices developed in rural areas• complement and extend these for application in urban and peri-

urban areas


MEG= Market Efficiency Gap

RAG= Real Access Gap

Low Medium High

Very High OK OK OK

High OK OK OK

Medium MEG MEG RAG

Low MEG MEG RAGT

ele

phon

e

Den

sity

Poverty


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ICT Impact on agricultureICT Impact on agriculture

Extension services

Market information

Policy environment, laws, and regulations

Natural resources and geography

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Have ICTs been adapted to low-income Have ICTs been adapted to low-income countries, and have they had an impact?countries, and have they had an impact?

• Information is an indispensable ingredient in decision making for livelihood of households.

• Potential gains for rural households:• time and cost saving

• more and better information, leading to better decisions and reduction of transaction costs (Stigler, 1961; Stiglitz, 1985 and 2002)

• greater efficiency, productivity, and diversity(Leff, 1984; Tschang et al., 2002; Andrew et al., 2003).

• lower input costs and higher output prices and information on new technologies (Gotland, et al, 2004)

• expanded market reach

Previous work trying to measure the consumer surplus: Saunder et al. 1983, Bresnahan, 1986, Saunders, Warford and Wellenius 1994, etc.

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Technology Location/product Effect (and outcome) StudyLatin America

Public pay phones Peru, various crops +16% on prices Beuerman

Public phones Peru, various enterprises +13% on farm income Chong, Galdo, and Torero

Mobile phones Peru, various crops +11 to 13% on average prices Nakasone

Africa Radio Uganda, maize +15% on prices Svensson and

YanagizawaMobile phone coverage

Uganda, banana and maize

Somewhat positive relationship, but depends on distance to district centerNo effect for maize

Muto and Yamano

Grameen /MTN village phones

Rwanda, various products No significant effect Futch and McIntosh

Cell phones Niger, cowpeas No significant effect although reduce grain price dispersion across markets by a minimum of 6.4 percent and reduce intra-annual price variation by 10 percent

Aker and Fafchamps

Asia Cell phones Philippines, various crops +11–17% on the growth rate of per

capita consumptionLabonne and Chase

Cell phones Kerala, India, fisheries +8% in fishers’ profits JenseneChoupal Madhya Pradesh, India,

soybeans+1–3% (average: 1.6%) on prices and increase on area grown on soybeans

Goyal

SMS West Bengal, India, potatoes

No significant effect Mitra, Mookherjee, Torero, and Visara

SMS Maharashtra, India, various products

No significant effect Fafchamps and Minten

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Bayes, 2001 (Bangladesh, paddy and egg)

Chong et al, 2008 (Peru: mixed crops)

Beuerman, 2011 (Peru: mixed crops)

Muto and Yamano, 2009 (Uganda: maize)

Muto and Yamano, 2009 (Uganda: banana)

Svensson and Yanagizawa, 2009 (Uganda:

maize)

Jensen, 2007 (India: fish)

Mitra et al, 2012(India: Potato)

Fafchamps and Minten (India: wheat)

Fafchamps and Minten, 2011 (India: tomato, pomegranate,

onion, soybean)

Goyal, 2010 (India: Soybean)

Aker & Fafchamps , 2001 (Niger: millet)

Aker & Fafchamps, 2001 (Niger:

cowpeas)

Futch and MaIntosh,, 2009 (Rwanda: mixed crops)

Nakasone, 2012 (Peru: potato, olluco, barley,

maize)

Nakasone, 2012 (Peru: peas and lima beans

0 10 20 30 40 50 60 70 80 90 100

Med

ium

/ H

igh

Val

ueM

ixed

cro

psL

ow v

alue

Cell phone subcriptions (per 100 inhabitants)

+ Specific price information

+ General price information

Results at the Micro LevelResults at the Micro Level

ICT’s can also play a role in reducing the three main constraints traditional extension services:• First, poor infrastructure increases the cost of extension

visits, • Second, the need to follow up information and feedback• Finally, traditional extension is plagued by principal-

agent and institutional problems.

Aker (2011) also claims that ICTs can also make farmers better able access to private information from their own social networks.

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Results on extensionResults on extension

Fafchamps and Minten (2012) look at the effect of using SMS with crop advisory tips (offered for one crop chosen by the farmer) and local weather forecasts. They found no effect of the information for any of these outcomes.

Similarly, Cole and Fernando (2012) conduct an impact evaluation of the Avaaj Otalo (AO) program among cotton farmers in Gujarat, India. They find that households who benefited from AO shift their pesticides from hazardous to more effective ones. Their results also suggest that beneficiaries are more likely to harvest cumin (a high-value cash crop)

Finally, Fu and Akter (2012) investigate the impact of a program called “Knowledge Help Extension Technology Initiative” (KHETI) in Madhya Pradesh, India. Those in the KHETI group increased their awareness and knowledge towards extension services, compared to a control group.

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Results on extensionResults on extension

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Can ICTs play a role in providing pro-poor Can ICTs play a role in providing pro-poor public goods and services? public goods and services?

• ICTs can be a powerful tool for improving the quality and efficiency of government social services.

• Clear gap between the use of ICTs for the delivery of public goods.

• Most of the cases of use of ICT in delivering public services are isolated.

Barriers to ICT ImpactBarriers to ICT Impact

Harris (2003) identifies the following general barriers to ICT integration in social and economic development:

price and availability awareness of how to use ICTs for one’s own

benefit skill-relevant human capital (Hargattai, 2003;

Wilson, 1999; Birru et al. 2004). attitudes, motivation, encouragement equality in access across different social groups appropriateness of content.

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• On agriculture

• On health:• telemedicine centers in Alto Amazonas, and in Andhra Pradesh,

India,

• HealthNet

• ProCAARE discussion forum and the WorldSpace Foundation (WSF)-Africare HIV/AIDS initiative

• On education:• education as the African Virtual University

• the distance learning university in India

Can ICTs play a role in providing pro-poor Can ICTs play a role in providing pro-poor public goods and services? public goods and services?

ICT Impact on healthICT Impact on health

The relevant barriers to ICT impact on health is at this stage speculative.

In order to fully identify barriers to the effectiveness of ICT-based health promotion, rigorous empirical studies are needed.

Where barriers are important, rural ICT expansion may require complementary measures such as:• providing web skills training, • designing web pages to direct users towards locally

relevant and scientifically reliable content, • or targeting access to specific groups of individuals.

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Final CommentsFinal Comments

• ICTs- not a panacea

• ICTs can have an important impact at the macro level once a critical mass is achieved.

• ICTs can have an important impact in linking smallholders and SMEs to markets

• Need to differentiate market efficiency gap from real access gap

• Government should play a major role in the real access gap.

• ICT can play an important role as a provider of pro-poor public goods and services

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Final Comments (ctd.)Final Comments (ctd.)

• Minimal conditions necessary for success:

• prompt deregulation

• effective competition among service providers

• free movement and adoption of technologies

• targeted and competitive subsidies to reduce access gap

• institutional arrangements to increase the use of ICTs in the provision of public goods.

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Final Comments (ctd.)Final Comments (ctd.)

• Two important things to keep in mind:

• Three C’s of ICTs: Connectivity, Capability to use it, and Content. The latter is crucial specially to link to markets.

• We need to look to new technologies: wireless broadband technologies potentially offer a future platform for delivery of voice telephony and broadband services to peri-urban and rural areas (leap-frogging).

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Information and Communications Technologies for Development and Poverty Reduction by Maximo Torero

Technology

ict growth

effective use of icts

economic growth results

economic growth teledensity

gdp growth higher

positive growth effectspage

middleincome countries

dollarsdo weak institutions