Information and communication technology or the ICT is an infrastructure that augments the modern computation and data management. Although, the exact definition of the ICT is multidimensional, it can be termed as the total system that includes networking of different types of modern peripherals and devices for faster data processing and storage. Now the biggest importance of ICT in the modern economy lies in the fact that it allows the management to digitalize the knowledge. ICT helps in better accessibility of the data and hence a faster decision making which is in line with the characteristics of the modern economy. The modern economy is full of competition and equipped with better transparency than before (Nica, 2015). ICT, therefore, is an important component of business that shapes the characteristics of the modern economy. ICT directly influence the knowledge of the economy which then further fosters the economic growth. In country like Kuwait, which is considered as a developing economy, ICT provides a better vision in terms of distribution and wellbeing to the government and the related intuitions. Apart from that, ICT also works as an auxiliary system for the entrepreneurship which has been found to create 37% of the jobs in the economy of Kuwait. In a developing country like Kuwait, labor is used as an important factor for the production. Thus, the capability of the economy to rip most benefit lies mainly on the productivity of the labour force of the Kuwait economy. The objective of this study is to shed light on the contribution of ICT on the economic growth through various channels such as productivity (Ishida, 2015). In addition to that, the paper also highlights the link between the ICT and the economic growth taking the case of Kuwait.
Discussion- Impact of ICT on productivity and economic growth
The economist Robert Solo found out that, better performance in terms of the economy cannot be achieved by increasing labor hour. Rather the capital per labor needs to be altered which may further influence upon the productivity of the labors. That means the changing ratio of input and output is what contributes towards the economic growth. Information and communication technology improves the efficiency of the factors of production. This, in turn, provides more output corresponding to the same input. According to the data, GDP exponentially grew after the year 2000. It also needs to be noted that, around this, the use of information technology also started in the corporate sector of the country. The introduction of ICT in this sector not only reduced the cost of operation but it also increased the productivity of labors. Tzedopoulos et al. (2016) pointed out that these two in collaboration ensured an impressive economic performance of the country after 2000.
Figure 1: The economic growth of Kuwait over the years
(Source: Leong, et al. 2016)
However, the growth has stalled after the year 2007 as part of the influence of the global financial crisis. The somewhat same phenomenon has also been seen in other countries as well. The investment in ICT increased by 43% since 2001 and output grew by around 80%. The investment in the ICT in Kuwait was followed by a 5.9% increase in the labor productivity that in turn helped the economy to cruise to a bigger value. The plant-level data of the corporate sector of Kuwait has shown positive effects on external business environments both inter and intra industry scenarios. Jorgenson and Vu (2016) pointed out that, ICT investment has a high spillover effect that, distribute the gains from the ICT to different sectors of the economy. For example, in the case of Kuwait, the lower cost of production increased the disposable income of the people of the economy. After the year 2004, the consumption component of the aggregate demand pushed it to a higher value leading to an impressive economic growth in the long run. ITC reduces the cost of operation in the economy which is transferred to the other linked industries. This reduced cost of operation along with the increased disposable income of the consumer expands the economy. The MC curve falls downward along with the average total cost curve. The new equilibrium where MC=MR= ATC is right to the initial output level shows the increase in output due to ICT.
Figure 2: The reduced cost of operation due to ICT and the increase in output
(Source: Skufina et al. 2016)
One important characteristic of ICT is that it has huge indirect effects on other similar types of technology that eventually multiplies the effects of ICT on economic growth. Salemink et al. (2017) pointed out that, ICT not only has a vertical spillover on the industry producing the ICT but also on other industries that uses the ICT. The vertical spillovers of ICT take longer time compared to the vertical spillovers and hence many concluded initially that ICT has no significant impact on the productivity and hence the economic growth. Jin and Cho (2015) noted that similar to the investment in traditional technological improvement, ICT also reaches a point after which the productivity starts to diminish. This explains the slower economic growth in almost all parts of the world. Apart from that, innovation in ICT provides the flexibility to further expand the scopes of the economy. That means the introduction; implementation and innovation in ICT boost the innovation process of the economy helping the overall economy to grow. In addition to that, the structuralist- evolution approach to technological improvement also states that technological complementarities evolve over time and hence economic activities experience a boost (Asongu and Le Roux, 2017). ICT initially helped the operation of big organizations and corporate sectors, however, the application of ICT increased with the increase in the number of usage of ICT in the long term. Along with that, ICT innovation and improvement in the economic activity also provides incentives to the investors as ICT spillovers on productivity and economic growth cannot be considered an externality. ICT as an investment destination has also been successful further amplifying impacts of ICT on productivity and economic growth. Therefore, ICT has a huge number of spillovers and each of the spillovers individually has its capability to create growth opportunities (Skryabin et al. 2015). This vast array of opportunities sums up and makes ICT an effective contributor for economic growth.
Thus, ICT is an important technological advancement that was introduced in the mid-1990s. It influenced the economic performance of most of the economies of the world. Studies have shown that ICT has a spillover effect that diversifies the influences of technology in other sectors as well. Although due to the occurrence of the global financial crisis, the economic growth rate reduced despite surging investment in the ICT sector, it has become the backbone of the economy. The theory by Robert Solow posits that it is not the increase in the labor hour rather the improvement in the productivity that drives economic growth. ICT has positively impacted the productivity of the workers and other means of production. Furthermore, the indirect effects of ICT help different other sectors of the economy to grow at the same rate. More the use of ICT in the economy the stronger is the multiplier effects that further boost the economic growth. Again, ICT is different from another technological advancement as it does not work as an externality. ICT has also proved itself as an interesting destination for investment.
Asongu, S.A. and Le Roux, S., 2017. Enhancing ICT for inclusive human development in Sub-Saharan Africa. Technological Forecasting and Social Change, 118, pp.44-54.
Ishida, H., 2015. The effect of ICT development on economic growth and energy consumption in Japan. Telematics and Informatics, 32(1), pp.79-88.
Jin, S. and Cho, C.M., 2015. Is ICT a new essential for national economic growth in an information society?. Government Information Quarterly, 32(3), pp.253-260.
Jorgenson, D.W. and Vu, K.M., 2016. The ICT revolution, world economic growth, and policy issues. Telecommunications Policy, 40(5), pp.383-397.
Leong, C.M.L., Pan, S.L., Newell, S. and Cui, L., 2016. The Emergence of Self-Organizing E-Commerce Ecosystems in Remote Villages of China: A Tale of Digital Empowerment for Rural Development. Mis Quarterly, 40(2), pp.475-484.
Nica, E., 2015. ICT innovation, internet sustainability, and economic development. Journal of Self-Governance and Management Economics, 3(3), pp.24-29.
Salemink, K., Strijker, D. and Bosworth, G., 2017. Rural development in the digital age: A systematic literature review on unequal ICT availability, adoption, and use in rural areas. Journal of Rural Studies, 54, pp.360-371.
Skryabin, M., Zhang, J., Liu, L. and Zhang, D., 2015. How the ICT development level and usage influence student achievement in reading, mathematics, and science. Computers & Education, 85, pp.49-58.
Skufina, T.P., Baranov, S.V. and Samarina, V.P., 2016. Dependency between economic development of Russian regions and their level of informatization (7), pp.485-493.
Tzedopoulos, Y., Kamara, A., Lampada, D. and Ferla, K., 2016. Between digital and physical identities: Uses of ICT by Greek spa establishments as points for analysing perceptions of cultural heritage and economic development. International Journal of Applied Information and Communication Technology, 1(1), pp.21-36