From No. 3, Vol. XLVIII, “The Digital Dividend”, 2011
The impact of information and communication technologies (ICTs) is not limited to the sector in which they are produced, but rather spreads to all sectors of production and consumption. This is also valid for mobile telephony. In addition, its influence increases as network effects do; that is, when the number of people using the service rises. Moreover, it shows a clear improvement over time -- mobile devices incorporate more and better services while the quality of communications also develops. Infrastructure and service coverage grow and, at the same time, prices show a clear downward trend. Finally, the mobile phone also generates innovation, because it promotes and facilitates the invention and production of new services, products, or processes. Examples are common, from the use of missed calls for livelihood activities to mobile banking, both in rural and urban areas.
All of these characteristics correspond to what is known as a general purpose technology. Benefits associated with the dissemination of a general purpose technology go beyond its application to business processes, and allow the generation of improvements in the quality and variety of products and services that are put on the market. As with landline phones, the spread of mobile telephony involves changes in the daily organization of private life and business. Whether involving large or small firms, or formal or informal businesses, from a purely economic point of view, we can identify a number of areas in which the presence of mobile devices is driving changes. Whether or not it operates in combination with fixed telephony, wireless communication allows greater management flexibility and speeds up the processes that depend on communication.
The available evidence shows that the use of mobile phones can reduce information access costs and uncertainty in decision making. This is valid if there are no technical or pricing barriers to accessing such information. When access to information becomes easier, traders are able to make more informed decisions and, consequently, market efficiency could improve. Transaction costs can be reduced and market transparency should increase.
The popularization of a particular type of information and communication technology can contribute to changing the production structure of an economy. This would contribute to productivity growth and could even modify the main sources of economic growth, as long as the organizational capacity of local production units changes. Production processes might, therefore, be reconfigured to optimize the use of mobile technologies. In this sense, mobile phones seem to be adopted more easily among all population segments than computers or the Internet. Indeed, they are a simple technology with very low learning costs, particularly when it comes to voice communications, and with infrastructure requirements that make them comparatively more affordable.
Beyond the economy, the enhancement of mobile communication is also shaping social development. Our societies are based on communication and any social aspect is, therefore, affected by the general availability of this specific communication tool.
There is a clear consensus on the positive contribution of mobile telephony to economic development in the world. From the macroeconomic perspective, various contributions have assessed this point (among others, Waverman analyzed telecommunications in general and telephony in particular), although there is little evidence focused on Latin America. From a wider point of view, the complementary question is whether mobile communication is contributing to socio-economic development and, if so, whether we can generalize this result from a macro-level perspective. This is, in fact, one of the issues we discuss in the book Comunicación Móvil y Desarrollo Económico y Social en América Latina (Mobile Communication and Social and Economic Development in Latin America) that I edited together with Hernán Galperin and Manuel Castells. The book summarizes the results of a two-year research project funded by Fundación Telefónica and led by the Interdisciplinary Internet Institute, IN3, from the Open University of Catalonia. In Chapter 3, with Javier Vázquez Grenno, we study the contribution of the diffusion of mobile telephony to development in the region. We understand development in a multi-dimensional way, so we approach the concept from three different perspectives: economic growth, reduction of inequality, and poverty reduction. The analysis compares the evolution of Latin America with the rest of the world and/or with other regions with different levels of development. More specifically, we considered eighteen Latin American countries: Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru, Uruguay, and Venezuela. The results are summarized in the following paragraphs.
ECONOMIC GROWTH
Our models confirm that mobile telephony contributes to global economic development in a positive and significant way, both for the 153 countries with available data and for Latin America. The period considered is 1996-2007, while economic development is measured, in this case, in terms of the rate of growth of gross domestic product (GDP) per capita. However, this contribution is not linear, as the effect diminishes when countries reach saturation levels of mobile phone penetration rates. Thus, the contribution to economic growth is more important when penetration rates increase from 40 to 50 per cent than when the increase goes from 90 to 100 per cent. In technical terms, we would say that mobile telephony has decreasing returns to scale. That is, while the impact is always positive, the effect on economic growth decreases as the technology spreads.
The analysis by groups of countries shows a similar logic, as the contribution of mobile phones is greater in less developed countries. Indeed, the countries that are benefiting the most from investments in mobile communications are those in which infrastructure is, in general, less developed. In particular, the fixed phone network was comparatively limited in these countries, thus the mobile phone infrastructure is playing a specific, relevant role.
One specific result is that the contribution of the diffusion of mobile telephony to economic growth in Latin America is of greater magnitude than in the Organisation for Economic Co-operation and Development (OECD), where penetration rates are higher and telecommunication infrastructures are also better.
INCOME DISTRIBUTION
In the period 2002-2006, the mobile phone contributed significantly to the reduction of income inequality in the world. We measure inequality by using the most common indicator, the Gini index. This indicator ranges from 0 to 100, taking higher values when the distribution of income in a given society is less egalitarian. However, the analysis by country groups shows that there is no evidence that mobile phones are helping to reduce the Gini index, i.e., to reduce inequality in Latin America. To interpret this result properly, we must consider that Latin America is the world's most unequal region. In terms of income distribution, it is not the poorest but the most uneven. For instance, available data indicates that the Gini index equals 53.2 in Latin America on average terms, compared to 38.5 in Southeast Asia or 28.8 in the OECD (data referring to 2006 or the nearest possible year).
Compared to other regions, in Latin America the appropriation of income generated by economic growth is distributed more unevenly among the various groups. This is a constant phenomenon in the recent history of the continent, and seems to follow the same trend in the case of the distribution of economic growth caused by the diffusion of mobile telephony. In this sense, perhaps the positive and testable effects on inequality reduction in Latin America would be evident when mobile penetration reaches saturation indices, similar to those in the OECD. It seems, however, that the medium-term effects are insufficient to overcome the inertia of a social structure rooted in inequality. Therefore, future studies will be needed to assess this hypothesis.
POVERTY
The diffusion of mobile telephony also significantly impacts poverty reduction in different areas of the world, including Latin America. The result is confirmed for both developing and developed countries in the period 1999-2006. The poverty indicator considered in the models is the proportion of the population in each country that is poor (poverty incidence). Different models were estimated for different groups of countries, depending on their levels of development.
Economic growth does not necessarily benefit all sectors in the same way. It is, therefore, relevant to analyze whether or not the diffusion of mobile communication favours the reduction of poverty. If it does, as in this case, we are able to state that this is a pro-poor technology. This is, indeed, a very interesting result because, from a macroeconomic point of view, it allows the generalization of the increasing micro-level evidence available in different countries around the world.
In poor contexts, the boundaries between public and private spheres, work, and family, are very fuzzy. This is where the mobile phone is more important for the maintenance and formation of social capital, as social ties and trust are more important than formal contracts between economic agents in economies where informality is high and there is institutional weakness. The mobile phone is used primarily to maintain and strengthen existing social networks, as observed in different poor, rural areas. Therefore, as long as social networks overlap with economic networks, mobile telephony is gradually incorporated in rural production and commercial activities, as it becomes an everyday communication tool.
These are the mechanisms that justify the positive contribution of mobile communication to poverty reduction. In this sense, different case studies from our research project in Latin America show that, when the phone is incorporated into productive practices of trade and production -- that is, when incorporated into the business world, whether formal or informal -- its presence helps to reduce information asymmetries and to amplify supply and customer networks. As we argue in the book, we can conclude that mobile phones may be becoming a tool for individual and collective mobility as they enable low-income sectors to improve their position in social and economic networks. This relatively better position would allow better access to opportunities to escape poverty and reduce the incidence of poverty in Latin America and in the world.
More steps certainly need to be taken, for instance, the improvement of the quality and the capacity of mobile networks to allow data transmission and Internet browsing using mobile devices. However, at present we can say that basic mobile communications -- the average communication services in the world -- are already contributing to different dimensions of social and economic development in Latin America and the world as a whole.
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