> BROADBAND AND DEVELOPMENT: EVIDENCE AND NEW RESEARCH DIRECTIONS FROM LATIN AMERICA

HERNAN GALPERIN, PH.D.

Associate Professor, Universidad de San AndrésDiálogo Regional sobre la Sociedad de la Información (DIRSI)

September 26, 2013

Inter-American Development Bank, Washington D.C., September 26, 2013

> TABLE OF CONTENTS

Project motivation and description: Why (and how to) study the development impact of broadband?

Opening the black box: What we do – and don't – know about the links between broadband and poverty alleviation.

The economic impact of broadband : Evidence from Colombia and Ecuador.

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> PUBLIC INVESTMENT ON BROADBAND INITIATIVES IS ON THE RISE IN LATAM, SOME ARE VERY SIGNIFICANT (UP TO 0.78% OF GDP)

2006 2007 2008 2009 2010 2011 2012

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25Countries with National Broadband

Plan (2012)  ARGENTINA BRAZIL COLOMBIA

NAME OF INITIATIVE

Argentina Conectada

Plano Nacional de Banda Larga (PNBL)

Vive Digital

GEOGRAPHICAL TARGET

100% municipalities

76% municipalities

62% municipalities

PRICE/QUALITY TARGET

10Mbps1Mbps at US$ 20 per month

1Mbps

TOTAL INVESTMENT

$1.8 billion USD$3.25 billion USD

$2.25 billion USD

TOTAL PER CAPITA

$44.2 USD $16.6 USD $48.6 USD

TOTAL AS % GDP

0.4% 0.13% 0.78%

DURATION 2011-2015 2010-2014 2010-2014

> Source: ITU/CISCO (2013)

> INVESTMENTS IN ICT FOR EDUCATION PROGRAMS ARE EQUALLY SIGNIFICANT (UP TO 10% OF TOTAL EDUCATION EXPENDITURE)

> Source: UNESCO

  ARGENTINA BRAZIL URUGUAY

NAME OF INITIATIVE

Conectar Igualdad

Programa Banda Larga nas Escolas

Plan Ceibal

TARGET SecondaryPrimary and secondary

Primary and secondary

CONNECTIVITY No Yes Yes

EQUIPMENT Yes (laptop) No Yes (OLPC)

TOTAL ANNUAL

INVESTMENT~700M USD n/a ~50M USD

TOTAL AS % EDUCATION

EXPENDITURE10% n/a 5%

YEAR STARTED 2010 2010 2008

Primary Secondary

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101520253035404550

Countries with ICT in Education programs

Does the evidence about positive impacts support these public investments?

How are benefits being appropriated? How large are impact externalities? What is the distributional impact?

How cost-effective are these programs? How to improve program design and implementation?

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> PROJECT MOTIVATION: RECENT PUBLIC INVESTMENTS IN BROADBAND RAISE QUESTIONS ABOUT DEVELOPMENT IMPACT

> THE OPTIMISTIC PERSPECTIVE: BROADBAND AVAILABILITY AND ADOPTION BOOST EMPLOYMENT AND ACCELERATE GDP GROWTH

AUTHOR(S) DATA METHODOLOGY RESULTS

QIANG AND ROSSOTTO (2009)

120 countries, 1980-2006.   

OLS10 p.p. increase in broadband yields an additional

1.38 p.p. of GDP growth.

KOUTROUMPIS (2009)22 OECD countries, 2002–

2007.

Simultaneous equations model and

instrumental variables.

A 10% increase in broadband increases GDP growth by an average of 0.25%

CZERNICH ET AL. (2011).  

25 OECD countries, 1996-2007.

 Instrumental variables.

A 10 p.p. increase in broadband raises annual per-capita growth by 0.9-1.5 p.p.

LEHR ET AL. (2006). ZIP codes and states (US),

1998–2002.OLS

Broadband availability increases employment by 1.5% and businesses by 0.5%. No effect on wages.

CRANDALL, R. ET AL. (2007).

 States (USA), 2003-2005. OLS

A 10% increase in the penetration rate increases employment by 2%. No effect on GDP growth.

> SOME CAVEATS ABOUT THE (OVERLY) OPTIMISTIC PERSPECTIVE

Causal attribution is problematic reverse causality needs to be addressed in study design.

Aggregated data at country or state level small samples, difficult to find appropriate controls.

Little conceptualization about the underlying mechanisms through which broadband affects growth or employment.

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Some recent studies are less optimistic (e.g., Mayo and Wallsten, 2011; Forman et al., 2012).>

> PROJECT OVERVIEW

Six quasi-experimental studies based on existing microdata.

> Counterfactuals in order to address reverse causality problem.> Very large samples: ability to test for heterogeneous impacts, external validity (unlike RCT).

Qualitative study in low-income communities in Mexico to validate results and get in-depth perspective on impact mechanisms.

Extensive lit review about microfoundations of the link between broadband and development

> Focus on poverty alleviation

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> THREE CASE STUDIES LOOKING AT BROADBAND IMPACT ON GROWTH AND EMPLOYMENT

CASE STUDYCOUNTR

YDATA SOURCES METHODOLOGY

INTERNET AND ECONOMIC ACTIVITY IN COLOMBIA : AN ANALYSIS AT THE LEVEL OF

MUNICIPALITIES AND 23 MAJOR CITIES.

Colombia

Panel of municipalities (2005-2011).

 Number of observations:

5,000 municipalities.

Annual household survey from DANE and

deployment information from by Ministry of ICT.

Panel data with random effects and instrumental

variable.

IMPACT OF BROADBAND DEPLOYMENT IN ECUADOR.

Ecuador

Panel of individuals in urban areas 2009-2011.

 Number of observations:

24,000 individuals.

National Household Survey and deployment

data from Ministry.Difference-in-difference.

THE WELFARE IMPACT OF BROADBAND IN MEXICO.

MexicoNumber of observations:

7,000.National household survey from INEGI.

Structural equation models.

> THREE CASE STUDIES LOOKING AT BROADBAND IMPACT ON SCHOOL PERFORMANCE

CASE STUDYCOUNTR

YDATA SOURCES METHODOLOGY

CONNECTED TO LEARN?THE EFFECT OF BROADBAND

INTERNET ON SCHOOL QUALITY IN BRAZIL.

Brazil

Panel data of students and teachers 2007-2011.

 Number of observations:

between 83,000 and 124,000.

School census and test scores (Prova Brasil)

fromMinistry of Education.

Administrative data for PBLE from ANATEL.

Regression models that exploit the phase-in of the

program.

CAN INFORMATION AND COMMUNICATION

TECHNOLOGIES (ICTS) HAVE A POSITIVE IMPACT ON STUDENT

PERFORMANCE? EVIDENCE FROM CHILE.

Chile

Two cohorts of primary-level students in public schools (2005-2011).

 Number of observations:

between 110,000 and 133,000.

Test scores (SIMCE) and information about

ENLACES program from Ministry of Education.

Difference-in-difference with matching.

INTERNET ACCESS, TYPE OF ACCESS AND EDUCATIONAL

OUTCOMES: EVIDENCE FOR THE PERUVIAN CASE.

Peru

Panel data of students at school level (2007-2011).

 Number of observations:

10,000.

School Census and test scores data from

Ministry of Education.

Difference-in-difference with matching.

> OPENING THE BROADBAND BLACK BOX: (1) THE GROWTH EFFECT

HYPOTHESIS 1: broadband adoption has a positive growth effect.

> Critical for poverty reduction: growth explains 75% of poverty reduction in LATAM between 1990 and 2010 (Cruces et al., 2013)

Lit review suggests that:

> Broadband raises firm productivity, but only under certain conditions (e.g., Colombo et al., 2012) classic pattern of GPT.> Broadband improves resource allocation by lowering transaction costs and improving coordination (e.g., Goyal, 2010).> Broadband improves labor matching (e.g., Kuhn and Mansour, 2011).

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> THE GROWTH EFFECT: STYLIZED FACTS

INCREASE IN PRODUCTIVITY

BETTER MARKET COORDINATION

BETTER LABOR MATCHING

Growth effectFIRM ADOPTION OF BROADBAND

HH ADOPTION OF BROADBAND

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> OPENING THE BROADBAND BLACK BOX: (2) THE EMPLOYMENT EFFECT

Lit review suggests that:

> Broadband reduces friction in labor markets (e.g., Autor, 2001).> Broadband promotes acquisition of ICT skills with labor market payoffs (e.g., Blanco and Lopez Boo, 2010).> Broadband promotes weak social ties (Granovetter, 2005).

HYPOTHESIS 2: broadband adoption has a positive employment/wage effect.

> Improvements in employment are critical factor for sustained poverty alleviation.> But ICT effects on employment are not clear skill bias (Autor, Katz and Krueger, 1998) and “hollowing out” hypotheses.

INCREASE SOCIAL CAPITAL

BETTER LABOR MATCHING>

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>FIRM ADOPTION OF BROADBAND

> THE GROWTH + EMPLYMENT EFFECTS: STYLIZED FACTS

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INCREASE IN PRODUCTIVITY

BETTER MARKET COORDINATION Growth effect

HH ADOPTION OF BROADBAND

BROADBAND IN SCHOOLS

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ICT SKILLSACQUISITION

Employment effect

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> OPENING THE BROADBAND BLACK BOX: (3) THE GOVERNANCE EFFECT

HYPOTHESIS 3: broadband adoption has a positive governance effect.

Poverty and poor governance are mutually reinforcing:

> Poverty prevents human capital accumulation and increases political instability (Easterly, 2006)> Poor institutions breed poverty (Robinson and Acemoglu, 2011)

>Lit review suggests that:

> Broadband adoption promotes accountability (e.g., Gonçalves, 2009; Bjorkman and Svensson, 2007).> Broadband access promotes civic engagement (Stern et al., 2011).

> THE GROWTH + EMPLOYMENT + GOVERNANCE EFFECTS: STYLIZED FACTS

BETTER MARKET COORDINATION

BETTER LABOR MATCHING

INCREASE SOCIAL CAPITAL

Growth effect

HH ADOPTION OF BROADBAND

BROADBAND IN SCHOOLS

FIRM ADOPTION OF BROADBAND

ICT SKILLSACQUISITION

INFORMATION GAINS

Employment effect

INCREASE IN PRODUCTIVITY

Governance effect

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> COLOMBIA CASE: BASIC FACTS

Colombia: Internet and broadband subscribers (in 000s), 2006-11

Colombia: Corporate broadband subscribers (in 000s), 2006-12

> COLOMBIA: DATA, METHOD AND KEY QUESTIONS

> . Panel of municipalities between 2005-2011 (~ 5,000 obs.). Sources: HH survey (GEIH), MinTIC, and DNP.. OLS regressions, IV =average slope of terrain.. Proxies for economic activity: tax revenues and # firms.. Basic model: . Key questions:

> Does faster broadband adoption yield more economic activity (growth effect)?> Is the effect different for HH vs. corporate adoption?> Does access speed matter (256 vs. 512 vs. 1024kbps)?

> COLOMBIA: KEY FINDINGS

> . Broadband has a positive impact on economic activity> A 10% increase in penetration yields 0,4% in tax revenues> A 10% increase in penetration yields 4% in # firms

. The magnitude of effects is similar for HH and corporate adoption

> HH adoption also has effect on # firms

. The magnitude of effects is similar for different speed levels> What really matters is connectivity, not speed

> ECUADOR: BASIC FACTS

> . Until 2009 broadband supply outside main cities was very limited

. Between 2010 and 2011 CNT invested heavily in extending coverage to urban (and some rural) areas

. Opportunity to compare changes in employment and income in:

> Treatment group: cantones connected in 2010-11 (27 cantones with pop. 2.3M)> Control group: cantones already connected in 2009 (10 cantones with pop. 6.1M)

> ECUADOR: DATA, METHOD AND KEY QUESTIONS

> . Panel of individuals between 2009-2011 reporting labor income and ICT module:

> Treatment group: 8,785 individuals> Control group: 7,664 individuals

. Sources: National HH survey and SENATEL.

. T-test reveals groups have similar mean in variables of interest at baseline (2009). Basic model: . Key questions:

> Has income raise more in municipalities connected in 2010-2011?> Are there differences between adopters and non adopters?> Are there heterogeneous effects (by age/gender/occupations)?

> ECUADOR: KEY FINDINGS

> . Broadband has a positive impact on labor income (regardless of adoption)

> Increase in individual labor income of $25,7 USD over 2-year period> 7.5% increase over initial sample average (3.6% per year)

. The effect is larger for those adopting broadband> Increase in individual labor income of $51,8 USD over 2-year period> 10,3% increase over initial sample average (5% per year)

. The overall effect is larger for men than for women> Yet gender difference disappears among broadband adopters

More information:www.dirsi.net

hgalperin@udesa.edu.ar