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The Digital Divide, Economic Growth and Potential Poverty Reduction: The Case of the English Speaking Caribbean By Lester Henry, PhD Department of Economics University of the West Indies, St. Augustine Abstract This paper examines the issue of the gap in access to telecommunications known as the digital divide and its linkages to economic growth in the context of the Caribbean. In particular, it seeks to ascertain how the adoption of computer and Internet technology can enhance the growth prospects for Caribbean countries, and thereby have a significant impact on the reduction of poverty in the region. First, the current debate over the existence and significance of the digital divide is explored. For example, one view holds that the digital divide once corrected can lead to enhanced economic growth and hence to poverty reduction in developing countries. On the other hand, some argue that there is no digital divide and, therefore, policy reforms aimed at correcting it are misguided. Second, the arguments linking growth, technology and potential poverty reduction are presented. Third, an analysis of the current situation in the region is carried out. Further, some means by which Caribbean countries can benefit from technological absorption are explored. Finally, a summary with some policy recommendations is presented.

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The Digital Divide, Economic Growth and Potential Poverty Reduction:

The Case of the English Speaking Caribbean

By

Lester Henry, PhD Department of Economics

University of the West Indies, St. Augustine

Abstract

This paper examines the issue of the gap in access to telecommunications known as the digital

divide and its linkages to economic growth in the context of the Caribbean. In particular, it

seeks to ascertain how the adoption of computer and Internet technology can enhance the growth

prospects for Caribbean countries, and thereby have a significant impact on the reduction of

poverty in the region. First, the current debate over the existence and significance of the digital

divide is explored. For example, one view holds that the digital divide once corrected can lead to

enhanced economic growth and hence to poverty reduction in developing countries. On the

other hand, some argue that there is no digital divide and, therefore, policy reforms aimed at

correcting it are misguided. Second, the arguments linking growth, technology and potential

poverty reduction are presented. Third, an analysis of the current situation in the region is

carried out. Further, some means by which Caribbean countries can benefit from technological

absorption are explored. Finally, a summary with some policy recommendations is presented.

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1. Introduction This paper examines the digital divide in general with particular reference the Caribbean.

This divide refers to the gap in information technology that appears to be quite wide

between developed and developing countries. The debate over the existence of the divide

suggests that not everyone is convinced that Information and Computer Technology

(ICT) can make a significant difference to developing countries, in terms of promoting

economic growth and reducing poverty. Many international organizations, however, do

not have any reservations about the reality, causes and consequences of the digital divide

[see ILO (2001), OECD (2001), United Nations (1999)]. The small developing states of

the Caribbean, therefore, should take issues pertaining to the digital divide very seriously.

This is so for two important reasons: one, that ICT can provide opportunities for higher

incomes and improvements in living standard in the region; and two, even if the digital

divide is a symptom rather than a cause of income differences, then ignoring it could lead

to a further widening of such differences.

The rest of this paper is organized as follows: Section 2 briefly outlines the issue of the

digital divide and look at the arguments for and against its existence. Section 3

examines the growing body of literature relating ICT to economic growth and potential

poverty reduction. The current situation in the Caribbean is examined in Section 4.

Some of the ways in which ICT can contribute to economic growth and rising incomes in

the Caribbean are explored in Section 5. And finally, Section 6 summarises with some

policy recommendations.

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2. THE DIGITAL DIVIDE The Digital Divide is described as the gap separating those who have computers and

Internet access from those who don’t [Young 2002, Dasgupta et. al. 2001]. The Digital

Divide is a form of technological inequality separating the “haves” from the “haves not”.

Some evidence of the divide indicates that: “Low income countries account for 40

percent of the World’s population and 11 percent of its gross national income. Yet, of

242 million Internet users worldwide in 1999, only 5 million, or about two percent, were

in low-income countries. Of 110,498 secure servers worldwide, that use encryption

technologies in Internet transactions (commonly used for e-commerce), only 224, or 0.2

percent, are in low income countries” [Kenny, 2002].

In general the wealthy people are seen as the ones who can afford to purchase the

technology and acquire the skills necessary to use it while the poor are restricted by

barriers such as poverty and illiteracy, this is baseline for the Digital Divide concept.

Many argue that the existence of the Digital Divide is a myth; it simply does not exist.

Those viewing the Digital Divide as a myth [Samuelson, 2002] site examples of the

increased access to computers and the Internet. Computers are now cheaper to buy and

easier to use. Falling prices and skill requirements suggest that even if there was a

Digital Divide it must be shrinking. The abundance of cyber cafes makes computers and

the Internet accessible to the general public. Computer Literacy courses are now

compulsory in schools, ensuring that students learn how to use the technology at a young

age. One questions whether the students’ lives have been significantly improved as result

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of computer literacy. Students still have to be able to read and reason in order to learn

the technology; these skills are the ones that are most important.

Computers were never the source of any ones poverty. Increased focus should be placed on

providing the basic necessities for living instead of remedial government action to “bridge the

gap”. The Digital Divide is meaningless to those who lack the basic essentials such as adequate

nutrition, primary health care, basic education, safe water and sanitary living conditions. The

more pressing digital public-policy issues of data protection, personal privacy and media

monopolies are being ignored.

On the other hand, there are those who believe that the Digital divide does indeed exist. It is

believed that barriers such as poverty, illiteracy and so on are holding people back from having

access to computers and the Internet. As mentioned before only the wealthy are able to afford

the technology, especially the most advanced machines and software. The poor, sometimes in

the role of ethnic minorities, are the ones benefiting least from access to computers and Internet

technology.

The idea of closing the Digital Divide is now at the core of many poverty reduction efforts.

Political leaders in many developing countries, having failed to address poverty in their

countries, are grasping at new technologies and global trade as their last best hope to raise their

populations’ standard of living (Venkat 2002). Venkat questions whether the Digital Divide is a

cause of poverty or an effect of the underlying social and economic divides. The United Nations

Development Program (UNDP) in its Human Development Report for 2001 has cited evidence

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showing that the current technology divide is consistently following the income divide all over

the world. As market forces propagate new technologies, people who are doing relatively well

are likely to benefit the most, reinforcing the longstanding economic disparities between the rich

and poor.

The technology divide is real for those who have moved beyond obtaining the basic necessities

of life and are now held back by a lack of access to technology. They have essentially satisfied

their basic living needs and are now looking to improve their lives via the use of technology. So

the Digital Divide is real in some instances where the technology can be used to improve the

standard of living of some people. Access to information technology cannot be useful unless

basic needs are met. Serious solutions to deep poverty will have to reach beneath the Digital

Divide and confront the underlying disparities in society.

!"Non-access to technology deepens the differences between the rich and the poor.

!"Unequal opportunities to trade and engage in E-commerce.

!"Unequal access to communication and information.

!"Solving this problem does not guarantee the reduction or elimination of poverty.

!"This concept may portray minority groups as technophobic charity cases lacking the

desire to adopt new technologies on their own.

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Table 1

ARGUMENTS FOR THE EXISTENCE OF THE DIGITAL DIVIDE

ARGUMENTS AGAINST THE EXISTENCE OF THE DIGITAL DIVIDE

!"The wealthy are the ones that can

afford to access technology and software, especially the most advanced in these areas.

!"The poor are unable to purchase technology because of the high cost.

!"The poor are also restricted by a lack of skill in terms of computer usage and in many cases are illiterate.

!"Poor countries do not benefit from Internet access at school for school children or via Cyber cafes for the general public.

!"The Digital Divide is seen as a reflection of the Economic Divide around the world.

!"Minority groups are the ones suffering the most in developing countries from this lack of access to technology.

!"Computers are cheaper to purchase as a result of falling prices making them more accessible to lower income families.

!"Computers are increasingly easier to use and require less skill to operate them, making it a less complex task to those with lower skills.

!"There is widespread Internet access available to everyone in most countries through schools and cafes.

!"Access to information technology cannot be useful unless basic needs such as health and education are met.

3. Growth, Technology and Poverty

There is a growing body of literature that seems to suggest that there is a direct link between

economic growth, the adoption of new technology and poverty reduction [Heeks, 1999]. A

pioneering article in this regard is Hardy [1980], who examined the link between the telephone

and economic development. Hardy found a direct relationship between the spread of the

telephone and other aspects of development. He was not conclusive, however, in terms of the

casual relation: did increasing telephone usage led to growth or was a growing economy causing

increased demand for telephones? More recently, in terms of the Internet, Altig and Rupert

[1999,p.4], for example, argue, “it does appear that the fraction of a country’s population that the

access to the Internet is, at least, correlated with the factors that help to explain average growth

performance”.

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Further still, Bedia [1999] emphasizes that a variety of factors may be responsible for growth and

the endogeneity of ICTs and output. It is difficult to identify a clear causal mechanism between

ICT availability and income measures or obtain the quantitative impact of the ICT-growth link.

It is clear that there is a positive relationship between ICTs and growth. While countries

experiencing high growth may be investing more heavily in these technologies, these

technologies in turn may be providing the potential for future growth in income. Bedia stresses

that two points should be noted: first, a minimum amount of telephone density must be reached

in order for ICTs to have growth enhancing effects; and second, the conventional growth

accounting framework may underestimate the effects of ICTs, as these technologies tend to

enhance the efficiency of other inputs leading to increases in multifactor productivity.

Generally, the renewed interest in the impact of technology and economic growth was sparked

by the long economic expansion that occurred in the United States during the 1990s. One major

explanation for this was the impact of ICT on total factor productivity (TFP). The evidence to

support this view, however, has been mixed at best. Kenny [2002a,p.4] defines TFP as “the

actual measured growth of output minus the growth rate expected from increases in capital and

labor stocks”. It basically includes everything that is not physical capital or labor. It is argued,

however, that technology defined in TFP equations tend to very broad in nature and covers

factors other than the Internet. Also relevant are policies, institutions and social relationships

that may to a large extent determine growth rather than ICT itself.

It is therefore, not surprising that the evidence suggesting that widespread computer use was

responsible for increasing factor productivity has been disputed. When other factors are taken

into account, such as company reorganizations, what appears to high micro-level returns to

computer use seems to disappear. Kenny cites a number of studies that show that the Internet

and computers do not represent a dramatic leap outside the durables manufacturing sector. Also

looking at labor productivity, IT intensive industries outside the IT sector itself are some of the

worst performing. The financial sector is often presented as an example where the more

intensive use of ICT has not translated into increased productivity. This all suggests the “Solow

Paradox” where there is widespread evidence of computer use but little evidence of widespread

productivity growth [Kenny,2002a, p.8].

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For developing countries, however, the situation made be entirely different. These

countries are starting at a lower technological base than the OECD countries, and hence,

technological innovation may have a more significant impact on growth and

development. The mainstream view, however, seems to be that lesser developed

countries should concentrate on solving basic poverty problems rather than rushing to

expand ICT access. Kenny [2002a] asserts that those benefiting the most from IT

investments are the better educated and more highly skilled. Approximately one third of

adults in low-income countries cannot even read – a vital skill for meaningful use of the

Internet. Also basic computer skills are lacking in LDCs. The predominant language of

the Internet is English; there is a significant language skills gap in the populations of the

LDCs. The institutional environment in LDCs is not conducive to rapid and successful

exploitation of the technology. This is seen where poorly developed financial systems

combined with poor physical communications infrastructure significantly reduces the

potential for e-commerce in LDCs.

Thus, the future impact of the Internet on developing countries over the near term is likely to be

smaller than that in developed countries. General estimates of the income impact of the Internet

by ICT optimists are thus very small compared to the rich-poor gap. Also poor countries have

seen more rapid growth in telephone networks than have developed countries. Nonetheless there

has been a divergence in income between rich and poor over the last forty years, and LDC

growth rates have slowed even as networks have expanded. Furthermore, Kenny [2002b, p13]

concludes that “if providing Internet access would be very expensive, and yet providing that

access might be of limited additional benefit beyond access to radio and telephony, this must

raise questions as to the advisability of embarking on large-scale Internet direct access programs

as a tool of poverty relief, especially as compared with access programs focusing on the more

suitable technologies of radio and telephony”.

The opponents of efforts by developing countries to bridge the digital divide sound strikingly

similar to the old colonial administrators who advised the colonies to stick to agriculture since

they had a comparative advantage in it. That is, because you are backward you must continue to

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use backward technology since it is cheaper for you. The basic fact is that in today’s world it is

virtually impossible to hold well paying and high value-added jobs without some elementary ICT

training. Over the past 40 years the East Asian countries have adapted and adopted technology

more rapidly than their counterparts in Africa and Latin America and they have the income and

lifestyle to show for it. Can anyone seriously suggest that Japan, Singapore, Taiwan, and South

Korea would have been better off if they had stuck to using radios, telephones, and for that

matter, donkey-carts!

4. The Current Situation In the Caribbean

There is widespread recognition among Caribbean governments of the importance of ICT.

In every case, there is some kind of plan or program in place to address the issue of

deepening and widening of access to the Internet and related technologies [see Table 2].

They all make very elegant pronouncements about becoming a “knowledge society” or

implementing program for “free computers and Internet access in schools”. Problems

remain, however. One is that many of these plans are being implemented slowly or not at all.

Table 2: Government Policies in Relation to Information Technology and Telecommunications for selected Caribbean countries

Barbados Barbados aims to be the Worlds Smallest Developed Economy with IT policy in an economy driven by tourism and international business. The main goals of the IT policy include the use of information technology in the areas of public sector reform and crime fighting. E-government initiatives have been established such as GOBINET and Smart Stream. GOBINET, an information network facilitated by a series of government websites, was established to serve the global public with information on demand, increase transparency of government operations and provide a medium through which citizens could correspond easily with government. Smart Stream is a software, which manages and monitors the expenditure of some government departments. Edu Tech is a seven-year Education Sector Enhancement Programme designed to assist students in mastering the skills necessary for them to compete in the information age; manage school systems; motivate teachers; and facilitate the teaching of various subjects. Telecommunications reform is in the planning stages in Barbados.

Grenada The main goal of the Grenadian government was “towards a knowledge-based economy with equity”. This involved the deregulation of the telecommunications industry through the Eastern Caribbean Telecommunications Authority (ECTEL). Making access to a personal computer available to every Grenadian. This is to be achieved by reducing taxes on computers and accessories and by training programmes to empower youths and take advantage of opportunities in the high-tech, knowledge based industries. New computers have been installed in the public sector to promote a more efficient and customer oriented public service.

Guyana Guyana’s role was essentially poverty reduction in the past. In recent times there has been a major policy shift with greater focus on encouraging competition in the telecom sector to

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encourage IT investments in Guyana, creating high paying jobs. Government also has plans to introduce the Internet into public schools to help educate the children. Legal, regulatory and business environment is being put in place to foster development of the IT sector. Community Internet access points are being established to facilitate small business development. Regional training centers are being developed to facilitate training and development of workers for the IT sector. Government is currently exploring e-government. This would enable the government to move from being a bureaucratic entity to a service oriented one. The implementation of an information and communication technology (ICT) strategy is highlighted in governments poverty reduction strategy as “a pivotal tool to improve governance, accountability and transparency, generate employment especially among women and youth, develop human resource potential and strengthen national unity”.

Saint Lucia Main government policy in St Lucia with respect to IT has been accessibility. The government wants every person in St Lucia to have access to a computer and the Internet at an affordable rate. This includes providing secondary schools with computers and Internet access, renegotiating with Cable & Wireless to ensure development of St Lucia’s Informatics sector, removing price discrimination, increasing penetration rate of telephone installation and abolishing taxes on local telephone calls. E-government is also a priority to facilitate wider public participation in national development. Public sector modernization is also on the way. FINMAN is the Standardized Integrated Government Financial Information System, which allows for the creation of electronic invoices to speed up government payments, this improves efficiency within the public service. The workforce is prepared for the world of work by training and development started at school and continued by other training institutions. St Lucia has agreed to a phased process of ending the Cable & Wireless Telecommunications monopoly.

St Vincent & the Grenadines

In St Vincent and the Grenadines attention is focused on five main areas: completing arrangements for telecommunications reform through ECTEL; accelerating human resource development efforts by training teachers and citizens; exploring employment creation possibilities; expediting the process of providing computers and free Internet access in schools; and modernizing procedures in the public service by computerizing records and linking departments to ensure greater efficiency.

Trinidad & Tobago

Trinidad and Tobago aims to be not just an information economy, but a knowledge society. The government has embarked on programs to develop electronic-commerce as a vehicle of business expansion; improving library and information services through the National Library and Information System Authority (NALIS); facilitating the use of information and communications technology in government departments through e-government initiatives. Computers and free internet access in all schools is already a reality, government is now looking at Distance education as a means of helping teachers teach and learners learn. In an effort to encourage e-commerce development, five main areas need development: strengthening of e-commerce infrastructure; increase participation by setting up support facilities (EnterpriseNeTT); clarification of marketplace rules; building confidence in e-commerce and jump-starting the e-economy by facilitating onshore payments, use of e-cash and identifying e-commerce opportunities.

Source: John (2001)

The table below shows both the Dominican Republic and Jamaica having the highest

percentage of main telephone lines (,000) and main lines both business and residential

compared to the other Caribbean countries. Based on the data below, it is also noted that

Jamaica has the highest rate of mobile cellular subscribers and the Dominican Republic

has the highest amount of Internet subscribers.

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Table 3

CARIBBEAN COUNTRIES FIXED AND WIRELESS NETWORK SIZE 2002/2003 INFORMATION Main Telephone Main Telephone Main Lines Cellular Subscribers Number of Internet Subscribers

Lines (,000) Lines per 100 persons Residence Business Fixed Mobile Cell Sites Business Resident

Antigua & Barbuda 37.3 49.2 26085 11179 none 13166 17 - -

Barbados 149 55.3 85299 12022 na 28467 20 9868 -

Dominica 22.3 30.13 760 40 - - - 100 700

Dominican Republic 681 7.96 470197 210711 na - 240 - 36273

Grenada 31.3 - 26298 6307 - 5879 10 1218 2262

Guyana 80 10.6 58645 21517 325 39420 13 2000 10000

Jamaica 495.2 19.12 375069 120119 - 360000 - - -

St Kitts & Nevis 21.6 47 - - 3193 2885 8 3801a -

St Lucia 46.3 29.2 35134 11919 na 22706 12 - -

St Vincent & Grenadines 25.49 22.6 21663 3623 - - - 308 2576

Note: a - Residential Included Source: CANTO Annual Directory 2002/2003

The amount of Internet users per 100 inhabitants is displayed in Figure 1 for the year 2000.

It is clear that when compared to the EU countries, the Caribbean was lagging behind. No

Caribbean country had a more that 8 users per 100 inhabitants while in the OECD most

countries had at least double that amount. Of course, this can be partly explained by income

differences between the two regions. After all, Dasgupta et. al [2000] found that when

adjusting for income, differences in Internet density mainly disappeared between rich and

poor countries. Other significant factors include the prevailing level of competition in the

ICT industry and governmental policies toward regulation [ITU, 2000].

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Internet Users per 100 Inhabitants: Caribbean 2000

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Internet Users per 100 Inhabitants: EU Countries 2000

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Denm

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Even though the price of a computer has fallen with increasing competition and

innovation worldwide, it remains a relatively expensive item. Table 4 shows the cost of

a new computer in relation to the purchasing power parity adjusted per capita income in

the Caribbean. The price of a new computer was estimated to be on average US$1,000.

This was arrived at through a survey of regional and US web sites that sell computers on

the Internet. A new computer, therefore, can cost about 27% of per capita income in

Source: United Nations Statistics Division

Source: United Nations Statistics Division

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Jamaica, and 25% in Guyana. On the other hand, its takes 6 percent of the average

income in Barbados to obtain a similar PC.

Table 4

RELATIVE COST OF A PC IN THE CARIBBEAN

Caribbean GDP per capita PCs as a % of Country (PPP$), 2000 GDP per capita

Antigua & Barbuda $10,541.00 9%

Barbados $15,494.00 6%

Dominica $5,880.00 17%

Dominican Republic $6,033.00 17%

Grenada $7,580.00 13%

Guyana $3,963.00 25%

Jamaica $3,639.00 27%

St Kitts & Nevis $12,510.00 8%

St Lucia $5,703.00 18%

St Vincent & Grenadines $5,555.00 18%

Trinidad & Tobago $8,964.00 11%

Source: Human Development Indicators 2002

5. How Can the Caribbean Benefit from ICT? The Caribbean is not among the “basket cases” of the Third World. We have ranked

amongst the highest level of human development for all developing countries. For

example, Barbados has consistently been listed as the number one developing country in

terms of the HDI by the United Nations. Opponents of proactive policy to bridge the

digital divide usually cite other more serious “divides” such as basic food, shelter, and

health care as more pressing problems confronting poor countries. This, they argue,

should be the main policy focus in these nations, as noted above; they claim the computer

has never caused poverty anywhere. The education level, infrastructure, and healthcare

in the Caribbean puts the region in a position to utilize ICT to raise incomes rather that

reduce absolute poverty.

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The region still has all the advantages that have been noted many times over the years:

English as the main language, high literacy rates, and political stability in most cases.

ICT can be used, therefore, to harness the creative power of the people along the lines

suggested by the Quito declaration of the OAS in April 2002 [CITEL, 2002].

Many Caribbean countries are dependent on services, especially tourism. The

widespread availability, and low cost, of ICT can be used as part of their marketing

campaign to improve efficiency. Staying in a Hotel without Internet access, for example,

should be something of the past. Financial services, both on and off shore, can also be

greatly enhanced with increasing use of ICT. Another area of potential is in the design

and development of software products, especially those with local relevance. For

example, CDs of Caribbean folk tales can be developed and sold locally, and perhaps, to

the Caribbean Diaspora worldwide.

The Internet can be used, for example, to enhance the Caribbean education system. It is

a proven method of distance education and there is a need to build a group of trained

Internet technicians to participate in global exchanges and operate e-enabled activities.

The Internet can act as a distribution network among educational broadcasters [Grace

and Kenny, 2000]. There can be a reduction in travel costs among university educators

if more meetings are arranged using the Internet with Web cameras. The deliverance of

Distance Education should be all web-based in order to increase access and reduce costs.

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All of the above depends heavily on two factors: low cost telecommunications and

having the skilled workforce to maintain the ICT infrastructure. The monopolization of

the telecom sector in many of the islands is still a sensitive issue that needs to be

resolved. Studies by the World Bank, OECD, and the ITU have repeatedly shown a

clear relationship between telecom costs and the degree of competition in the market

across a variety of countries. Table 5 below shows the OECD framework for the

assessment of competition in the industry by the state. Based on the criteria, how many

Caribbean countries can claim to have a competitive telecommunications industry? It

could be argued, further, that increased connectivity could enhance CARICOM

integration if the cost of communications falls. Caribbean residents will not, however,

reap the full benefits of ICTs without effective competition in the sector.

Table 5 Indicators of Effective Competition

Consumer

outcome

Whether the market conditions consumers face compare well against consumers in similar economies

Whether a wide range of services is available to consumers

Degree of consumer satisfaction with the quality of service received

Extent to which prices broadly reflect underlying costs (i.e. absence of persistent excessive profits)

Consumer

behaviour

Extent which consumers can access information to help make effective choices

Whether consumers are confident/knowledgeable in using information and in taking advantage of

market opportunities

Absence of barriers to consumers switching suppliers

Supplier

bahaviour

Active competition in price, quality and innovation

Absence of anti-competitive behaviour

Absence of collusion

Extent to which consumer needs are being met

Efficient provision of services

Recent entry

Structural Limited entry barriers that would make the threat of entry a competitive discipline

Absence of inefficient suppliers

Limited ability of operators with market power in related markets (through vertical or horizontal

integration) to lever this market power into the market segment being reviewed

Changes in market structure over time, especially a tendency to reduce concentration

OECD.(2001)

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6. Summary

The digital divide is indeed one of many that separate rich countries from poor. It is

one, however, that we cannot ignore. The technological genie is out of the box and will

not allow itself to be put back into that box. The argument that poor countries should

concentrate on bridging the other divides, like health, education and infrastructure and

forget about the digital divide smacks of colonial baggage. All these issues need to be

addressed but while making use of modern technology. Its equivalent to suggesting that

we send letters on the backs of pigeons instead of e-mails!

The English-speaking Caribbean already has relative high standards in education and

health. The region’s life expectancy, years of schooling, and mortality rates rank among

the best for developing countries. The adoption of ICT should not be hindered in this

regard. There is need, however, for commitment from the region’s governments to make

telecommunications cost cheaper by fostering more competitions. Also, there should be

investment in training a large number of the youths in software development and ICT

related skills. Although the link between technology, growth and poverty reduction is

not as empirically solid as one might expect, the fact remains, that technologically

advanced countries have higher incomes. Even if one is not sure of the direction of

causality the association is so strong that low-income countries can only ignore to their

peril.

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