Chapter 2 Literature Review
2.2 Empirical Literature
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development shift from the incentive to accumulate physical capital to incentive across regions. Because networking is characterized by positive economic externalities related to diffusion and accumulation of the
knowledge, stock can be achieved through investment in telecommunications infrastructure development. Waverman, Meschi and Fuss (2005) also
explored the impact of telecommunications rollout on economic taken by the endogenous technical change approach that Investment in
telecommunications generates a growth dividend because the spread of telecommunications reduces costs of interaction, expands market boundaries, and enormously expands information flows.
2.2 Empirical Literature
Empirical studies have revealed that successfully introducing effective competition in telecommunications development related to economic growth.
Proper regulation that allows foreign market access and curbs market power also plays an important part in procuring effective competition to achieve ultimate liberalization. In most developing countries, impediments limiting commercial presence continue to be the more common barrier to
international transactions in telecommunication services (Warren, 2001).
Petrazzini and Krishnaswamy (1998) highlighted that
telecommunications restructuring have evolved differently in Asia and Latin America. While Asian governments have moved cautiously in bring changes to the sectors, the telecommunications reform felled in between two general trends: the choice of a high component of competition increased private participation, and no privatization of the national carrier set conditions that will trigger unique socio-economic effect.
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Oliver Boylaud and Giuseppe Nicoletti (2000) used an original
international database on regulation, market structure and performance in the telecommunications development to investigate the effects of entry
liberalization and privatization on productivity, prices and quality of service over the period from the period of 1991 to 1997. No clear evidence could be found concerning the effects on performance of the ownership structure of the telecommunications infrastructure development.
Donyaprueth (2001) showed that less-developed countries should realize their telecommunications reform policies to their own pace and needs. This study found that liberalization reforms or extensive opening of the market did not necessarily increase penetration rates of services better than other less competition-oriented policy alternatives.
Carlo, Khalid and Aristomene (2003) summarized that
telecommunication development is evaluated on the basis of degree of effective competition in fixed and mobile networks; openness to foreign investment and pro-competitive regulation. It is confirmed that the open markets promoted efficiency in telecommunications. Moreover, the
performance of the sector also appeared to be critically driven by openness to competition and the quality of the regulatory framework.
Contessi (2003) revealed that the privatization processes were significantly correlated with increases in teledensity; the share of
foreign-ownership in the incumbent had a positive; and the establishment of a separate regulator had a positive significant effect on teledensity using a panel of 46 transitions and emerging economies for the period from 1989 to 2000.
Tan (2003) reviewed the major theoretical debates regarding political and
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economic systems and technology development focusing on China's telecommunications manufacturing sector. The finding was technology development in telecommunications with the political and economic environment in China had a close relationship and future impact.
Park and Zhou (2004) traced the processes of telecommunications industry development in China. A series of restructuring efforts and policy changes since late 1980s aimed at transforming state-owned
telecommunication departments into independent business entities, while keeping government ownership. It was an attempt to commercialize China’s basic telecommunications services while keeping state assets under state control for voiding a fundamental change to state ownership and its economic reform program to inject vitality into state-owned enterprises.
Wang (2006) examined that China’s telecommunications market had reformed and formed the nearly open pro-competitive market to foreign investors after WTO accession. Muhammad, Tang and Liu (2007) showed the economic growth of the country was linked with the development of the telecommunications industry. Its development had also achieved a remarkable growth after liberalization.
Besides, the effect of foreign direct investment in the telecommunications development has gained importance in the last decade, but a little research had been carried out at empirical level. Roller and Waverman (2001) claimed that investment in telecommunications industry fostered growth with a
structural model taking over 20 year period to examine the impact. Gary and Scott (1997) empirically showed the relationship between gross fixed
investment, telecommunications infrastructure investment and economic growth determining the direction of influence and timing (Madden and
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Savage, 1997).
Roller and Waverman (1996) confirmed how telecommunications infrastructure affected economic growth. They used evidence with a structural model from 21 OECD countries to examine the relationship between telecommunications infrastructure investments and economic performance. They estimated a model which endogenizes
telecommunications investment by specifying a micro-model of supply and demand for telecommunications investments. Finally, they found that the impact between telecommunications infrastructure and aggregate output was much reduced and statistically insignificant. Wallsten (1999) explored the effects of privatization, competition, and regulation on telecommunications performance in 30 African and Latin American countries using fixed effects regressions from 1984 to 1997. Privatizing an incumbent was negatively correlated with mainline penetration and connection capacity. Privatization combined with an independent regulator was positively correlated with connection capacity and substantially mitigates the negative effect on mainline penetration.
Wallsten (2000) used an original and new dataset to analyze the effects of privatization, competition and regulation that privatization under the right institutional environment can lead to substantial performance improvements.
Government tended to give the newly privatized firm a monopoly concession on telecommunications services while some contend was necessary to encourage investment.
In addition, the involvement of foreign capital in the construction and operation of telecommunications infrastructure is often limited by legislation, administrative management. Limitations range from total exclusion from the
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entire market to equity caps in sensitive market segments before
liberalization. Konan and Maskus (2002) developed a CGE model to consider the services liberalization, which yields the benefits in aggregate welfare and reorients production toward sectors of benchmark comparative advantage.
However, a reduction of services barriers in a way that permitted greater competition through foreign direct investment generated large welfare gains.
Fink, Mattoo, and Rathindran (2002) examined the political economy in the telecommunications sector using a sample of 160 countries for the analysis of the effects of privatization, and a smaller sample of 40 countries for the analysis of the effects of competition that it is effective to increase teledensity and telecommunications productivity based on open market.
Bernardo et al., (2002) explored the financial and operating performance of 31 national telecommunication companies in 25 countries using panel data estimation techniques. The financial and operating performance of
telecommunications companies improved significantly after privatization.
Konan and Assche (2004) used a quantitative analysis with CGE model of the welfare impact of improved domestic market access for foreign telecom providers that the domestic telecommunications industry was initially
monopolized. The research found not only limited foreign market access was welfare improving if regulation can prevent the domestic incumbent and the foreign services provider to form a cartel but also results emphasized the importance of market structure and the regulatory environment on the
success of telecom liberalization. Ding and Haynes (2006) showed empirical evidence as well with a dynamic fixed effects model on the links between telecommunications infrastructure and regional economic growth during the period of 1986 to 2002 in China. The results showed that telecommunications
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infrastructure endowment was a key factor in regional economic growth in China. Michael (2008) found the effects of telecommunications using the panel data approach with a dynamic fixed effect model on long-run economic growth. It was evidences that between telecommunication infrastructures and regional growth indicated a significant and positive correlation; and showed that investment in telecommunications was subject to diminishing returns.
Ding, Haynes and Liu (2008) found that the system GMM estimation which was proposed by Caselli et al. (1996) and the system GMM estimator developed by Blundell and Bond (1998) was more likely to produce
consistent and efficient estimates than ordinary least square (OLS) and fixed-effect estimation. Findings indicated a significant and positive relationship across 29 regions during 1986 to 2002 between
telecommunications infrastructure and regional economic growth in China empirically testing the results by applying different panel data approaches to the study of telecommunications infrastructure in regional economic growth across China.
After reviewing the literature above, most of them focused on studying the development of telecommunications and its impacts on economic output or productivity with some evidences of a causal relationship between
telecommunications infrastructure development and economic growth in both directions with using different data resources, different time periods, and different methodologies. And only few journal articles are for China’s studies.
Moreover, most studies of the mutual relationship between
telecommunications development and economic growth have been primarily based on cross-sectional country data or regional data of developed
countries. Maddala (1999) attempted to examine the causal relationship
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running from telecommunications development with economic growth by taking a sample of transitional economies in Central and Eastern Europe.
These studies showed that it appears to be two ways, or mutual causality between telecommunications development and real economic growth at the aggregate level.
Ding (2005) also indicated that in fact telecommunications investment may have various effects for economies at different stages of development between developed and developing countries. Finally, it is important to find the adaptive methodology to investigate the interdependent relationship between economic growth and telecommunications development and its impacts during the period of 2002 to 2006 after WTO accession especially.
Datta and Agarwal (2004) indicated that there is a two- way causation between telecommunication development and economic growth in OECD which shows that telecommunications infrastructure plays a positive and significant role in economic growth using a similar data set which corrects for omitted variables bias of single equation cross-section regression after controlling for a number of other factors.
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Table 1 Relevant Literatures and Studies on the Development of Telecommunications and Its Impacts
Reference Approach Indictor Study Period Main Findings
Wallsten
Connection capacity
Labor efficiency
Price of local calls
1974~1997 Competition measured by mobile operators not owned by the incumbent is correlated with increases in the per capita number of mainlines, payphones, and connection capacity, and with decreases in the price of local calls
Wallsten
Mobile competitors
Year fixed effects
Mobile competitor
1987~1998 Exclusivity periods are associated with approximately a doubling of the firm’s sale price
The increased revenues to the government come with a cost that are correlated with a 20 to 40% decrease in telephone network growth
Mobile competition
Mobile subscriber
Digital technology
1985~1999 Both privatization and competition lead to significant improvements in performance
A comprehensive reform program produced the largest gains: an 8% higher level of mainlines and a 21% higher level of
productivity compared to years of partial and no reform
Mainline penetration is lower if competition is introduced after privatization, rather than at the same time
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Growth rate of trade partners
Real effective exchange rate
GDP per capita
Telecommunications performance
1990~1999 First introduces a model to assess the benefits of telecommunications liberalization on sector performance
Better performance of telecommunications strengthens export performance in manufacturing, including exports of intermediate products
Better telecommunications performance is found to be a determinant of foreign direct investment inflows
Contessi
1989~2000 Privatization processes are significantly correlated with increases in teledensity
The foreign participation in the incumbent generates positive benefits
Growth of population
Teledensity
Employment in total population
FDI in fixed investment
1986~2002 Telecommunications is both statistically significant and positively correlated to regional economic growth in real GDP per capita in China
Telecommunications investment is subject to diminishing returns, suggesting thereby that regions at an earlier stage of
development are likely to gain the most from investing in telecom infrastructure
1986~2002 Telecommunications infrastructure endowment is significantly and positively correlated to regional economic growth
The impact of telecommunications investment on growth is
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Growth of population
Transportation percentage
Teledensity
subject to diminishing returns
The determinants of mobile communications adoptions indicates that the socioeconomic characteristics played an important role in determining the initial adoption and diffusion speed of mobile communications
Higher levels of real capita income and openness had a positive impact on the diffusion rates of mobile communications
Stetsenko
Telecommunication capital stock
Teledensity
Mobile subscriber
Fixed-line subscriber
Price
Graphic area
Diffusion rate
2001~2005 The evidence of positive gains to economic growth from previous studies is unambiguous for high income countries
For medium and lower income countries, TI contributes to total growth
The intensive growth of TI has resulted in a large impact on GDP growth
Growth of population
Investment
GDP
Population
1984~2005 It is significant and positive correlation between
telecommunication infrastructures and regional growth in Africa
Investment in telecommunications is subject to diminishing returns
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Industrial output in SOE
Transportation percentage
1986~2002 The results suggest the system GMM estimation is more likely to produce consistent and efficient estimates than OLS and fixed-effect estimation
Findings indicate a significant and positive relationship between telecommunications infrastructure and regional economic growth in China and the empirical results from different estimations suggest robust results for this particular assessment
Zahra et
Initial economic condition
Telecommunication infrastructure
1985~2003 Telecommunication is both statistically significant and positively correlated to the real GDP per capita, after controlling for investment, population growth, past level of GDP per capita and lagged growth
Telecommunication investment is subject to increasing returns, suggesting thereby that countries gain more and more with the increase in telecommunication investment
Granger’s causality test confirms the causal relationship between telecommunication infrastructure and economic growth, but the relationship is significant from telecommunication to GDP per capita side but insignificant on GDP per capita to
telecommunication development side
Source: Arranged by this research
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