Impact of internet penetration on GDP in United States
Executive Summary
This research paper was commissioned to analyze the impact of internet penetration on GDP of the United States. The research draws attention to the plethora of literature work conducted on this topic. However, following a meticulous analysis of the literature resources, i found that the academic fraternity share a confronting view on the topic as while one section of researchers agrees that internet penetration do have a positive impact on the GDP of a nation, the other section of researchers postulates a vice-versa view.
Further carrying the research using regression analysis as part of which I used GDP as dependent variable and average internet users per 100 people, Net Foreign Direct Investment (% of GDP), Primary School enrollment growth and Broadband subscriptions per 100 people as independent variables, I found that none of the variables are significant in explaining the GDP growth rate of US from 2006-2010. However, I also agree that my regression model suffers from limitations of small sample size and the same is confirmed by the adjusted R-square multiple of 2.12%. Therefore, I recommend that further analysis on the topic should be performed using large sample size, more variables and advanced statistical tools.
I suppose that our readers will agree to the point that after God, Technology is turning omnipresent and chances are quite high that you may not meet your friends for a month or so, but you will meet ‘Siri’ everyday. Yes, we are talking about the human-interface tool embedded in all Apple Products, ‘Siri. ’ Amidst the expected guffaw from our readers and before we introduce you to the topic of this research paper, we have a question for you:
Do you remember an instrument called ‘Calculator’ which used to do hard calculations for us and which unfortunately has been replaced by our everyday tech-friend mentioned above, ‘Siri’, which not only does calculations for us, but a lot of other things; from booking a movie ticket, to weather forecasts, to sending texts, and that too without touching your smartphone.
Indeed, the internet and technology is endowing a big influence on human civilization now. However, while a million of technological tools are born every day and are making things easy for us, but there is one important question we want to inquire about; Is technology doing an economic good? Tech-honchos like Mark Zukerberg, Ilaan Mask, Timothy Cook, and many others are working relentlessly to transform our daily lifestyle with better and faster communication means, however, are their efforts productive from the viewpoint of the economy or not?
The source of interest in the topic is self-motivated as we, the individuals of the society, are sure that while more and more people are getting connected to the internet and are being exposed to new innovations, least is known about how the internet is contributing to the global growth and employment. Therefore, in this research paper, we will analyze whether the internet is actually doing economic good or is just a vast mosaic of entertainment only.
Variables and Design
I intend to run regression analysis to identify the impact of the growing penetration of internet on macroeconomic fundamentals like GDP. However, owing to some limitations with data availability for some complex variables relating with communication technology, I will be conducting the research for United States only. As part of the regression analysis, GDP will be the dependent variable, regressed onto four independent variables:
i) Average internet users per 100 people
ii) Net Foreign Direct Investment(% of GDP)
iii) Primary School enrollment growth (Proxy for human capital)
iv) Broadband subscriptions per 100 people
Important to note, the above four variables will serve as independent variables in our research process and will help us in understanding whether these variables has a significant impact on GDP, which is our dependent variable in this research study.
In order to ensure validity of the data introduced for the model, we relied on credible data sources. For instance, data relating to GDP, Gross Investment to GDP Ratio and Primary school enrollment were sourced from World Bank Database. On the other hand, data relating to broadband penetration and broadband subscriptions were sourced from The International Telecommunication Union World Telecommunication Indicators Database which is also a highly credible source for data relating to communication technology.
The sole source of secondary research was the existing literature evidence on the research topic. For instance, a research paper cited that during 1996-1999, computers were responsible for 0.49%-0.82% growth in the United States and also contributed significantly towards productivity improvements. Similarly, a research study conducted by a private lab of a technology company found in 2003 that increased broadband deployment had the potential to contribute $500 billion to the United States economy. Another notable research on the subject was performed by Gillett and Crandall in 2006 and 2007, respectively, where the researchers postulated a consenting view that the increase in broadband penetration do result in an increase in employment figures ranging from 1%-1.5%. In addition to all of the above research work, a research paper authored by Shideler concluded that a 1% increase in broadband penetration contributes to a total employment growth ranging from 0.14% to 5.32%, depending upon the industry.
On the other hand, we also found some research papers and surveys which had an opposite view. A survey conducted during 1998 concluded that from 1980’s to early 1990’s, there was a negative correlation between IT investment and economy-wide production level. Similarly, a research paper authored by Gordon in the year 2000, presented macro evidence that internet penetration does not cause a dramatic leap in productivity outside the manufacturing sector. Gordon also proposed that IT-intensive industries outside the IT sector are the worst performing. He also cited an example of the mining sector, which recorded growth in average productivity by 4 percent per year compared to -4 percent growth per year in the banking sector from 1987-1997. The results confirmed minimal impact of internet penetration of productivity of the industries as during the period, IT spending as a percentage of output was the highest in the banking industry and minimal in t mining sector. Yet, the productivity of mining sector was better than the banking sector. He culminated his research paper by comparing the impact of IT infrastructure as Solow Paradox, i.e. widespread evidence of computer use and little evidence of productivity growth.
Therefore, given the large number of literature evidence both in favor and against the economic impact of internet penetration, we hereby confirm our research question, i.e. whether internet penetration plays a significant role in the GDP of US.
Research Design
Now that we have finalized our research question, we take a step forward and authenticate our research methodology to be descriptive using regression analysis. It is considerable that since we already have the data from credible sources such as World Bank Database, we do not need to initiate the research work using exploratory research and create the groundwork first. In other words, since our objective is to know more about the topic and understanding the details rather than making guesses, descriptive research will be most appropriate here.
Data Collection Instrument
As already indicated in the previous sections, since the data we are looking to use in our analysis belongs to macroeconomic category, formulating a questionnaire and a corresponding survey will not be a prudent or a logical way to perform the research. Henceforth, we collected the macro-economic data for our dependent and independent variables from credible databases. For instance, data relating to GDP, Gross Investment to GDP Ratio and Primary school enrollment were sourced from World Bank Database. While data for broadband penetration and broadband subscriptions were sourced from The International Telecommunication Union World Telecommunication Indicators Database. It is considerable that selecting data from these credible sources ensures that the data is from any bias errors or fabrication. Accordingly, we can be sure that the outcome of our research analysis will be credible as it is based on a clean data.
Preparing Data for analysis
The data from each of the above sources was available in excel format. Therefore, we were only required to sort the data on the data basis starting from 2006-2014.
Data Analysis
Performing multiple regression analysis on the data, we found that factors like FDI Investment and Broadband penetration are significant and influenced the GDP figures of US from 2006-2010. Now, in order to check the significance of each independent variable, I referred to the residual values and analyzed the p-value of each independent variable against the significance level of 5%. My analysis revealed that p-value of variables all the variables such as FDI Investment, Primary Enrollment %, Broadband Subscription and Internet Users per 100 people is less than 5% level of significance. This indicates that none of these variables contribute significantly to GDP growth rate.
Another metric which disregards the use of this model is adjusted r-square of 2.11%. Important to note, while performing multiple regression, adjusted R-square indicates the strength of the regression model. Therefore, citing the current adjusted R-square multiple, I believe that the model and variables included, needs significant improvisation.
-Shortcomings and Future Work
Citing the adjusted R-square multiple, I believe that the potential shortcoming of this regression model was the variables and sample size. It is possible that under such data structure, we might get a significant relationship between GDP growth rate and other independent variables. Ironically, even the authors of World Bank report ran a Hausman test to find any statistical relationship between GDP and Broadband services in two way, i.e. whether Broadband service influence the GDP growth rate and if the increase in GDP cause increased demand for broadband services. However, the researchers were unable to find any such statistical significance over the impact of broadband services on GDP growth rate.
Henceforth, in order to evaluate the impact of internet penetration on GDP growth rate, we will need more sample size and other advanced statistical tests.
Research Conclusion
At the end of this paper, we can conclude that on the basis of regression analysis performed, I did not found any significant relationship between GDP growth(dependent variable) and independent variable such as FDI, Primary Enrollment Ratio, Internet usage per 100 people and Broadband subscription per 100 people.
Henceforth, we assert that internet penetration does not make a considerable impact on GDP of the United States.
References
International Telecommunication Union. (2012). Impact of Broadband on the Economy . International Telecommunication Union.
International Telecommunication Union. (n.d.). Statistics. Retrieved March 2, 2016, from https://www.itu.int/en/ITU-D/Statistics/Pages/stat/default.aspx
KENNY, C. (2003). The Internet and Economic Growth in Less-developed Countries: A Case of Managing Expectations? Carfax Publishing.
Scott, C. (2012). Does broadband Internet access actually spur economic growth?
World Bank. (2016). Data: United States. Retrieved March 2, 2016, from http://data.worldbank.org/country/united-states
Appendix
a) Data
b) Regression Analysis
