Privatization, Telecommunications and Growth in Selected Asian Countries: an Econometric Analysis

In the face of the rapidly changing global telecommunications environment, there is now a growing consensus that telecommunications infrastructure contributes significantly to economic growth. Research literature is replete with studies exploring the relationship between the level of telecommunications infrastructure (measured by telephone mainlines per capita or teledensity rate) and economic growth. Almost all of these studies (discussed at length hereafter) have documented a positive correlation between teledensity rates (TDR hereafter) and a variety of indices of economic growth. However, the conclusions in most of these studies are based on simple correlation coefficient and regression analysis. Given the unit root characteristics of time series variables in general, results based on regression analysis, as pointed out by many, are subject to spurious correlation. In addition, the simple regression coefficients fail to establish the causal relationship and its direction between the variables of interest. In this paper, we examine the possibility of a two-way-link between TDR and economic growth (measured by real GDP) by exploiting a panel cointegration framework developed by PEDRONI (1995, 1999). Since this issue is of critical importance to developing countries, we study the relationship between the two referred variables for a panel of 12 Asian developing countries that vary in terms of stages of development. The chosen framework allows for the testing of long run cointegrated relationship between TDR and GDP and provides an error correction model for capturing the causal link between the cointegrated variables. Taking note of the fact that most developing countries, including those in Asia, have undertaken serious privatization efforts in their telecommunications sector since the late