Linking Investments in Telecoms and Economic Growth: An Empirical Analysis of Total Factor Productivity and its Determinants in the Context of Transition Economies

The limited resources of Transition Economies (TE) accentuate the need for formulation of the effective and efficient policies for investments in Information and Communication Technologies (ICT). However, the empirical evidence required for sound decision making is scarce, thus prompting a call for additional studies in the area of the macroeconomic impact of investments in ICT. Using time series data for the period from 1993 to 2002, we investigate the impact of investments in Telecoms on Total Factor Productivity (TFP) in the context of 18 TEs of Central Europe. The results of the data analysis suggest that while all TEs exhibited overall growth in productivity, the annual growth of the majority was inconsistent and not determined by the increase in the levels of investments and full-time Telecom labor. The results also indicate that introduced for the purposes of the investigation composite proxy variable Change in Productivity may reliably serve as a predictor of TFP for eight out of eighteen TEs, thus indicating actionable paths for TEs to obtain a spillover effect from investments in ICT.

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