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Although it is generally accepted that the adoption of information and communications technologies (ICT) has had positive implications for productivity and output growth, much of the evidence pertains to developed countries. The extent of adoption of ICT and its consequences for firm and economy-wide performance in developing countries indeed is a major lacuna of research. To be sure, adoption rates in the latter have risen of late in tandem with the fall in the price of computing and greater availability of ICT. But little is known of their impact or effectiveness in general.
A recent discussion paper, ‘ICT adoption and productivity in developing countries: evidence from Brazil and India’ by Rakesh Basant, Simon Commander, Rupert Harrison and Naercio Menezes-Filho for the Institute for the Study of Labour based in Bonn, fills a major gap in this regard.
What is unusual is that it is based on a data set of a thousand manufacturing firms in both countries in industries like auto components, soaps and detergents, electrical components, machine tools, apparel and plastic products. Their effort is to look closer at the extent of ICT adoption at the firm and regional level.
For starters, their results are consistent with economy-wide data indicating that Brazil has a big lead over India in ICT adoption. ICT expenditure as a share of GDP thus was higher at 6.7% in Brazil when compared to 3.7% in India. Access to communications was also vastly lower in India, whether for fixed line, mobile or Internet and broadband coverage. In their study, Brazilian firms have also adopted ICT more intensively than their Indian counterparts: at the top end, 30% of Brazilian firms thus had automated processes with ICT integrated into a central system as against only 10% in the Indian sample of firms.
However, the variation between Brazil and India is perhaps far smaller than the economy-wide data suggests: Indian firms operating in states with good institutional environments tend to have ICT adoption rates similar to their Brazilian counterparts! A firm located in a state with good institutions like Tamil Nadu, for instance, could also expect to have three times higher ICT intensity and almost twice the rate of return on its ICT investments, compared to a firm in a weak-institutions state.
A combination of weak institutions and infrastructure in a particular state in India thus can result in lower adoption and lower returns to ICT adoption, while firms in better states have returns to ICT close to leading Brazilian firms. Regional variations in Brazil are smaller, too. India’s challenge, thus, is to address state-level inefficiencies and institutional weaknesses. |
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