ICTs, Income Inequality, and Ensuring Inclusive Growth

Abstract

Thirty years ago a UN commission published the Maitland Report, proposing that by the early 21st century, every individual on the planet should “be within easy reach of a telephone” because of the economic impacts information and communications technologies (ICTs) bring forth. Today, as we approach that goal with over 90% of the global population covered by mobile cellular signals, we are in some ways surpassing it as high-speed broadband subscriptions total over 3.4 billion in 2014. This paper reviews the history of ICTs as a driver of economic growth and explores the impact of ICTs on income inequality. We find that ICTs impact on income inequality is mixed: helping to reduce global income inequality but also contributing to rising within country income inequality. A review of the macroeconomic and microeconomic literature on ICT impact on the effects of income growth posits explanations for the mixed relationship. At the country level, evidence from the last two decades demonstrates that ICT, particularly broadband Internet, drives economic growth. Studies link fixed telephony, mobile telephony, Internet use, and broadband to gross domestic product growth in a causal relationship across developed and developing countries. Increasing the intensity of data use also drives per capita income growth.At the microeconomic level, emerging analysis highlights the impact that ICTs can have on driving income growth at the bottom of the economic pyramid. Mobile phones in particular, have spread across the developing world and this ‘mobile miracle’ is contributing to income growth as handsets act not only as a communication device for sharing public and private information, but also as a educational tool delivering learning content and as a financial transfers and savings device.A direct result of ICTs impact on growth is that developing regions have experienced a steady decline in absolute poverty. The global extreme poverty rate has dropped from 1.9 billion people in 1981 to 1.3 billion in 1990 according to the World Bank: a drop in extreme poverty rates in developing countries from greater than 50 percent to 21 percent. This decline in extreme poverty has been driven by long-run economic growth in China and India, recent growth across Africa, and the impact of social programs in Latin America. The picture is more mixed however when looking at ICTs impact on income inequality. This paper discusses the data on ICTs impact on income inequality and posits explanations for the mixed impact on income inequality. Furthermore, the paper presents potential policy remedies to counter the possible income polarizing impacts of ICTs.