Rule of Law, Regulation and Growth of Mobile Telecommunications

Abstract

Motivated, in part, by the new of paradigm in development economics, we examine the role of institutions, broadly defined, on the rate of mobile network build-out. We find that the strict rule of law (i.e., strong protection of private contract and property) does not exhibit a statistically significant relationship with mobile network growth. More macro-level regulatory policies, however, ranging from lower tariffs, modest import controls, and lower levels of foreign ownership restriction are significant positive correlates of network growth. These findings suggest that a non-democratic regime with a correct set of regulatory policies might experience substantial network growth, relative to the international average - without providing strong classical protections of private contract and property rights. In addition, we find that corruption and state capture correlate significantly and negatively with mobile network growth. Plausibly, state capture and corruption increase the cost of doing business and these higher costs may slow growth, or preclude it altogether. Finally, examining cultural determinants of network growth, we find that our coefficient on language fractionalization is negative and significant, which implies that nations with greater language diversity experience slower network growth. Plausibly then, network growth in a numerically large, but linguistically heterogeneous, population may be smaller than predicted absent this consideration. Finally, we observe that real GDP per capita is positive and significant, a finding shared with multiple studies exploring growth rates of mobile networks, and economic development more generally.