Cambridge Forecast Group Blog

Today, mobile phones are the primary form of telecommunication in most emerging economies, fulfilling much the same role as fixed-line phone networks did in facilitating growth in the United States and Europe after World War II.

Some developing nations have even jumped out in front as mobile pioneers. In the Philippines, more than 4 million people use their cell phones as virtual wallets to buy things or transfer cash – services still rare in many wealthy countries, with few exceptions like Japan.

As service charges and handset prices have plunged and coverage areas have expanded, cell phone subscriptions in the developing world have surged fivefold since 2000, to 1.4 billion at the end of 2005, according to the U.N. International Telecommunication Union. That’s nearly double the 800 million in advanced economies.

Research shows that greater cell phone use can drive economic growth in emerging economies. Based on market research in China, India and the Philippines, consulting firm McKinsey & Co. found that raising wireless penetration by 10 percentage points can lead to an increase in gross domestic product of about 0.5 percent, or around $12 billion for an economy the size of China.

A 1999 World Bank policy research working paper entitled Infrastructure’s Contribution to Aggregate Output, by David Canning examines the contributions of different factors of production to aggregate output looking at 57 countries over the period 1960-1990. Canning found a large productivity benefit to investment in telecom—larger than investments in roads, electricity or even education! Canning’s work was on pre-mobile phone data. More recently, Leonard Waverman, Meloria Meschi, Melvyn Fuss in their paper, The impact of telecoms on economic growth in developing countries, examine 38 developing countries for which full data was available for the period 1996-2003. The short summary, “There are increasing returns to the endowment of telecoms capital (as measured by the telecoms penetration rate).”