Monday, October 6, 2014

Does Technology Drive Growth, or Does Growth Drive Technology Investment?

The conventional wisdom is that investments in information technology and high speed access and other forms of communication contribute to economic growth.

Like many other bits of conventional wisdom, the relationship between economic growth and technology investment is unclear.

Though most believe that technology investment “causes” growth, some might argue that it is economic growth that drives technology investment. And the issue might be more complicated than that.

Some would argue that it is not “technology” that contributes to economic growth, but “innovation,” and that might be quite a different matter. Using computers to create online retailing perhaps is an innovation.

Using computers instead of typewriters to create documents, while more efficient, might not represent so much innovation.

And there is a complicated “dark side.” Huge economic transformations, such as the Industrial Revolution, also disrupt the economic fortunes of huge numbers of people.

“Somehow, information and communications technology and Internet Protocol help grow the economy,” said Rozaimy Rahman, Telekom Malaysia Global EVP.

Rahman noted Malaysia’s stated goal of “becoming a fully-developed nation by 2020.”

But one might note the high rates of economic growth across Southeast Asia and argue that it is growth that is driving communications adoption and investment.

 source: Malaysia Chronicle

Some of us might argue that technological advances do increase productivity, but only after a lag. The lag might be as short as a decade, but might take longer.

As a practical matter, policymakers will behave as though they believe the theory that information technology and high speed access drives growth. Though the actual causal process is not so clear, the risk of betting wrong is simply deemed too great.

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