Economic growth and the development of telecommunications infrastructure in the G-20 countries: A panel-VAR approach

• This paper uncovers linkages between the development of telecommunications infrastructure, economic growth, and four key indicators of operation of a modern economy.
• We study the G-20 countries over the period 1991–2012 and employ a panel vector auto-regressive model for detecting Granger causality.
• Our results provide evidence of bi-directional Granger-causality between the development of telecommunications infrastructure and economic growth in the long run.
• We also find that, with the exception of the urbanization rate, other macroeconomic variables affect economic growth in the long run.
• Thus, omitting macroeconomic variables from studies risks errors of specification.

This paper examines the linkages between the development of telecommunications infrastructure (DTI), economic growth, and four key indicators of operation of a modern economy: gross capital formation, foreign direct investment inflows, urbanization rates, and trade openness. By studying the G-20 countries over the period 1991–2012 and employing a panel vector auto-regressive model for detecting Granger causality, we find a network of long-run causal connections between these variables, including bidirectional causality between DTI and economic growth.

Note 1: We use a composite index of telecommunications infrastructure for DTI and percentage change in per capita gross domestic product for economic growth. Our macro variables are GCF, FDI, URB, and OPE.Note 2: DTI: Development of telecommunications infrastructure; GCF: Gross capital formation; FDI: Foreign direct investment inflows; URB: Urbanization; OPE: Trade openness.Figure optionsDownload as PowerPoint slide