Research Offers a Peek Into the Productivity Picture
The Nobel Laureate and economist, Paul Krugman, famously once stated, “Productivity isn’t everything, but in the long run it is almost everything. A country’s ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker.”
Today, the significant slowdown in global economic growth reminds us not to lose focus on the importance of productivity. While the growing economic hardships are affecting everyone, they are hitting vulnerable populations in low-income countries the hardest. According to the IMF1, today’s supply chain shortages and rising commodity prices are contributing to inflation projections of 5.7% in advanced economies and 8.7% in emerging market and developing economies for 2022.
As part of a recent research project, supported by Ericsson, I examined the historic association between labor productivity across 116 countries and the speed of mobile broadband relative to each of those markets. The findings, published in the research paper “The economic impact of mobile broadband speed2,” imply a strong productivity increase within the national economy one year after the introduction of faster mobile broadband networks. When quantified, a 10% increase in mobile broadband speed in period t-1 would correlate to a 0.2% increase in labor productivity. Thus, the results indicate that investments in mobile broadband speed effectuates with a one-year lag.
While there has long been substantial evidence that ICT, in general, has a long-term positive effect on productivity development throughout countries—as well as vast research on how fixed and mobile broadband drives economic growth3—there is very little evidence to confirm the wider economic impact of speed in the broadband networks. While the consensus suggests a strong association between fixed broadband speed and economic growth, to my knowledge, there is no research on mobile broadband speed to validate it.
Productivity is a measure of how efficiently resources are used to produce goods and services. Higher productivity makes it possible to either produce more with the same level of resources or maintain the same level of production with fewer resources. Thus, in the future, it will become important for countries to adopt policies for inclusive growth, leading to productivity gains being more fairly distributed across society and creating opportunities for all. However, without productivity gains, the opportunities that enable people to escape poverty would be severely limited.
While the growing economic hardships are affecting everyone, they are hitting vulnerable populations in low-income countries the hardest. According to the IMF, today’s supply chain shortages and rising commodity prices are contributing to inflation projections of 5.7% in advanced economies and 8.7% in emerging market and developing economies for 2022.
Throughout history, new technology has been an important driver of productivity, and consequently, economic development. The concept of General Purpose Technologies (GPT) can be used to distinguish truly revolutionary technologies. Whole eras of technological progress are driven by notable GPTs characterized by pervasiveness, inherent potential for technological improvements, and innovative complementarities giving rise to increasing returns to scale. Pervasiveness implies that a GPT is used in many other industries. The GPT also undergoes continuous improvements resulting in increased efficiency in the GPT over time. Finally, innovational complementarities imply that the productivity of R&D in other industries increases because of innovation in the GPT.
The increase in standards of living started after the development of the steam engine in the late 1700s and continued during the development of the internal combustion engine and electrification into the 1800s. Together with ICT, these are the four major GPTs since the beginning of the Industrial Revolution. A number of studies suggest that there is evidence that these innovations have driven economic development, but that such economic development often happened within a delayed timeframe i.e., the wider impact was not instantaneous. Thus, the research literature on GPTs support the findings of technology affecting productivity with a delayed impact. One possible explanation is that complementary investment in organizational capital (i.e., new work systems, organizational redesign and business process reengineering) is necessary to reap the productivity effects from investments in new technology.
The Deep Dive
To investigate the relationship between mobile broadband speed and labor productivity I used statistical tools and economic theory in combination (i.e., econometric methods). The study includes, and is based on, Speedtest Intelligence® data from Ookla that has been processed by Ericsson. Speedtest is an app service used to test the speed of a particular mobile device. The Speedtest Intelligence® database presents data from millions of tests and readings collected via the app.
The countries included in the analysis are different in terms of economic development. It could be argued that countries in similar stages of economic development should be compared. Therefore, I divided the sample into high- and low-income countries based on classifications by the World Bank. The countries are classified based on gross national income (GNI). Low-income countries have a GNI of $4,095 or below, while high-income countries have a GNI of $4,096 or above. Moreover, the countries are also divided into Organisation for Economic Co-operation and Development (OECD)4 and non-OECD countries. (See sidebar titled: OECD Means…?)
The split revealed the interesting fact that results are only significant for non-OECD and low-income countries. One possible explanation is that non-OECD and low-income countries benefit more by investing in mobile broadband speed because they have not been able to invest as much in fixed infrastructure.
The results also remain robust once including additional variables in the econometric model that may influence productivity such as unique mobile and fixed broadband subscribers and other macroeconomic variables such as openness to trade, political stability and innovation capacity. Moreover, the results are also robust for different definitions of labor productivity.
The findings suggest that mobile broadband speed is linked to productivity growth. Thus, investment in mobile broadband speed provides hope for a journey of continued productivity growth in many developing countries. With the global launch and roll out of 5G mobile technologies, both the downlink and uplink speed in the mobile networks will increase considerably—in addition to other benefits which include improved resilience, capacity, and energy efficiency.
REFERENCES AND NOTES
1. https://www.imf.org/en/Publications/WEO/Issues/2022/04/19/world-economic-outlook-april-2022
2. This article adapted from “The economic impact of mobile broadband speed” research paper: https://www.sciencedirect.com/science/article/pii/S0308596122000532
3. https://www.ericsson.com/en/reports-and-papers/research-papers/research-brief-mobile-broadband-drives-economic-development
4. https://www.oecd.org/
ABOUT THE AUTHOR
Harald Edquist is Master Researcher, Macroeconomics, Ericsson Research. His research is focused on the impact of ICT technologies, such as IoT and 5G, on productivity, economic growth, and jobs. For more information, please visit www.ericsson.com. Follow them on Twitter @Ericsson, Facebook: EricssonNA, and LinkedIn: company/ericsson.
