On the endogeneity of telecommunications and economic growth: evidence from Asia

The impact of mobile and fixed telephones on economic growth has been the subject of increasing scrutiny in the literature on economic development. It is even of interest to theoretical macroeconomists, as it provides a useful test of the positive network externalities that should be present if endogenous growth theory is correct. We study the relationship between teledensity and growth in Asia, as the countries there have experienced wildly different levels of telephone penetration per capita, and of rates of growth of GDP per capita. We estimate several econometric models, one which explicitly treats telecom as strictly exogenous, and others which treat it as endogenous. Our conclusions are robust to the econometric specification. We find that the impact of teledensity on growth is positive, and increases with the level of telephone penetration. This provides support for endogenous growth theory.