How Much Of An Economic Engine Is The Internet?

Brian Merchant reviews recent research that draws a connection between scientific productivity and economic development:

New research published in PLoS One purports to show that the best way to determine how prosperous a nation is, and how wealthy it will be in, say, five years, is to analyze how productive its scientists are. “Scientific productivity is a much better predictor of economic wealth and Human Development of a nation than other variables tracked by a number of commonly used indices proposed worldwide,” the authors state. …

But the kind of science invested in is important, too. Nations whose scientists publish more papers in chemistry and physical sciences do better than those that focus on applied sciences like agriculture or medicine.

Meanwhile, Charles Kenny argues that the Internet was oversold as a source of economic growth:

[M]any of the studies purporting to show a relationship between the Internet and economic growth relied on shoddy data and dubious assumptions. In 1999 the Federal Reserve Bank of Cleveland released a study that concluded (PDF), “… the fraction of a country’s population that has access to the Internet is, at least, correlated with factors that help to explain average growth performance.” It did so by demonstrating a positive relationship between the number of Internet users in a country in 1999 with gross domestic product growth from 1974 to 1992. Usually we expect the thing being caused (growth in the 1980s) to happen after the things causing it (1999 Internet users).

In defense of the Fed, researchers at the World Bank recently tried to repeat the same trick. They estimated that a 10 percent increase in broadband penetration in a country was associated with a 1.4 percentage point increase in growth rate. This was based on growth rates and broadband penetration from 1980 to 2006. Given that most deployment of broadband occurred well after the turn of the millennium, the only plausible interpretation of the results is that countries that grew faster from 1980 to 2006 could afford more rapid rollouts of broadband. Yet the study is widely cited by broadband boosters. Many are in denial about the failure of the IT revolution to spark considerable growth.