The impact of the Internet on economic growth in upper-middle-income countries

The Internet affects economies by facilitating a faster and wider access to information, promoting competition in the markets, enhancing communication in terms of lower cost and higher speed, providing a more efficient health care system, and promoting democracy. Therefore, the impact of the Internet on economic growth can be substantial and it can be seen as an important factor in classical and new economic growth models. I seek to determine the effect of the Internet diffusion on economic growth in 33 countries comprising nearly a billion people. In this regard, I consider a model in which I include the Internet diffusion as a factor reflecting the effect of the technology on economic growth. I control for standard variables suggested by growth economists: government consumption, inflation rate, degree of openness, years of schooling and life expectancy (as measures of human capital) and fertility rate, which are mostly ignored by other researches concerned with the impact of the Internet on economic growth. The results show that the effect of the Internet on the Upper-Middle-Income countries’ economies is sensitive to model specification. As expected, the Internet does not have an effect on the countries in this study consistent with its effect on developed countries. Factors that may explain the dissimilar economic impacts of the Internet between developed and developing countries are: general education differences, specific technical and language skills gap, along with the broader institutional environment and different regulations in these countries. The results in this paper suggest that the growth rate is enhanced by lower fertility rate, lower government consumption, lower inflation, and further openness to trade.