Investment by Telecommunications Operators and Economic Growth — A Fenno-Scandinavian Perspective

Abstract

This paper examines the effect of investments by telecommunications operators on the growth rate of real GDP, by using time-series data for Finland, Sweden and Norway between the years 1970 and 2001. This study makes use of the production function model provided by Ram (1986). The explanatory variables are chosen in line with stylised facts, and in order to isolate the effect of investment on telecommunications infrastructure. The estimation is based on pooled time-series estimation with corrections for column dependency. The results do not, thus far, provide any evidence that the investment expenditures of telecommunications operators have significantly altered the pace of economic growth. This result is in some contrast to previous studies using data from Central and Eastern Europe and from OECD countries. Moreover, comparing these results with a similar estimation of Finnish data only, the robust relationship between the share of private investment in output and economic growth is blurred. In exchange, the results support the importance of public capital formation to economic growth. The main conclusion of the paper is that in relatively developed economies, the effect of telecommunications on growth may arise from investments in user segments, rather than from investment expenditure on the supply side.