Impact Of Telecommunication Industry On Nigeria Economic Growth

Project and Seminar Material for Economics

Project and Seminar Material for Economics

Chapter One


1.1 Background of the Study

Arguably telecommunication industry is today the fastest growing industry in Nigeria. The industry has remain a major driver of innovation and transfer of technology to Nigeria economy. The mobile telecommunications industry has grown rapidly over the last three decades representing one of the most intriguing stories of technology diffusion. Since 2002 mobile subscribers have exceeded the number of fixed lines globally. The process to achieve what fixed phones have struggled for more than 120 years took less than a fifth of the time for mobile networks. This cross-over time of mobile users has been even shorter for developing countries. At the end of 2009 the number of mobile telecommunications subscribers reached 4.6 billion, which is equivalent to 67 percent of the world population. This technology is particularly relevant in developing countries, where there are more than twice as many subscriptions (3.2 billion) as in developed countries (1.4 billion).

While the determinants for the diffusion of mobile telecommunications have been extensively studied (e.g. Gruber and Verboven, 2001; Koski and Kretschmer, 2005; Gruber and Koutroumpis, 2010) relatively little is known about the impact of this technology at a macroeconomic level.

The pervasiveness of the technology in terms of transforming the way economic activity is organized suggests that mobile telecommunications has features of what is referred to as general purpose technology (Bresnahan and Trajtenberg, 1995; Helpman, 1998). In fact, mobile telecommunications deeply affect the way users interact and have significant externalities for the economic activities that they are used. There is widespread anecdotal evidence about the surge of new companies and business models with worldwide brands linked to the sector (e.g. Nokia, Vodafone) and the appearance of new modes of communication such as ‘personal reachability’.

Because of the lower access cost to the user compared to wired telecommunications, linked with the solution of the problem of creditworthiness of customer through prepaid cards, the technology could reach completely new segments of population particularly in developing countries. Revenues of the mobile telecommunications account nowadays for a significant percentage of GDP especially in developing countries, where mobile telecommunications have also been an important and efficient means for tax collection. Moreover, telecommunications infrastructure has significant network externalities. In line with the network economics’ literature, one of their key characteristics is that the value of the network increases with the usage base.

This has frequently been referred as a direct network externality (Economides and Himmelberg, 1995), with the implication that critical mass effects may occur when certain threshold levels of diffusion occur which can then trigger off additional benefits, such as the availability of new services. Ultimately one would expect increasing returns from the adoption of the technology. The implication suggests that high mobile penetration yields incentives for further investment, very much along the “success breeds success” paradigm. As a result low penetration countries, which typically are developing countries, could have a double disadvantage: they not only have a lower growth impact due to lower mobile diffusion; they also have lower incentives for further development of the mobile network. Hence, the economic cost in terms of foregone growth is highest in less diffusion countries.

This paper assesses the impact of telecommunications on growth taking into account the fact that economic growth is itself a determinant for the diffusion of mobile telecommunications. The most appropriate setting appears therefore a simultaneous equation model. Compared to a single equation model, this corrects for possible simultaneity biases that are most likely to underestimate the impact of mobile telecommunications on growth. Modelling mobile telecommunications diffusion as endogenous allows for a more accurate estimate of its impact on growth. This leads also the ranking of countries into clusters that identify threshold market penetration levels at which critical mass effects are enlarged.

Presently, the two national careers, Nigeria Telecommunications Plc (NITEL) and Globalcom, are both private entities. NITEL was public ally owned until late 2006 when it was partially privatized and since then there have being crisis in the organization. There are five digital mobile (GSM) operators (MTN, Glo, Airtel, Etisalat and Mtel), and 20 other operators have been licensed to provide fixed wireless services at national and regional levels. All six geopolitical zones have Internet access, and efforts are being made to pursue to increase penetration. In 2000, the penetration rate was 1 in 100 persons; by 2006 the ratio had improved to 14.5 in 100. Nigeria is a member of the consortium that runs the SAT-3 submarine fibre optic cable.

1.2 Statement of the Problem

Findings generally indicates that GSM as a telecommunication tool has considerable effects on the rural economy specifically on drastic reduction of crime rate. It was concluded that GSM is an emerging communication industry in African with Nigeria rates as one of the fastest growing market in this field of communication but with both positive and negative effects. One of the negative effects which this report tries to look upon is the inability of the subscribers to identify exactly the geographic location of their callers or receivers respectively. So, there is a need to combating such problem in Nigerian telecommunication industries.

The internet has become an important tool for business growth, social activities and research in Nigeria. While the interest is well integrated into education, business and social activities in North America, Europe and part of Asia, Nigeria can be said to be attempting giant strides in embracing its usefulness and applications. Internet has sprung in major cities, a large majority of internet access is provided by telecommunication sector and very few business organizations could afford them.

These problems militating against the telecommunication sector have strong impact on the income generation of the Nigerian economy. And, the more problem the telecommunication sectors faced, the costlier it becomes to use the services of the telecommunication sector. This will increase the cost of production, since business firm is a customer to the telecommunication sector and the profit of the business sector could shrink.

1.3 Research Question

Having reviewed the related literatures and considering the structure of the Nigerian economy as related to telecommunication and output growth, we may then ask the following questions.

  1. Does telecommunication have any significant impact on Nigeria’s economic growth?
  2. Is there any long-run relationship between telecommunication and Nigeria’s economic growth?

1.4 Objectives of the Study

The broad objective of this research work is to study, in it’s entirely, the relationship between telecommunication and output growth in Nigeria. This broad objective can be subdivided into the following smaller objectives:

  1. To examine the impact of telecommunication on Nigeria’s economic growth.
  2. To examine the long-run relationship between telecommunication and Nigeria’s economic growth.

1.5 Statement of the Hypothesis

In view of the foregoing study, with respect to trade openness and output growth in Nigeria, the following null hypothesis will be tested:

  • Ho: Telecommunication does not have any significant impact on Nigeria’s economic growth.
  • Ho: There is no long-run relationship between telecommunication and Nigeria’s economic growth.

1.6 Significance of the Study

The role of telecommunication in the developmental journey of an economy cannot be over emphasized, especially with the current trend of globalization. Nigeria being part of the global village, is not left out of this world development. This research work is carried out to study how trade openness has influenced the performance of the Nigeria economy through output growth in the presence of other internal and external shocks.

It will help the government to see the effectiveness of telecommunication policy on the economic growth of the nation over the years. This research work will further serve as a guide and provide insight for future research on this topic and related field for students who are willing to improve it. It will also educate the public on various government policies as related to trade issues.

1.7 Scope and Limitation of the Study

This research work span through the period of 1981-2015, and is within the geographical zone of Nigeria. This research exercise, like every other research work, is really a rigorous one that consumes much time and energy especially in the area of data sourcing, data computation and modeling. Nevertheless, the researchers have properly organized the research so as to present dependable results which can aid effective policy making and implementation at least for the time being.

Impact Of Telecommunication Industry On Nigeria Economic Growth

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