An Economic Framework for the Assessment of E-Commerce in Developing Countries

Literature Review

E-commerce literature has been growing rapidly in a number of interrelated dimensions by covering, primarily, business-related topics in relation to ICTs (the wired and wireless networks), and the Internet (2). The relatively recent body of literature on e-commerce identifies a wide range of factors encompassing numerous socioeconomic, cultural, and institutional factors affecting operations and the progress of e-commerce around the world. Sherif (2006) presents a recent comprehensive survey of the status of a number of developing countries in relation to various aspects of e-commerce such as strategies, challenges, and opportunities. Clearly, these conditions appear to vary substantially from one nation to another and across firms depending on the industry structure, state of the technology, and geographic locale.

International trade has long been viewed to enlarge trading nations’ production and consumption capacities and provide access to scarce resources without which poor nations would be unable to grow. In addition, the continued expansion of trade is expected to equalize returns to factor prices between nations, promote greater international equality and, in the long run, bring about economic growth. The emergence of the so-called digital opportunities and specifically the e-commerce has altered the landscape of this debate and led some to believe that the gap between poor and rich countries might shrink at an even faster pace than before as developing countries gain access to these technologies. However, there are those who hold an opposing view on this matter. Ferran and Salim (2006), for instance, argue that such equalization tendencies are far from happening as deficiencies in business practices caused by inadequate transportation, organizational, and payment infrastructures overwhelm the sole importation and installation of physical ICT capital. Similar concern has been raised by Mansell (2001), which examines the claim that using ICTs and particularly the Internet will facilitate success of firms in developing countries in international markets. The study concludes that unfavorable institutional setting and the lack of ICT-related skilled labor force hinder the success of e-commerce and long-term economic growth for most developing countries.

The literatures of the Internet and e-commerce are both integral parts of a broader body of ICTs literature. It is interesting to observe that researchers from different disciplines, even non-economists, are showing an increasing interest in understanding the economic foundations of ICTs in an attempt to answer questions concerning costs and benefits of ICTs. Bakos and Kemerer (1992) review six areas of economic theory that have been identified as a reference discipline for the systematic analysis of ICTs. McKnight and Bailey (1997) focus more closely on pricing models for the Internet, which is operational and economically efficient. The study also reminds the industry leaders, academics, and policymakers of the lack of a proper economic framework of the Internet services and the policy assessment of the Internet. In particular, the study invites scholars of technology, economics, and policymakers to cooperate in an interdisciplinary study of the Internet economics.

Studies by Tapscott (1996) and Harbhajan and Varinder (2005) attempt to explain the way digital economy operates. That is, how in the new economy enterprises organize their activities and how they are linked to one another. Shapiro and Varian (1999) focus on information economy and elaborate on the pricing of information goods, which tend to have zero marginal cost. Similarly, Liebowitz (2002) examines the network economy especially the basic Internet economics. Finally, Kauffman and Walden (2001) offer a comprehensive review of a broad-based literature on e-commerce from the perspective of a multi discipline research and a multilevel framework for conceptual analysis.