Economic Freedom and the Impact of Technology on Productivity

Economic Freedom and the Impact of Technology on Productivity

Ashok Robin (Rochester Institute of Technology, USA) and Thomas Tribunella (State University of New York at Oswego, USA)
DOI: 10.4018/978-1-60960-605-3.ch001
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Abstract

A well-developed body of literature has detected positive effects of technology investments on economic growth. We contribute to this literature by studying the joint effects of technology and economic freedom on economic growth. Using two different time points, 1990 and 2000, and a sample of over 100 countries, we find that economic freedom enhances the effect of technology on economic growth. In fact, we find that the standalone effect of freedom is not as large as its interactive effect with technology.
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Introduction

Economic growth is considered a key indicator of national success. A country’s performance and status is often determined by its level and growth in economic income. Alternative measures such as Gross National Product (GNP) or Gross Domestic Product (GDP) (levels or percent changes) are used as proxies to measure economic growth. Because of its importance, considerable research has been directed toward determining factors influencing economic growth. This literature, inspired by Solow (1956), spans half a century and hundreds of publications. A recent offshoot, appearing in the Information Systems (IS) literature, seeks to assess the effect of technology on growth. No doubt, this research has been spurred by the advent of the Internet and the digital economy. Therefore, it is no surprise that a fairly narrow definition of technology is used in most studies. The independent variable (technology) typically reflects the following three elements: computer hardware, computer software, and communications equipment. The conclusion from these studies is that technology has a positive impact on growth.

We study the impact of economic freedom on the relationship between technology and economic growth. We use a sample of more than 100 countries and use two cross-sectional snapshots during 1990 and 2000. We argue that a climate of economic freedom allows various entities (individuals, teams, corporations, societies) the flexibility to harness the positive effects of technology. Not only would greater investments be made in technology but these investments would also have a greater possibility of bearing fruit. Thus, we expect technology to have a greater effect on economic growth when coupled with an environment of economic freedom. We test this proposition and find results consistent with our hypothesis. We report robust results indicating a significantly positive interaction between freedom and technology. We note that it is not economic freedom per-se that affects growth but technology accompanied by economic freedom.

In the next section of the paper, we describe the two streams of literature we draw on. We present our research models along with a description of our sample in the Data and Methodology section. We report the outcomes of our statistical tests in the Results section. Then we discuss the data and results of our research findings. In the following section, we outline the contributions of our study. Finally, the limitations of the research are highlighted and we conclude in the last section.

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