The Impact of Institutional Change
on Internet Diffusion
in Small Transition Economies
Meelis Kitsing
PhD Candidate
Department of Political Science
University of Massachusetts Amherst
mkitsing@polsci.umass.edu
Research Question
How do institutions affect
Internet diffusion in small transition
economies?
Coase Workshop 2004
Why research the Internet diffusion?
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Public policy: enlargement of the European Union,
the eEurope+ and eEurope programs, agendas of
governments, international organizations and NGOs.
Political economy of transition
The performance of different political and economic
systems (free markets vs. social democratic
corporatism)
Role of institutions in economic performance
Market failures and public sector failures
Trade, FDI and technology transfer
Coase Workshop 2004
Literature
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Per capita GDP and Internet diffusion (Arnum and Conti 1998,
Kiiski and Pohjola 2001, Beilock and Dimitrova 2003).
Infrastructure development and Internet diffusion (Arnum and
Conti 1998, Beilock and Dimitrova 2003).
Competition policy and Internet diffusion (Dasgupta et al 2001).
Trade policy and technology transfer (Dollar 1993, Besley and
Case 1993).
Telecom sector regulation (Taylor 2002, Heimler 2000)
Institutions and performance (North 1990, 1994).
Political Economy of Transition (Balcerowicz 1995)
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Innovation and creative destruction (Schumpeter 1975)
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Coase Workshop 2004
Hypothesis
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If the institutions increase overall
economic openness in a country, the
higher the potential to increase the
number of Internet users per 10,000
inhabitants despite the country’s initial
starting position, when holding
everything else constant.
Coase Workshop 2004
Methodology
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A qualitative approach
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Dependent variable is Internet penetration
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Independent variables are institutions and their
change
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Broad: Path of Transition, Political Economy System, FDI
Regime, and Trade Policy.
Sector-specific: Market Access in Telecom Sector,
Privatization, Independence of Regulators.
Dynamic analysis: initial starting position is taken into
account.
Coase Workshop 2004
Explaining Internet Diffusion
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Geography
Size of country
Per capita GDP
Political Openness
Infrastructure (Main Telephone Lines)
Number of personal computers
Internet Access Costs
Literacy
Coase Workshop 2004
Findings
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Little hope for specific Internet policy without broader
changes.
Broader institutional framework matters
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Open trade and FDI regime.
Telecom sector specific institutions
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Independence of regulator – informal and formal.
Credible commitments to market opening and avoiding
regulatory capture.
Privatization: not just if but how.
Even if monopoly exist in voice telephony, then liberalization
of other services (data transmissions, ISPs, backbone
providers et al) is crucial.
Coase Workshop 2004