G20 - Telecom VAR

Telecommunications Policy 38 (2014) 634–649
Contents lists available at ScienceDirect
Telecommunications Policy
URL: www.elsevier.com/locate/telpol
Economic growth and the development of

telecommunications infrastructure in the G-20 countries: A
panel-VAR approach
Rudra P. Pradhan a,n, Mak B. Arvin b, Neville R. Norman c,d, Samadhan K. Bele e
a
Vinod Gupta School of Management, Indian Institute of Technology Kharagpur, WB 721302, India
b
Department of Economics, Trent University, Peterborough, Ontario, Canada K9J 7B8
c
Department of Economics, Universities of Melbourne, Victoria 3010, Australia
d
Department of Economics, University of Cambridge, Cambridge CB3 9DD, UK
e
RCG School of Infrastructure Design and Management, Indian Institute of Technology Kharagpur, WB 721302, India
a r t i c l e in f o abstract
Available online 16 April 2014 This paper examines the linkages between the development of telecommunications
Keywords: infrastructure (DTI), economic growth, and four key indicators of operation of a modern
Telecommunications infrastructure economy: gross capital formation, foreign direct investment inflows, urbanization rates,
Economic growth and trade openness. By studying the G-20 countries over the period 1991–2012 and
Macroeconomic variables employing a panel vector auto-regressive model for detecting Granger causality, we find a
Panel VAR network of long-run causal connections between these variables, including bidirectional
Granger causality causality between DTI and economic growth.
& 2014 Elsevier Ltd. All rights reserved.
1. Introduction
Expectations of economic advances in and arising causally from the information communication technology age have
prompted developed and developing countries to invest a significant portion of their resources in order to further develop
their telecommunications infrastructure (Dimelis & Papaioannou, 2011; Datta & Mbarika, 2006; Colecchia & Schreyer, 2002;
Daveri, 2002; Oliner & Sichel, 2000; King et al., 1994). Commonly in these studies, the role of other macroeconomic variables
operating adjacently has been neglected or omitted entirely. We overcome this deficiency and examine more broadly the
causes and consequences of the development of the telecommunications infrastructure (DTI). In particular, we examine
causal links between DTI, economic growth, and four key indicators of a modern economy: (i) gross capital formation, (ii)
foreign direct investment inflows, (iii) urbanization rates, and (iv) international trade openness. We investigate, among
other things, whether the development of the telecommunications infrastructure has contributed to economic growth, or
whether the expansion of the telecommunications infrastructure is simply a consequence of economic growth.
This paper proceeds as follows. Section 2 provides a brief overview of the nexus between DTI and economic growth.
Section 3 offers a literature review. Section 4 explains the variables we employ in our analysis. Section 5 details our data
sources, describes the composition of the samples, and summarizes our hypotheses. This is followed by a detailed discussion
of our econometric estimation approach. In Section 7 our results are presented. Finally, we offer pertinent conclusions and
implications in Section 8.
n
Corresponding author.
E-mail addresses: rudrap@vgsom.iitkgp.ernet.in (R.P. Pradhan), marvin@trentu.ca (M.B. Arvin), n.norman@unimelb.edu.au,
nrn1v@econ.cam.ac.uk (N.R. Norman), samadhanid09@gmail.com (S.K. Bele).
http://dx.doi.org/10.1016/j.telpol.2014.03.001
0308-5961/& 2014 Elsevier Ltd. All rights reserved.
R.P. Pradhan et al. / Telecommunications Policy 38 (2014) 634–649 635
2. The importance of telecommunications infrastructure for economic growth
One important characteristic of telecommunications infrastructure is the presence and impact of positive network
externalities: the greater the number of users, the greater is the value derived by other users. Such characteristics do not
exist in other types of public infrastructure such as roads, bridges, ports, and transit and sewage systems. Thus, investment
returns (in terms of higher economic growth) are expected to be higher in telecommunications infrastructure than in other
types of infrastructure (Chakraborty & Nandi, 2011). Furthermore, the returns may not accrue as a linear function of the
value of infrastructure investment (Roller & Waverman, 2001).1 One can thus expect a positive relationship between the
development of a telecommunications infrastructure and economic development in all countries (Hardy, 1980; Shiu & Lam,
2008a; Lam & Shiu, 2010). There are at least four ways in which the telecommunications infrastructure can contribute to
economic and societal development: first, business retention; second, economic diversification; third, enhancement of
quality of life; and fourth, increasing business competitiveness (see, for instance, McGovern & Hebert, 1992; Jorgenson &
Stiroh, 1999; Oliner & Sichel, 2000; Cieslik & Kaniewsk, 2004; Lee, Gholami, & Tong, 2005; Shiu & Lam, 2008b). However,
perhaps the greatest impact of telecommunications infrastructure is on information diffusion and organizational efficiency
(Hardy, 1980). Many economists have asserted that telecommunications infrastructure affects economic growth both
directly and indirectly (Tranos, 2012; MacDougald, 2011; Kenyon, 2010; Choi & Yi, 2009; Thomson Jr. & Garbacz, 2007;
Ding & Haynes, 2006; Brock & Sutherland, 2003; Kenny, 2002; Oliner & Sichel, 2000; Cronin, Colleran, Herbert, & Lewitzky,
1993a). Other observers have stated that the development of telecommunications infrastructure is a prerequisite for other
infrastructure developments which are necessary for economic growth. Conversely, the inadequacy of telecommunications
infrastructure can affect the economic growth negatively (Gorman, 2000; Moss & Townsend, 2000).
During the 1990s, telecommunications infrastructure became a matter of growing interest and concern for governments and
industry (see, for instance, Weieman, 1998; Sommers & Carlson, 2000). However, infrastructure, irrespective of type, is not a
universal panacea for telecommunications development issues. Hence, cities that are vying to be the next Silicon Valley need to
understand this disparate role of telecommunications infrastructure and to know its limits. The relationship between DTI and
economic growth is likely to be complex and mutually reinforcing. DTI is likely always to enhance economic growth, while
economic growth, in turn, may initiate further DTI. Telecommunications infrastructure can potentially contribute to economic
development through the lowering of transaction costs (e.g. through faster provision of financial services), creating new
opportunities for innovation, providing access to new markets (e.g. through e-commerce and better exchange of information),
lowering the cost of capital (through increased efficiency in the functioning of financial markets), closing regional discrepancies
in incomes and productivity, providing access to human capital (through tele-networking), and generating positive externalities.
Hence, a solid telecommunications network is likely to be a key pre-condition to enhancing economic development, through
supporting industry and manufacturing, improving agriculture, education, health, social services, and transportation, as well as
contributing to macroeconomic stability (Hackler, 2003; Gasmi & Virto, 2010; Narayana, 2011). Fig. 1 provides a summary of the
possible links of the telecommunications infrastructure to economic development.
3. Review of the relevant literature
Explaining the causes and consequences of the development of the telecommunications industry has been the central
focus of recent empirical literature. Early studies confirm a positive relationship between DTI and economic growth
(Madden & Savage, 2000; Greenstein & Spiller, 1995; Saunders, Warford, & Wellenius, 1994; Cronin, Colleran, Herbert, &
Lewitzky, 1993b; Leff, 1984; Hardy, 1980). Other studies use a structural model to isolate the effect of telecommunications
infrastructure on economic growth by controlling the number of macroeconomic variables such as gross fixed investment,
transportation, and energy consumption(see, for instance, Datta & Agarwal, 2004; Roller & Waverman, 2001; Madden &
Savage, 1998). However, these studies investigate the correlation between DTI and economic growth – rather than the
direction of causality between the two. Studies paying attention to the nature of causality between the two variables began
with the seminal work of Cronin, Parker, Colleran, and Gold (1991) who raised the possibility of bidirectional causality. Since
then, despite a sizeable body of literature on this subject, the direction of the causal effect across the two variables has been
inconclusive. It is thus still open to question whether the development of telecommunications infrastructure drives
economic growth or whether it is a consequence of growth. The balance of this section reviews the empirical studies on this
topic and the hypotheses that their findings support.
The supply-leading hypothesis (SLH) contends that telecommunications infrastructure is a necessary pre-condition to
economic growth. Thus, the causality runs from DTI to economic growth. The proponents of this hypothesis (Cieslik &
Kaniewsk, 2004; Chakraborty & Nandi, 2003; Dutta, 2001; Roller & Waverman, 2001) maintain that the telecommunications
infrastructure induces economic growth by directly supporting other infrastructures and factors of production, thereby
improving economic growth.
The second proposition is the demand-following hypothesis (DFH), which suggests that causality runs instead from
economic growth to telecommunications infrastructure. Supporters of the demand-following hypothesis suggest that
telecommunications infrastructure plays only a minor role in economic growth: it is merely a by-product or an outcome of
1
A study suggests that telecommunication investment is subject to increasing returns.
636 R.P. Pradhan et al. / Telecommunications Policy 38 (2014) 634–649
=> Wider dissemination of market information
=> More timely market information
=> Lower coordination costs in markets
=> Improved public services like health and education
Telecommunications Economic Growth

Infrastructure
=> Increased ability to invest in telecommunications infrastructure
=> Demand for wider access to telecommunications infrastructure
=> Demand for more advanced telecommunications infrastructure
=> Increased telecommunications infrastructure needs of service sector
Fig. 1. Telecommunications infrastructure and economic growth: possible sub-links.

Source: Dutta (2001).
economic growth (Pradhan, Bele, & Pandey, 2013a; Beil, Ford, & Jackson, 2005). The idea is that as an economy grows, an
additional telecommunications infrastructure emerges in the economy.
Third, there is a feedback hypothesis (FBH) which suggests that economic growth and telecommunications infrastructure
can complement and reinforce each other, making economic growth and telecommunications infrastructure mutually
causal. The argument in favor of the bidirectional causality is that telecommunications infrastructure is indispensable to
economic growth and economic growth inevitably requires a solid telecommunications infrastructure in the economy
(Chakraborty & Nandi, 2011; Zahra, Azim, & Mahmood, 2008; Yoo & Kwak, 2004; Chakraborty & Nandi, 2003).
The fourth hypothesis is absence of causality, which is supported by few papers (e.g., Dutta, 2001) positing that there is
no statistically significant causal effect between economic growth and telecommunications infrastructure.
Table 1 provides a summary of these studies, with the direction of the causal effect noted.
4. The variables
In this study, we use the panel Granger causality test to present new evidence on the relationship between the
development of telecommunications infrastructure, economic growth, and four macroeconomic variables: gross capital
formation, foreign direct investment inflows, urbanization rate, and trade openness, using data on the G-20 countries over
the period 1991–2012. We also use cointegration tests to reveal whether these variables are cointegrated; that is, whether
there is a long-run equilibrium relationship among them. The variables are summarized in Table 2.
DTI is calculated using three indicators: the number of telephone land lines per thousand of population, the number of
mobile phones per thousand of population, and the number of internet users per thousand of population. We use principal
component analysis (PCA) to construct a composite index for the development of telecommunications infrastructure. This
index is henceforth denoted by CIT. A rationale for using PCA and an explanation of the approach is in order.
Modeling various indicators of DTI in the same equation would lead to the serious problem of multicollinearity.
In addition, utilizing the aggregate effect of these indicators is likely a better approach than modeling each indicator
separately. Thus, we bring the DTI indicators together by employing PCA, which is a method to extract information from
complex datasets. Simply stated, PCA transforms the data into new variables (i.e., the principal components) that are not
correlated.
The use of PCA to construct indexes similar to ours is well-documented in papers using panel data (see, for example,
Coban & Topcu, 2013; World Economic Forum, 2011; Huang, 2010; Saci & Holden, 2008).2 To be clear, PCA is a special case of
the more general method of factor analysis. The approach entails several steps: construction of a data matrix, creation of
standardized variables, calculation of a correlation matrix, determination of eigen values (to rank principal components) and
eigenvectors, selection of PCs (based on stopping rules), and interpretation of results (Hosseini & Kaneko, 2011, 2012).
2
Manly (1994), Sharma (1996), Joliffe (2002) and Hosseini and Kaneko (2011, 2012) provide procedural detail on the use of PCA.
Table 1
Summary of studies on development of telecommunications infrastructure and economic growth.
Study Method(s) Countries Period covered
Case 1: Studies supporting SLH

Dutta (2001) GCT 15DCs and 15 ICs 1960–1993
Chakraborty and Nandi (2003) GCT 12 ACs 1975–2000
Yoo and Kwak (2004) GCT Korea 1965–1998
Cieslik and Kaniewsk (2004) GCT Poland 1989–1998
Shiu and Lam (2008a) DPDM China 1978–2004
Mehmood and Siddiqui (2013) DPDM 23 ACs 1990–2010
Case 2: Studies supporting DFH

Beil et al. (2005) GCT and MST USA 1947–1996
Beil et al. (2005) GCT and MST USA 1947–1996
Lee, Levendis, and Gutierrez (2012) GCT 3 NACs 1975–2009
Pradhan, Bele, and Pandey (2013b) DPDM 34 OECD Countries 1961–2011
Case 3: Studies supporting FBH

Cronin et al. (1991) GCT USA 1958–1988
Wolde-Rufael (2007) GCT USA 1947–1996
Zahra et al. (2008) GCT 23 Countries 1990–2007
Shiu and Lam (2008b) DPDM 105 Countries 1980–2006
Chakraborty and Nandi (2009) GCT DCs 1980–2001
GCT 24 Countries 17 Years
Lam and Shiu (2010) DPDM 105 Countries 1980–2006
Chakraborty and Nandi (2011) GCT 93 Countries 1985–2007
Pradhan et al. (2013b) DPDM 34 OECD Countries 1990–2010
Case 4: Studies supporting NLH

Veeramacheneni, Ekanayake, and Vogel (2007) GCT 10 LACs 1975–2003
Ramlan and Ahmed (2009) GCT Malaysia 1965–2005
Note: GCT: Granger Causality Test; MST: Modified Sims Test; DCs: Developing Countries; ICs: Industrialized Countries; ACs: Asian Countries; NACs:
Northeast Asian Countries; LACs: Latin American Countries; DPDM: Dynamic Panel Data Model.
Table 2
Definition of the variables used in this study.
Variables Definitions
CIT Composite index of telecommunications infrastructure: this is derived through principal component analysis using three
telecommunications indicators: telephone landlines, mobile phones, and internet users. The three indicators used to derive this index are
defined more precisely below
Telephone landlines: telephone landlines per thousand of population
Mobile phones: mobile phone subscribers per thousand of population
Internet users: internet users per thousand of population
GDP Per capita economic growth: percentage change in per capita gross domestic product, used as our indicator of economic growth
GCF Gross capital formation: measured as a percentage of gross domestic product
FDI Foreign direct investment: measured as FDI inflows as a percentage of gross domestic product
URB Urbanization rate: percentage of the population residing in urban areas
OPE Trade openness: total trade (exports plus imports) as a percentage of gross domestic product
The aim is to construct from a set of variables, Xj’s (j¼1, 2, …, n) new variables (Pi) called ‘principal components’, which are
linear combinations of the X's (see Appendix A for further mathematical explanation). The following equation is used to
construct CIT, our composite index for DTI:
3 X ij
CIT ¼ ∑ aij ð1Þ
i¼1 SdðX i Þ
where CIT is our composite index of the development of telecommunications infrastructure, Sd is standard deviation, Xij is
ith variable in jth year; and aij is factor load as derived by PCA. Thus, CIT captures the three DTI indicators we mentioned
earlier and which are summarized in Table 2. As is evident, the index is calculated for each country and for each year.
The intent behind PCA is to transform the original set of variables into a smaller set of linear combinations that account
for most of the variance of the original set. However, as is evident, our PCA analysis applies fixed factor loads, whereas in
H3A
H1A H2B
DTI Economic Macroeconomic

Growth Variable (GCF, FDI,
URB, or OPE)
H1B H2A
H3B
Fig. 2. Proposed hypotheses. Note 1: We use a composite index of telecommunications infrastructure for DTI and percentage change in per capita gross
domestic product for economic growth. Our macro variables GCF, FDI, URB, and OPE. Note 2: DTI: Development of telecommunications infrastructure; GCF:
Gross capital formation; FDI: Foreign direct investment inflows; URB: Urbanization; OPE: Trade openness. Note 3: Variables are defined in Table 2.
reality factor loads vary over time. In order to investigate whether this is a significant shortcoming in our analysis, we test
the degree of stability of the coefficients. Our estimates, which are shown in Appendix B, reveal that although over our
estimation period the dynamic component is not constant (as expected), the factor loads that produce the linear
combinations lie within a fairly narrow range (between 0.70 and 0.97). Thus, our use of fixed coefficients is a reasonable
approximation.
5. Data, samples, and the contributions of this paper
Our analysis utilizes annual time-series data over the period 1991–2012. The data are abstracted and transformed from
two main sources: (a) World Development Indicators, published by the World Bank; and (b) World Investment Reports,
published by the United Nations. We consider three samples of countries. The countries considered comprise the G-20.3 Our
first broad sample consists of the bottom ten countries among the G-20, ranked on the basis of the purchasing-power parity
of their income per capita, as classified by the World Bank. The developing countries are: Argentina, Brazil, China, India,
Indonesia, Mexico, the Russian Federation, Saudi Arabia, South Africa, and Turkey. Our next broad sample consists of nine
more-developed countries in the G-20, namely Australia, Canada, France, Germany, Italy, Japan, the Korean Republic, the
United Kingdom, and the United States. Our full sample, of course, includes all member nations of the G-20.
Besides utilizing PCA to derive a composite index for DTI, the novel features of this paper are that: (a) it studies the
telecommunications infrastructure development economic growth nexus side-by-side with four other macroeconomic
variables that could affect DTI and growth (or be affected by DTI and growth); (b) it uses a large sample of countries, both
developed and developing, over a recent span of time; (c) it studies a group of countries that has not been previously
examined in the literature (see Table 1); and (d) it utilizes panel data analysis to answer questions concerning the nature of
the causal relationship between the variables both in the short run and the long run. Fig. 2 summarizes the possible patterns
of causal relations between the variables. To be clear, the study tests the following hypotheses
H1A. DTI Granger-causes economic growth.
H1B. Economic growth Granger-causes DTI.
H2A. A macroeconomic variable Granger-causes economic growth.
H2B. Economic growth Granger-causes a macroeconomic variable.
H3A. DTI Granger-causes a macroeconomic variable.
H3B. A macroeconomic variable Granger-causes DTI.
3
The G-20 consists of 19 member countries plus the European Union (EU), which is represented by the President of the European Council and by the
European Central Bank. Thus, although we look at the G-20, within this group of important industrialized and developing economies, we observe only 19
member nations, which are used for our analysis. To include the EU, the twentieth member, would have meant double-counting France, Germany, Italy, and
the UK.
6. Econometric approach
We utilize a panel vector autoregressive (VAR) model in order to identify the possible causal nexus between the
variables. The major advantage of this method is that it exploits individual time series and cross-sectional variations in data
and avoids biases associated with cross-sectional regressions by taking into account the country-specific fixed effect.
The panel VAR model entails the following three steps: first, a panel unit root test is performed to identify the
stationarity (order of integration) of time series variables; second, a panel cointegration test is conducted to determine the
existence of a long-run relationship between the time series variables; and third, a VAR model is constructed to ascertain
the direction of causality between the variables. These three tests are discussed in more detail below.
6.1. Panel data unit root test
We used the Levine–Lin–Chu (LLC) method (Levine, Lin, & Chu, 2002) and the Im–Pesaran–Shin (IPS) method (Im,
Pesaran, & Shin, 2003) to check the order of integration to see where the time series variable attains stationarity. Both the
LLC and IPS methods were deployed on the principles of the conventional Augmented Dickey–Fuller (ADF) test. The LLC
method explores the heterogeneity of intercepts across members of the panel, while the IPS method explores the
heterogeneity in the intercepts, as well as in the slope coefficients. Both tests were applied by averaging individual ADF t-
statistics across cross-section units. The test follows the estimation using the following equation:
pi
ΔY t ¼ μi þ γ i Y it 1 þ ∑ βij ΔY it j þλi t þ εit ð2Þ
j¼1
where i¼1, 2…N; t¼1, 2… T; Yit is the series for country i in the panel over period t; pi is the number of lags selected for the
ADF regression; Δ is the first difference filter (I L); and εit refers to independently and normally distributed random
2
variables for all i and t with zero means and finite heterogeneous variances (si ).
LLC considers the coefficients of the autoregressive term as homogenous across all individuals, in other words, γi ¼γ 8 i.
The LLC tests the null hypothesis that each individual in the panel has an integrated time series, in other words, H0: γi ¼γ¼ 0
8 i against an alternative HA: γi ¼γo0 8 i. LLC considers pooling the cross-section time series data, and the test is based on
the following t-statistics:
_γ
t ny ¼ ð3Þ
s:e:ð_
γÞ
Here, in the LLC test, γ is restricted by being kept identical across regions under both the null and alternative hypotheses.
It is clear that the null hypothesis of the LLC test is very restrictive, but the test of IPS (Im et al., 2003) relaxes this
assumption by allowing γ to vary across i under the alternative hypothesis. Hence, the null hypothesis of the IPS test is H0:
γi ¼0 8 i, while the alternative hypothesis is that at least one of the individual series in the panel is stationary, in other words,
the alternative HA is γi o0 8 i. The alternative hypothesis simply implies that γi differs across countries.
Due to the degree of heterogeneity examined, each equation was estimated separately by means of the Ordinary Least
Squares technique, and the test statistics were obtained as (standardized) averages of the test statistics for each equation.
The IPS t-bar statistic is simply defined as the average of the individual Dickey–Fuller τ statistics, as follows:
1 N _γi
t¼ ∑ τi and τi ¼ ð4Þ
Ni¼1 s:e:ð_
γ iÞ
Assuming that the cross-sections are independent, the IPS test uses the mean-group approach and obtains τi, and then
proposes the use of the standardized t-bar statistic as follows:
pffiffiffiffi qffiffiffiffiffiffiffiffiffiffiffiffiffi
Z ¼ N t EðtÞ = varðtÞ ð5Þ
where EðtÞ represents the mean and varðtÞ represents the variance of each τ statistic. They are generated by simulations, and
are tabulated in IPS. The statistic Z converges to a standard normal distribution as N and T stand to infinitely large and we
can then compute the significance level simply (see, for instance, Im et al., 2003). Based on Monte Carlo simulation results,
the IPS test displayed more favorable finite sample properties than the LLC test.
6.2. Panel data cointegration test
The concept of cointegration, introduced by Granger (1969), is relevant to the problem of determining long-run
relationships between variables. The basic idea that underpins cointegration is simple. If the difference between two non-
stationary series is itself stationary, then the two series are cointegrated. If two or more series are cointegrated, it is possible
to interpret the variables in these series as being in a long-run equilibrium relationship (Engle & Granger, 1987). By contrast,
a lack of cointegration suggests that the variables have no long-run relationship – thus, in principle, the postulated variables
can arbitrarily move far away from each other.
When a collection of time-series observations becomes stationary only after first being different, the individual time
series might have linear combinations that are stationary without diverging. Such collections of series are usually called
cointegrated (Granger, 1981). If an ‘order one’ integration is implied, the next step is to employ cointegration analysis in
order to establish whether there is a long-run relationship among the set of such possibly integrated variables. Pedroni’s
panel cointegration method (Pedroni, 2000, 2004) can be used to determine the existence of cointegration among these
three series. The technique starts with the following regression equation:
CITit ¼ β0i þβ1i t þ β2i GDPit þ β3i URBit þ β4i FDIit þ β5i GCFit þβ6i OPEit þεit ð6Þ
and
εit ¼ γ i εit 1 þ ξit ð7Þ
where i¼1, 2, …, N; t¼1, 2…, T. CIT is the composite index of telecommunications infrastructure, GDP is the per capita
economic growth rate, URB is the urbanization rate, FDI captures foreign direct investment inflows, GCF is gross capital
formation and OPE is the degree of trade openness, measured by total trade. FDI, GCF, and OPE are expressed as a percentage
of gross domestic product. These variables are defined in more detail in Table 2. The β0i is a member-specific intercept or
fixed-effects parameter which is allowed to vary across individual cross-sectional units. The β1it is a deterministic time trend
specific to the individual countries in the panel. The slope coefficients (βki; for k ¼1, …, 6) can vary from one individual to
another, allowing the cointegrating vectors to be heterogeneous across countries.
The next step entails utilizing Pedroni's (2000) statistics for the panel cointegration test. These statistics are further
explained in Appendix C.
6.3. Panel data Granger causality test
The panel causality test, proposed by Holtz-Eakin, Newey, and Rosen (1988), is deployed to ascertain the direction of
causality between telecommunications infrastructure, economic growth, and our four macroeconomic variables in the G-20
countries. The following econometric models are used:
p1 p2 p3 p4
ΔGDPit ¼ η1j þ ∑ α1ik ΔGDPit k þ ∑ β1ik ΔCITit k þ ∑ δ1ik ΔURBit k þ ∑ μ1ik ΔFDIit k
k¼1 k¼1 k¼1 k¼1
p5 P6
þ ∑ λ1ik ΔGCFit k þ ∑ θ1ik ΔOPEit k þω1i ECT1it 1 þ ε1it ð8Þ
k¼1 k¼1
p1 p2 p3 p4
ΔCITit ¼ η2j þ ∑ α2ik ΔCITit k þ ∑ β2ik ΔGDPit k þ ∑ δ2ik ΔURBit k þ ∑ μ2ik ΔFDIit k
k¼1 k¼1 k¼1 k¼1
p5 P6
k¼1 k¼1
p1 p2 p3 p4
ΔURBit ¼ η3j þ ∑ α3ik ΔURBit k þ ∑ β3ik ΔCITit k þ ∑ δ3ik ΔGDPit k þ ∑ μ3ik ΔFDIit k
k¼1 k¼1 k¼1 k¼1
p5 P6
k¼1 k¼1
p1 p2 p3 p4
ΔFDIit ¼ η4j þ ∑ α4ik ΔFDIit k þ ∑ β4ik ΔURBit k þ ∑ δ4ik ΔCITit k þ ∑ μ4ik ΔGDPit k
k¼1 k¼1 k¼1 k¼1
p5 P6
k¼1 k¼1
p1 p2 p3 p4
ΔGCFit ¼ η5j þ ∑ α5ik ΔGCFit k þ ∑ β5ik ΔFDIit k þ ∑ δ5ik ΔURBit k þ ∑ μ5ik ΔCITit k
k¼1 k¼1 k¼1 k¼1
p5 P6
þ ∑ λ5ik ΔGDPit k þ ∑ θ5ik ΔOPEit k þ ω5i ECT5it 1 þ ε5it ð12Þ
k¼1 k¼1
p1 p2 p3 p4
ΔOPEit ¼ η6j þ ∑ α6ik ΔOPEit k þ ∑ β6ik ΔGCFit k þ ∑ δ6ik ΔFDIit k þ ∑ μ6ik ΔURBit k
k¼1 k¼1 k¼1 k¼1
p5 P6
þ ∑ λ6ik ΔCITit k þ ∑ θ6ik ΔGDPit k þ ω6i ECT6it 1 þ ε6it ð13Þ
k¼1 k¼1
where Δ is the first difference operator; p1, p2, p3, p4, p5, and p6 are lag lengths; i represents country i in the panel (i¼1, 2….,
N); t denotes the year in the panel (t¼1, 2, …., T); εit is a normally distributed random error term for all i and t with a zero
mean and a finite heterogeneous variance.
The ECTs are error-correction terms, derived from the cointegrating equations. The lagged ECTs represent the long-run
dynamics, while differenced variables represent the short-run dynamics between the variables. The above model is
meaningful if the time series variables are I (1) and are cointegrated. If the time series variables are I (1) and are not
cointegrated, then the ECT component will be removed in the estimation process. We look for both short-run and long-run
causal relationships. The short-run causal relationship is measured through F-statistics and the significance of the lagged
changes in independent variables, whereas the long-run causal relationship is measured through the significance of the
t-test of the lagged ECTs. Based on Eqs. (8)–(13), Table 3 presents various possible hypotheses concerning the causal
relationships among the variables.
The variables incorporated in the panel VAR model are used in natural logarithms so that their first differences approach
the growth rates. Table 4 provides a summary of the statistics on the variables.
Table 3
Hypotheses tested in this study.
Causal flow Restrictions Causal flow Restrictions
CIT ) GDP β1ik a 0; ω1i a 0 GCF ) CIT λ2ik a 0; ω2i a 0

GDP ) CIT β2ik a 0; ω2i a 0 CIT ) GCF β5ik a 0; ω5i a 0
URB ) GDP δ1ik a 0; ω1i a0 OPE ) CIT θ2ik a 0; ω2i a 0
GDP ) URB δ3ik a 0; ω3i a0 CIT ) OPE β6ik a 0; ω6i a0
FDI ) GDP μ1ik a 0; ω1i a 0 FDI ) URB μ3ik a 0; ω3i a 0
GDP ) FDI μ4ik a 0; ω4i a 0 URB ) FDI δ4ik a 0; ω4i a 0
GCF ) GDP λ1ik a 0; ω1i a 0 GCF ) URB λ3ik a 0; ω3i a 0
GDP ) GCF λ5ik a 0; ω5i a 0 URB ) GCF δ5ik a 0; ω5i a 0
OPE ) GDP θ1ik a 0; ω1i a 0 OPE ) URB θ3ik a 0; ω3i a 0
GDP ) OPE θ6ik a 0; ω6i a 0 URB ) OPE δ6ik a 0; ω6i a 0
URB ) CIT δ2ik a 0; ω2i a0 GCF ) FDI λ4ik a 0; ω4i a 0
CIT ) URB β3ik a 0; ω3i a 0 FDI ) GCF μ5ik a 0; ω5i a 0
FDI ) CIT μ2ik a 0; ω2i a 0 OPE ) FDI θ4ik a 0; ω4i a 0
CIT ) FDI β4ik a 0; ω4i a 0 FDI ) OPE μ6ik a 0; ω6i a 0
OPE ) GCF θ5ik a 0; ω5i a 0
GCF ) OPE λ6ik a 0; ω6i a 0
Note: CIT: Composite index of telecommunications infrastructure; GDP: per capita economic growth; URB:
Urbanization rate; FDI: Foreign direct investment inflows; GCF: Gross capital formation; OPE: Trade
openness.
Table 4
Summary statistics for the variables used in this study.
Variable Mean Med Max Min Std Skew Kur JB Pr
Panel A: G-20 developing group

CIT 0.25 0.32 1.30 1.35 0.65 0.33 2.24 7.91 0.02
GDP 1.30 1.33 1.50 0.54 0.14 2.66 13.4 1070 0.00
URB 1.78 1.85 1.96 1.43 0.15 0.92 2.59 27.7 0.00
FDI 0.83 0.84 1.17 0.35 0.11 0.28 4.63 23.2 0.00
GCF 1.33 1.30 1.66 1.08 0.12 0.94 3.33 28.7 0.00
OPE 1.65 1.70 2.04 1.17 0.19 0.72 2.98 16.4 0.00
Panel B: G-20 developed group

CIT 0.38 0.43 0.62 0.00 0.15 0.44 1.98 16.5 0.00
GDP 1.29 1.29 1.43 1.02 0.06 1.28 7.31 227 0.00
URB 1.89 1.89 1.96 1.82 0.03 0.12 2.60 1.97 0.37
FDI 0.82 0.80 1.21 0.17 0.12 0.29 8.09 237 0.00
GCF 1.33 1.30 1.59 1.15 0.09 0.88 3.45 29.7 0.00
OPE 1.68 1.72 2.04 1.20 0.19 0.69 2.76 17.7 0.00
Panel C: G-20 total

CIT 0.12 0.05 0.48 1.73 0.48 1.09 3.82 90.9 0.00
GDP 1.29 1.30 1.50 0.54 0.10 2.95 19.8 5343 0.00
URB 1.84 1.88 1.96 1.43 0.12 1.96 6.07 418 0.00
FDI 0.83 0.81 1.21 0.17 0.12 0.04 6.50 207 0.00
GCF 1.33 1.30 1.66 1.08 0.10 0.96 3.65 69.7 0.00
OPE 1.66 1.71 2.04 1.17 0.19 0.70 2.88 33.6 0.00
Note 1: Med: Median; Max: Maximum; Min: Minimum; Std: Standard Deviation; Skew: Skewness; Kur: Kurtosis; JB: Jarque Bera Statistics; Pr: Probability.
Note 2: CIT: Composite index of telecommunications infrastructure; GDP: per capita economic growth; URB: Urbanization; FDI: Foreign direct investment
inflows; GCF: Gross capital formation; OPE: Trade openness. Note 3: Values reported here are the natural logs of the variables. Natural log forms are used in
our estimation.
Table 5
Results from panel unit root tests.
CIT GDP URB FDI OPE GCF

Case 1: Level data
LLC 1.09 0.16 0.44 0.22 1.41 1.35
ADF 13.8 7.20 7.05 8.89 0.59 5.90
PP 16.0 7.78 0.34 8.46 0.68 6.49
Case 2: First difference data

LLC 2.83n 12.3n 4.59n 10.5n 9.20n 8.28n
ADF 23.9n 146.6n 44.9n 121n 100n 90.1n
PP 35.7n 210.8n 63.9n 158n 161n 136.3n
Panel B: G 20 developed group

Case 1: Level data
LLC 1.65 0.19 1.35 0.07 4.34 2.02
ADF 4.29 8.33 4.09 8.62 1.18 22.0
PP 0.32 13.8 0.03 8.76 0.93 47.5

LLC 3.11n 14.7n 1.5nn 11.8n 8.40n 9.69n
ADF 29.7n 184n 24.13 149n 96.9n 113.3n
PP 43.1n 248n 31.5nn 194n 173n 125.8n
Panel C: G-20 total

Case 1: Level data
LLC 0.27 0.25 1.42 0.08 4.96 1.10
ADF 33.7 15.5 11.1 17.5 5.19 27.9
PP 9.24 21.5 0.37 17.2 6.47 54.0

LLC 3.92n 19.0n 4.77n 15.7n 12.5n 12.7n
ADF 59.9n 331n 69.1n 270n 197n 203n
PP 57.4n 459n 95.4n 352n 334n 262n
inflows; OPE: Trade openness; GCF: Gross capital formation. Note 2: LLC: Levine–Lin–Chu statistics; ADF: Augmented Dickey–Fuller statistics; PP: Phillips–
Perron statistics.
n
Significance at 1% level.
nn
7. Empirical results
The empirical results are reported in three stages: first, we comment on the nature of the stationarity of the time series
variables; second, we discuss the nature of the cointegration among them; and third, we present evidence on the direction
of the Granger causality between the cointegrated variables.
The estimation process involves treating three different samples: G-20 developing group, G-20 developed group, and G-
20 total, as defined in Section 5. The investigation starts with the integration and cointegration properties of the time-series
variables. The estimated results confirm that the variables are integrated of order one [1 (1)] and cointegrated (see, Tables 5
and 6, respectively). This finding indicates the presence of a long-run equilibrium relationship between the development of
the telecommunications infrastructure, economic growth, and the other four macroeconomic variables. Remarkably, this is
true in all our three samples. We will comment on the exact nature of the long-run relationships below.
The existence of I (1) and cointegration among these variables implies the possibility of Granger causality among them.
Hence, we perform a causality test, using a vector error correction model (VECM) and using Eqs. (8)–(13). The results are
shown in Table 7. The table reports the panel-Granger causality test results for both the short run, represented by the
significance of the F-statistic, and the long run, represented by the significance of the lagged error correction term. The
short-run results for our three samples are as follows:
Case 1. For the G-20 developing group

In this case, we find the existence of bidirectional causality between telecommunications infrastructure and economic
growth [CIT3 GDP], and foreign direct investment and gross capital formation [FDI3GCF]. Moreover, we find unidirec-
tional causality from trade openness to economic growth [OPE ) GDP], trade openness to telecommunications infra-
structure [OPE ) CIT], openness to foreign direct investment [OPE ) FDI], urbanization to telecommunications
infrastructure [URB ) CIT], economic growth to urbanization [GDP ) URB], gross capital formation to urbanization
[GCF ) URB], economic growth to foreign direct investment [GDP ) FDI], urbanization to foreign direct investment
[URB ) FDI], telecommunications infrastructure to gross capital formation [CIT ) GCF] and trade openness to gross capital
formation [OPE ) GCF].
Table 6
Results of Pedroni Panel cointegration tests.
Test statistics Case 1 Case 2 Case 3

Panel v – statistics 1.48 [0.93] 2.01 [0.98] 3.41 [0.99]
Panel ρ – statistics 0.83 [0.79] 1.71 [0.96] 2.93 [0.99]
Panel PP – statistics 5.56 [0.00] 7.79 [0.00] 12.4 [0.00]
Panel ADF – statistics 3.43 [0.00] 3.69 [0.00] 3.85 [0.00]
Group ρ – statistics 1.91 [0.77] 2.56 [0.99] 3.95 [1.00]
Group PP – statistics 7.52 [0.00] 16.1 [0.99] 19.5 [0.00]
Group ADF – statistics 5.43 [0.00] 6.75 [0.00] 5.89 [0.00]

Panel C: G-20 total

Note 1: Figures in square brackets are probability levels indicating significance. Note 2: Case 1: Cointegration with no intercept and trend; Case 2:
Cointegration with intercept only; and Case 3: Cointegration with both intercept and trend.
Table 7
Granger causality test results.
Dependent variable Independent variables (possible sources of causation) ECT 1 coefficient (for possible long run causality)
ΔGDP ΔCIT ΔURB ΔFDI ΔOPE ΔGCF ECT 1
ΔGDP – 5.96n 0.11 1.20 3.38nn 1.36 5.98n

ΔCIT 3.40nn – 9.35n 0.43 7.21n 0.99 0.16
ΔURB 14.2n 1.33 – 2.61 1.30 5.55n 0.66
ΔFDI 5.90n 1.19 4.08n – 3.44n 4.88n 3.49n
ΔOPE 1.99 0.26 2.39 2.35 – 0.80 0.52
ΔGCF 1.92 5.55n 0.24 3.51nn 6.15 – 1.10
n n n n
ΔGDP – 7.95 1.07 26.9 12.9 6.78 6.44n
ΔCIT 5.29n – 1.82 6.08n 16.0n 3.89nn 2.74
ΔURB 3.74nn 1.98 – 0.59 1.30 12.7n 0.17
ΔFDI 6.01n 0.68 0.13 – 6.67n 36.3n 4.39n
ΔOPE 8.42n 4.48n 1.79 5.04n – 4.55n 1.10
ΔGCF 7.92n 0.07 0.95 3.40nn 2.15 – 2.37nn
Panel C: G-20 total
ΔGDP – 3.10nn 0.21 1.58 5.63n 3.13nn 8.81n

ΔCIT 4.02nn – 3.04nn 1.71 2.89nn 0.52 0.20
ΔURB 5.87n 3.17nn – 4.11nn 0.36 5.75n 0.03
ΔFDI 4.72nn 0.28 1.33 – 0.36 11.8n 2.95
ΔOPE 4.13nn 0.73 1.14 3.81nn – 5.06n 0.32
ΔGCF 2.16 0.37 0.36 2.69nn 6.65n – 1.51
inflows; OPE: Trade openness; GCF: Gross capital formation; ECT: Error correction term.
n
nn
Case 2. For the G-20 developed group

For this group, we find the existence of bidirectional causality between telecommunications infrastructure and economic
growth [CIT3 GDP], foreign direct investment and economic growth [FDI3 GDP], trade openness and economic growth
[OPE 3GDP], gross capita formation and economic growth [GDP3 GCF], foreign direct investment and trade openness
[FDI 3OPE], foreign direct investment and gross capital formation [FDI3 GCF], and telecommunications infrastructure and
trade openness [OPE 3CIT]. In addition, we find unidirectional causality from foreign direct investment to telecommunica-
tions infrastructure [FDI ) CIT], economic growth to urbanization [GDP ) URB], gross capital formation to urbanization
[GCF ) URB], gross capital formation to telecommunications infrastructure [GCF ) CIT], gross capital formation to foreign
direct investment [GCF ) FDI], and gross capital formation to trade openness [GCF ) OPE].
Case 3. For the G-20 total

For the sample taken as a whole, we find the existence of bidirectional causality between telecommunications
infrastructure and economic growth [CIT 3GDP], trade openness and economic growth [GDP3 OPE], urbanization and
telecommunications infrastructure [URB 3 CIT], gross capital formation and foreign direct investment [GCF 3FDI], and
gross capital formation and trade openness [GCF 3OPE]. Furthermore, we uncover the existence of unidirectional causality
from gross capital formation to economic growth [GCF ) GDP], trade openness to telecommunications infrastructure
[OPE ) CIT], economic growth to urbanization [GDP ) URB], economic growth to foreign direct investment [GDP ) FDI],
foreign direct investment to urbanization [FDI ) URB], gross capital formation to urbanization [GCF ) URB], and foreign
direct investment to trade openness [FDI ) OPE].
The above short-run results are summarized in Table 8. However, more interesting and relevant are the long-run results.
From Table 7, Panels A–C (G-20 Developing Group, G-20 Developed Group, and G-20 total), when ΔGDP serves as the
Table 8
The summary of Granger causality economic growth and the development of telecommunications infrastructure in the G-20 countries.
Causal Direction of Direction of Direction of

Relationships Relationships Observed Relationships Relationships Observed
Tested in the in G-20 Developing Observed in G-20 in G-20 Total
Model Group Developed Group
CIT vs. GDP CIT <=> GDP CIT <=> GDP CIT <=> GDP
URB vs. GDP GDP => URB GDP => URB GDP => URB
FDI vs. GDP GDP => FDI FDI <=> GDP GDP => FDI
GCF vs. GDP NA GDP <=> GCF GCF => GDP
OPE vs. GDP OPE => GDP OPE <=> GDP GDP <=> OPE
URB vs. CIT URB => CIT NA URB<=> CIT
FDI vs. CIT NA FDI => CIT NA
GCF vs. CIT CIT => GCF GCF => CIT NA
OPE vs. CIT OPE => CIT OPE <=> CIT OPE => CIT
FDI vs. URB URB => FDI NA FDI => URB
GCF vs. URB GCF => URB GCF => URB GCF => URB
OPE vs. URB NA NA NA
GCF vs. FDI FDI <=> GCF GCF <=> FDI GCF <=> FDI
OPE vs. FDI OPE => FDI FDI <=>OPE FDI=> OPE
OPE vs. GCF OPE => GCF GCF => OPE GCF <=> OPE
inflows; OPE: Trade openness; GCF: Gross capital formation; ECT: Error correction term.
Note 2: ) unidirectional causality; 3: Bidirectional causality; and NA: No causality.
dependent variable, the error correction term is statistically significant at the 1% level. This implies that GDP tends to
converge to its long-run equilibrium path in response to changes in its regressors. The significance of the ECT coefficient in
the ΔGDP equation in each of the three panels confirms the existence of long-run equilibrium relationships between GDP
and its determinants which are CIT (our index of telecommunications infrastructure) and several other macroeconomic
variables we have identified. In other words, we can generally conclude that the development of telecommunications
infrastructure and most of the macroeconomic variables we consider Granger cause economic growth in the long run.
Notably, across the three panels, the only macroeconomic variable that appears statistically insignificant for long-run
growth appears to be the urbanization rate.
The error-correction term in the ΔFDI equation in Table 7, Panels A and B (the case of G-20 Developing Group and G-20
Developed Group) is also statistically significant at the 1% level. Hence, there exists long-run causality from economic
growth and the other macroeconomic variables to foreign direct investment. The exception is the urbanization rate which is
statistically significant only in the Developing Group. As is evident from the ΔFDI equation, DTI is not statistically significant
to Granger-cause FDI in the long run under any of the samples.
Finally, the error-correction term in the ΔGCF equation is statistically significant at the 5% level, but only for the case of
the Developed Group. Here there is long-run causality from economic growth and foreign direct investment to gross capital
formation.
8. Conclusions
The existing literature provides inconclusive results on the direction of causality between the development of
telecommunications infrastructure and economic growth. What is clearly demonstrated by our results is that there is a
difference between the short-run and the long-run results, a point that has gone unrecognized in the existing literature.
Our long-run results, naturally of greater interest to policy makers, provide evidence that whether we consider the
developing or the developed group within the G-20 countries, there is bi-directional Granger-causality between the
development of telecommunications infrastructure and economic growth in the long run. That is, the development of
telecommunications infrastructure affects economic growth and is also itself stimulated by growth in the long run. We
have thus affirmed an important interaction effect suggesting to policy makers that a vicious circle exists between
telecommunications infrastructure and economic growth. We also find that, with the exception of the urbanization rate,
other macroeconomic variables significantly affect economic growth in the long run. Evidently, among the macro-
economic variables we consider, foreign direct investment appears to have the most statistically significant link to the
other macroeconomic variables – as well as a significant link to economic growth. Indeed for both the developing and
developed group, economic growth is an important determinant of foreign direct investment. Remarkably, the
development of telecommunications infrastructure is not a statistically significant causal factor in determining foreign
direct investment in any of our samples.
The policy implications of these results are straightforward. If policymakers wish to promote long-run economic growth,
additional attention must be paid to the development of the telecommunications industry side-by-side with other
macroeconomic variables. Omitting those other growth-determining variables leads to errors in analysis and diagnosis.
Thus, our findings imply that future research on the causal connection between DTI and economic growth would remiss if it
did not consider the possible role of the other variables we have identified in this study.
Appendix A. Further mathematical explanation of PCA analysis
The principal components may be represented by the following system of equations

P 1 ¼ a11 1 þ ⋯ þ a1n X n
U U
ðA1Þ
U U
P m ¼ am1 1 þ⋯ þ amn X n
where P ¼[P1, P2,…, Pm] are principal components; A¼[aij] for i¼(1, 2,…, m); and j¼(1, 2,…, n) are component loadings; and
X¼[X1, X2,…, Xn] are original variables. The component loadings are the weights showing the variance contribution of
principal components to variables. Since the principal components are selected orthogonal to each other, aij weights are
proportional to the correlation coefficient between variables and principal components.
The first principal component (P1) is determined as the linear combination of X1, X2,…, Xn provided that the variance
contribution is at a maximum. The second principal component (P2), independent from the first principal component, is
determined so as to provide a maximum contribution to total variance remaining after the variance that is explained by the
first principal component. Analogously, the third and the other principal components are determined as to provide the
maximum contribution to the remaining variance and are independent of each other. The aim here is to determine aij
coefficients providing the linear combinations of variables based on the specified conditions.
It should be noted here that the method of principal components could be applied by using the original values of the Xj's,
by their deviations from their means, or by the standardized variables. The present study, however, adopts the latter
procedure, as it is assumed to be more general and can be applied to variables measured in different units. It is important to
note that the values of the principal components will be different depending on the way in which the variables are used
(original values, deviations, or standardized values). The coefficients a's, called loadings, are chosen in such a way that the
constructed principal components satisfy two conditions: (a) principal components are uncorrelated (orthogonal), and (b)
the first principal component P1 absorbs and accounts for the maximum possible proportion of total variation in the set of
all X's. Furthermore, the principal component absorbs the maximum of the remaining variation in the X's (after allowing for
the variation accounted for by the first principal component) and so on. There are different rules to define a high magnitude
known as stopping rules. Here, ‘variance-explained’ criteria are implemented, based on the rule of keeping enough principal
components to account for 90% of the variation (Hosseini & Kaneko, 2011, 2011).
Appendix B. Range for factor loads represented in three different ways
See Figs. B1–B3.
1.0
0.8
Factor Loads
0.6
TML
0.4 MOB
INU
0.2
0.0
1990 1995 2000 2005 2010
Years
Fig. B1. The factor loads. Note 1: TML: Telephone mainlines; MOB: Mobile phones; INU: Internet users. Note 2: The range of factor loads is 0.70–0.97.
0.95
0.90
0.85
0.80
0.75
0.70 TML
Factor Loads
0.65 MOB
0.60 INU
0.55
0.50
0.45
0.40
0.35
0.30
0.25
1990 1995 2000 2005 2010 2015
Years
Fig. B2. The trend in factor loads. Note 1: TML: Telephone mainlines; MOB: Mobile phones; INU: Internet users. Note 2: The range of factor loads is 0.70–
0.97.
90
0.98 120 60
0.96
0.94
0.92
0.90 TML
150 30
0.88 MOB
0.86
0.84 INU
0.82
0.80
0.78
180 0
0.78
0.80
0.82
0.84
0.86
0.88
210 330
0.90
0.92
0.94
0.96
0.98 240 300
270
Fig. B3. The range of factor loads. Note 1: TML: Telephone mainlines; MOB: Mobile phones; INU: Internet users. Note 2: The range for factor loads is
0.70–0.97 and lies between 180 and 210 degree interval.
Appendix C. Panel cointegration statistics
Pedroni (2000) proposed seven different statistics for cointegration testing in the panel data setting. Of the seven
proposed statistics, the first four are known as panel cointegration statistics and are within-dimension statistics, while the
last three are known as group mean panel cointegration statistics and are between-dimension statistics. Their levels are
based on the way the autoregressive coefficients are manipulated to arrive at the final statistic. There are basically five steps
to obtain these cointegration statistics, as set out below.
Step 1: Compute the residuals ð^εit Þ from the panel regression (Eq. (6)). The estimation involves the inclusion of all
appropriate fixed effects, time trends or common time dummies.
Step 2: Compute the residuals ðζ^ it Þ from the following regression:
ΔY it ¼ β1i ΔX 1it þ β2i ΔX 2it þ⋯ þβmi ΔX mit þεit
for t ¼ 1; 2; …; T; i ¼ 1; 2; …; N; m ¼ 1; 2; …; M ðC1Þ
where Yi is the dependent variable and Xmi are regression variables. In this equation, T refers to the number of
observations over time, N refers to the number of individual members in the panel, and M refers to the number of
regression variables. β1i, β2i,…, βmi are the slope coefficients and εit shows the deviations from the modeled long-run
relationship. If the series involved in the equation are cointegrated, εit should be stationary.
2
Step 3: Compute ðL^ 11i Þ, the long-run variance of ζ^ it :
T
2 1 T 2 2 Ki S
L^ 11i ¼ ∑ u^ it þ ∑ 1 ∑ u^ u^ ðC2Þ
Tt¼1 TS¼1 K i þ 1 t ¼ s þ 1 it it s
where uit is residual, and is obtained from the error of the cointegration in Eq. (6), S and K are lag lengths, and T is the
number of observations over time (as discussed in more detail, by Newey & West, 1987; Pedroni, 1999).
Step 4: Compute the residuals of the ADF test for ε^ it ðu^ it Þ and compute the following variances of these residuals:
2 1 T 2 1 T 2
S^ i ¼ ∑ u^ it and S~ NT ¼ ∑ S^ i
2
ðC3Þ
Tt¼1 Tt¼1
2
S^ i S~ NT
2 2
where is the individual contemporaneous variance and u^ it is the long-run variance of the residual u^ it ; and is the
contemporaneous panel variance estimator.
Step 5: Compute the panel-t and group-t statistics (Pedroni, 2000). These statistics are asymptotically normally
distributed.
Based on the cointegration residuals, Pedroni (2000) developed seven panel cointegration statistics (four panel-t and
three group-t statistics). The mathematical exposition and the asymptotic distributions of these panel cointegration
statistics are explained by Pedroni (1999). Under an appropriate standardization, based on the moments of the vector of the
Brownian motion functionality, these statistics have a standard normal distribution. Accordingly, the null hypothesis of no
cointegration was then tested, based on the above description of a standard normal distribution. The null hypothesis of no
cointegration of the pooled (within-dimension) estimation follows H0: γi ¼1 8 i against an alternative hypothesis HA:
γi ¼γo1 8 i, in the residuals from the panel cointegration. The within-dimension estimation assumes a common value for
γi ¼γ.
By contrast, the group means panel cointegration statistics (pooled between-dimension) tested the null hypothesis of no
cointegration H0: γi ¼ 18 i against an alternative hypothesis HA: γi o18 i. Hence, under the alternative hypothesis, the between-
dimension estimation did not assume a common value for γi ¼γ. Therefore, this allowed an additional source of possible
heterogeneity across the individual country members of the panel. These statistics diverged to negative infinity under the
alternative hypothesis. The left tail of the normal distribution is usually employed here to reject the null hypothesis.
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G20 - Telecom VAR

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Telecommunications Policy 38 (2014) 634–649

Contents lists available at ScienceDirect

Economic growth and the development of

2. The importance of telecommunications infrastructure for economic growth

3. Review of the relevant literature

=> Wider dissemination of market information

=> More timely market information

=> Lower coordination costs in markets

=> Improved public services like health and education

Telecommunications Economic Growth

=> Increased ability to invest in telecommunications infrastructure

=> Demand for wider access to telecommunications infrastructure

=> Demand for more advanced telecommunications infrastructure

=> Increased telecommunications infrastructure needs of service sector

Fig. 1. Telecommunications infrastructure and economic growth: possible sub-links.

Study Method(s) Countries Period covered

Case 1: Studies supporting SLH

Case 2: Studies supporting DFH

Case 3: Studies supporting FBH

Case 4: Studies supporting NLH

GCF Gross capital formation: measured as a percentage of gross domestic product

URB Urbanization rate: percentage of the population residing in urban areas

DTI Economic Macroeconomic

5. Data, samples, and the contributions of this paper

H1A. DTI Granger-causes economic growth.

H1B. Economic growth Granger-causes DTI.

H2A. A macroeconomic variable Granger-causes economic growth.

H2B. Economic growth Granger-causes a macroeconomic variable.

H3A. DTI Granger-causes a macroeconomic variable.

H3B. A macroeconomic variable Granger-causes DTI.

6.1. Panel data unit root test

6.2. Panel data cointegration test

6.3. Panel data Granger causality test

Causal flow Restrictions Causal flow Restrictions

CIT ) GDP β1ik a 0; ω1i a 0 GCF ) CIT λ2ik a 0; ω2i a 0

Variable Mean Med Max Min Std Skew Kur JB Pr

Panel A: G-20 developing group

Panel B: G-20 developed group

Panel C: G-20 total

CIT GDP URB FDI OPE GCF

Panel A: G-20 developing group

Case 2: First difference data

Panel B: G 20 developed group

Case 2: First difference data

Panel C: G-20 total

Case 2: First difference data

Case 1. For the G-20 developing group

Test statistics Case 1 Case 2 Case 3

Panel A: G-20 developing group

Panel B: G-20 developed group

Panel C: G-20 total

Panel A: G-20 developing group

ΔGDP ΔCIT ΔURB ΔFDI ΔOPE ΔGCF ECT 1

ΔGDP – 5.96n 0.11 1.20 3.38nn 1.36 5.98n

Panel B: G-20 developed group

ΔGDP ΔCIT ΔURB ΔFDI ΔOPE ΔGCF ECT 1

Panel C: G-20 total

ΔGDP ΔCIT ΔURB ΔFDI ΔOPE ΔGCF ECT 1

ΔGDP – 3.10nn 0.21 1.58 5.63n 3.13nn 8.81n

Case 2. For the G-20 developed group

Case 3. For the G-20 total

Causal Direction of Direction of Direction of