Causal relationship between internet use and economic development for selected Central Asian economies
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1 e Theoreical and Applied Economics Volume XXV (2018), No. 3(616), Auumn, pp Causal relaionship beween inerne use and economic developmen for seleced Cenral Asian economies Fua SEKMEN Kyrgyzsan-Turkey Manas Universiy, Bishkek, Kyrgzsan Sakarya Universiy, Sakarya, Turkey Hasme GOKIRMAK Isanbul Sabahain Zaim Universiy, Isanbul, Turkey Absrac. The aim of his sudy is o examine he effecs of informaion and communicaions echnology (ICT) on economic developmen of several Cenral Asian counries. Dumirescu and Hurlin (DH) panel causaliy es has been used for he relaionship beween ICT and economic developmen. The DH es resuls indicae ha a unidirecional causaliy exiss from GDP per capial o Iner-ne use. These resuls sugges ha an increase in GDP per capia can simulae inerne use. In addiion, he cross-secional dependence is examined using LM es of Breusch and Pagan and CD-LM and CD es of Pesaran. The resuls sugges ha he null-hypohesis, no crosssecional dependence exiss among counries, is rejeced for all he ess, suggesing an economic shock in a one counry may have spillover effecs on oher counries. Keywords: inerne use; economic developmen; panel causaliy es; cross-secion dependence. JEL Classificaion: B22, C12, C33, F62.
2 146 Fua Sekmen, Hasme Gokirmak 1. Inroducion Informaion and communicaions echnology (ICT) includes he infrasrucure, neworking componens, applicaions, and sysems componens ha enable modern compuing. ICT makes i possible for people and organizaions o inerac wih oher people, businesses, governmen agencies and nonprofi organizaions in a digial environmen. ICT has inerne-based and mobile (wireless neworks) componens. ICT has enabled people and businesses o do ransacions and ineracions in many new ways. ICT brings abou business growh and economic developmen. Many have argued ha ICT has brough abou he fourh indusrial revoluion. Hoffman (2000) describes inerne as he mos imporan innovaion since he developmen of he prining press. The inerne gives insan access o an endless supply of knowledge and enerainmen. The benefis of inerne include knowledge sharing, and easy access o informaion and learning new hings; opporuniies for conneciviy, communicaion and sharing; map and direc users o places; remoe access o banking services (sending money and paying bills, ec.); a grea shopping experience wihou leaving you home; opporuniies o sell any produc o cusomers anywhere in he world; collaboraive work, work from home and access o a global work force; and access o an endless supply of enerainmen (videos, movies, music, and games). The inerne of hings, conrolled remoely, helps you connec your residence, businesses, and many helps many service providers save energy, money and ime. Cloud compuing and cloud sorage devices can connec o remoe daa sorage and more powerful compuers o perform complex asks. According o Riddle (1999), he inerne is a rich resource of informaion for he marke for compeiors, suppliers, and cusomers. Inerne use can encourage e-rade and reduce coss and increase compeiiveness. The aim of his sudy is o examine he effecs of ICT, represened by inerne use, on economic developmen, represened by per capia GDP, for six Cenral Asian developing economies for he periods. Despie he fac ha several sudies have analyzed he facors ha affec inerne uses in order o deermine he fuure of e-commerce and inernaional globalizaion, he number of conribuions focusing on he reciprocal relaionship beween inerne use and economic growh is surprisingly scarce. In his sudy, he causal relaionship beween GDP per capia and inerne use has been analyzed. Four kinds of hypoheses can be derived from his analysis. The firs hypohesis is ha he causal relaionship can be direced from inerne use oward increased GDP per capia because ICT is considered an indispensable asse in he figh agains world povery. According o Kamssu, Siekpe and Ellzy (2004), ICT provides developing naions wih unprecedened opporuniies o mee vial developmen goals, such as povery reducion, basic healhcare, and educaion far more effecively han before. This hypohesis implies ha here is a posiive relaionship beween inerne use and GDP per capia. In he sudy by Penard and Poussing (2010), he Inerne is aken ino accoun as a convenien and an efficien means of decreasing he cos of invesing in social capial.
3 Causal relaionship beween inerne use and economic developmen for seleced Cenral Asian economies 147 The second hypohesis is ha increase in GDP per capia can simulae inerne use, meaning ha a causal relaionship can be described from GDP per capia o inerne use. This hypohesis posulaes ha increase in GDP conribues o inerne use. I is a fac ha here is a echnology inequaliy beween rich and poor counries. Developed counries have well-esablished elecommunicaions sysems and elephone infrasrucure, enabling hem o have widespread inerne service available for connecion. However, many less developed and developing counries do no have proper elephone infrasrucure, which requires high cos invesmens. Figure 1 shows echnology usage versus GDP per capia for several developing counries. Figure 1 suggess ha here is a posiive correlaion beween GDP per capia and inerne use. Figure 1. Inerne use vs. GDP per capia Source: hp:// The hird hypohesis is ha bidirecional causaliy corresponds o he feedback hypohesis, which indicaes ha inerne use and GDP per capia affec each oher simulaneously. The validiy of his hypohesis would show ha he policies ha help increase inerne use may also increase economic growh and, which in urn encourage Inerne use. Finally, he neuraliy hypohesis indicaes ha changes in economic growh do no affec inerne use or vice versa. If his sudy concludes ha here is a non-exisence of a causal relaionship beween Inerne use and economic growh, his hypohesis will be validaed.
4 148 Fua Sekmen, Hasme Gokirmak 2. Economic model and mehodology In he Granger causaliy analysis, a variable y is said o Granger-cause anoher variable x, if x can be prediced wih greaer accuracy by using pas values of y. The Granger causaliy es is based on a simple Wald es, which allows us o es he significance of lagged values of he second variable. Even hough he Granger causaliy es is a well-known economeric echnique, i has some shorcomings; for example, he Granger causaliy es is no he proper es o apply for differen frequencies. However, Geweke (1982) inroduced a Wald es o analyze he exisence of Granger causaliy in he frequency domain; using his es o make i possible o sudy he variaions of a ime series as a funcion of frequency as opposed o he ime domain, where variance is examined as a funcion of ime. Breiung and Candelon (2006) advanced Geweke s Granger causaliy es. To sudy he large sample properies of he es, hey analyzed he power agains a sequence of local alernaives. The finie sample properies were invesigaed by means of Mone Carlo simulaions. Their mehodology was applied o invesigae he predicive conen of he yield spread for fuure oupu growh. Croux and Reusens (2013) invesigaed he predicive power for he fuure domesic economic aciviy included in he domesic sock prices, using a Granger causaliy analysis in he frequency domain. This sudy uses Dumirescu-Hurlin s (2012) panel causaliy es (hereafer DH). The DH is an elaboraed version of he Granger causaliy es and i ess he null hypohesis of noncausaliy for he panel beween he variables agains he alernaive one, which assumes ha causaliy exiss beween he variables for a leas one-cross secion uni. The DH causaliy es for he case of wo saionary variables y and x can be illusraed as follows. K y y x i, i ik i, k ik i, k i, k 1 k 1 K (1) where x i, and y i, are wo saionary variables for individual i in period. Here, coefficiens are allowed o differ across individuals, bu are assumed o be ime-invarian. On he oher hand, he lag order k is assumed o be idenical for all cross-secion unis and he panel mus be balanced. The null-hypohesis is defined as follows: H : i... ik 0 i 1,..., N 0 1 The null-hypohesis is ha here is no causaliy for all individuals in he panel. The alernaive hypohesis assumes ha causaliy exiss beween he variables for a leas one cross-secion uni.
5 Causal relaionship beween inerne use and economic developmen for seleced Cenral Asian economies 149 The alernaive hypohesis can be defined as follows: H : ,..., N 0 i1 ik i 1 i ,..., or ik i N1 N where N 1 0, N 1 is unknown. If N1 0, here is causaliy for all cross-secion unis in he panel. N 1 is sricly smaller han N, oherwise here is no causaliy for all crosssecion unis. I is a fac ha he world economy has been experiencing a rapid globalizaion and increasing economic and financial inegraion, hus panel daa mehodologies should ake ino accoun he cross-secional dependence, oherwise he resuls will be unrealisic. Therefore, his sudy examines wheher here is a cross-secional dependence among he counries examined by using LM es of Breusch and Pagan (1980), and CD-LM and CD es of Pesaran [10]. The basic Pesaran es saisics can be showed as follows. N 1 N 2T CD p (2) N( N 1) ij i 1 j i 1 where CD cross-dependency in he panel, T is he ime dimension of he panel, N is he cross-secional dimension in he panel, and ij is correlaions coefficiens, which are calculaed from residuals. The disribuion of he Pesaran (2004) es is N (0, 1). p 3. Daa and empirical resuls This sudy used annual daa obained from he World Bank for Kyrgyzsan, Kazakhsan, Turkmenisan, Uzbekisan, Azerbaijan, and Tajikisan from 2000 o 2016 o es he causaliy beween Gross Domesic Produc (GDP) per capia and percenage of individuals using inerne. The logarihmic form of GDP per capia and percenage of individuals using inerne are used in his sudy. A he firs sep, he variables examined were esed wheher hey are saionary or no using Levin, Lin, Chu, and Im, Pesaran and Shin panel uni roo ess, which allowed us o es he null of he uni roo for he whole panel agains he alernaive hypohesis, which claims ha here is a leas one saionary series in he panel. The ess resuls are illusraed in he Table 1. Table 1. Uni roo es resuls Series Levin, Lin and Chu Im, Pesaran and Shin Level Firs difference Lin (0.0124)** (0.3390) (0.0000)* GDP (0.0149)** (0.5450) (0.05)** Noe: Numbers in he parenhesis show he p-values. *Significan a he 1% level. ** Significan a he 5% level.
6 150 Fua Sekmen, Hasme Gokirmak The es resuls, presened in he Table 1, exhibi ha boh variables are saionary a level I (0) when he Levin, Lin and Chu uni roo es is allowed, hus i does no need o ake differences of he series o es he Granger causaliy. Ye, when he Im, Pesaran and Shin mehod is considered, boh variables are no saionary a level, bu hey become saionary afer aking firs differences of he variables. This sudy uses Dumirescu and Hurlin s (DH) Panel causaliy o observe he relaionship beween wo series. The DH es in differen lag lenghs is presened in he Table 2. Table 2. Resuls of DH causaliy es K=1 K=2 Null hypohesis W-Sa. Zbar-Sa W-Sa. Zbar-Sa LINT. does no homogenously cause LGDP LGDP does no * ** homogenously cause LINT. Noe: K shows he lag lenghs. *Significan a he 1% level. **Significan a he 5% level. The DH es resuls given in he Table 2 indicae ha a unidirecional causaliy exiss from LGDP o LINT, which is he percenage of individuals using he inerne. This conclusion confirms our second hypohesis, which we have already wrien. So he increase in GDP simulaed he use of he inerne. The cross-secional dependence is examined and he empirical resuls are given in he Table 3. According o he resuls, he null-hypohesis ha no cross-secional dependence exiss among counries is rejeced for all ess. This conclusion means ha if a shock occurs in one sample counry, i may in urn have a spillover effec on oher counries. I is a fac ha inerne has no only dispersed quickly from ciies in a counry bu also has had increasingly significan effecs on neighbouring counries. Table 3. Cross-secional dependence Saisics Cross-secional dependence P-value * * * Noe: *indicaes significance a 1 % level. Breusch-Pagan LM es. Pesaran scaled LM es. Pesaran cross-secional dependence.
7 Causal relaionship beween inerne use and economic developmen for seleced Cenral Asian economies Concluding remarks In his sudy, he relaionship beween inerne use and economic developmen is examined using he Dumirescu and Hurlin (DH) panel causaliy es for some seleced Asian Counries. The DH es resuls indicae ha a unidirecional causaliy exiss from GDP per capial o inerne use. These findings confirm he second hypohesis presened, which posulaes ha increase in GDP per capia can simulae inerne use because less developed and developing counries do no have proper elephone infrasrucure, which require high levels of invesmens. In addiion, he cross-secional dependence is examined using LM es of Breusch and Pagan and CD-LM and CD es of Pesaran. The resuls sugges ha he null-hypohesis, no cross-secional dependence exiss among counries, is rejeced for all he ess. This conclusion means ha if a shock occurs in a one sample counry, i may have spillover effecs on oher counries. Fuure sudies may examine geographic inequaliy in inerne use and economic developmen for a counry or a group of counries. References Breiung, J. and Candelon, B., Tesing for shor-and long-run causaliy: A frequency domain approach, Journal of Economerics, Vol. 132, No. 2, pp Breusch, T.S. and Pagan, A.R., The LM es and is applicaion o model specificaion in economerics, Review of Economic Sudies, Vol. 47, pp Croux, C. and Reusens, P., Do sock prices conain predicive power for he fuure economic aciviy? A Granger causaliy analysis in he frequency domain, Journal of Macroeconomics, Vol. 35, pp Dumirescu, E-I. and Hurlin, C., Tesing for granger non-causaliy in heerogenous panels, Economic Modelling, Vol. 29, No. 4, pp Geweke, J., Measuremen of linear dependence and feedback beween muliple ime series, Journal of he American Saisical Associaion. Vol. 77, No. 378, pp Hoffman, D.L., The revaluaion will no be elevised: inroducion o he special issue on markeing science and he Inerne. Markeing Science, Vol. 19, pp Kamssu, A.J., Siekpe, J.S. and Elzy, J.A., Shorcoming o globalizaion: Using he Inerne echnology and elecronic commerce in developing counries, The Journal of Developing Areas, Vol. 38, pp
8 152 Fua Sekmen, Hasme Gokirmak Penard, T. and Poussing, N., Inerne use and social capial: The srengh of virual ies, Journal of Economic Issues, Vol. 3, pp Pesaran, H.M., General diagnosic ess for cross secion dependence in panels, Cambridge Working Papers in Economics, Vol Riddle, D., Using he Inerne for service exporing: Tips for service firms. Inernaional Trade Forum, Vol. 1, pp
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