Essay Sample on Evaluation of ICT Driven FDI on Economic Development/Growth

Introduction

Foreign Direct Investment (FDI) has been adjudged of great importance to economic growth and improved productivity. These are attributed to advances in Information and Communication Technology (ICT) which gives rise to high level of economic integration. Investment in ICT by nations of the world has significantly influenced the setting of global relationships and wider opportunities for growth in the economy.

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According to Fakher (2016) the rapid progress in ICT and increase in economic globalization within international production network have created new opportunities for developing countries to participate in global production hence activate increased competitiveness. ICT in this case includes among others 'devices and technologies, such as radio, television, cellular phones, desktop and laptop computers, software, peripherals and connections to the Internet, as well as services and other related applications associated with them, all intended to fulfill information processing and communications functions' (Economou, 2008). There is a growing acknowledgement that ICT can act as a vehicle for development and source of growth as a result of spillover benefits and positive externalities, the outcome of which leads to economic growth. Such spillover can come in form of enabling change across other sectors and attract FDIs. There is an overwhelming belief that FDI contributes to economic growth through provision of foreign capital to augment domestic investment. Uwubanmwen and Ogiemudia (2016) in the same vein agree that by FDI promoting both forward and backward linkages with the domestic economy; it indirectly creates additional employment and further stimulates economic activities. Easterly and Levine (2001) characterized FDI by its transfer of modern technology which contributes to capital accumulation and a rising efficiency of human capital and increased employment, productivity, trade, and economic growth. Adegbite and Ayadi (2010) posit that FDI fills the revenue-generation gap of domestic economies of developing countries as they lack sufficient revenue to meet their expenditure needs. Khan (2007) also found FDI as the most important source of external resource flows to developing countries and having a positive effect on the economy of the host country. Developing countries are characterized by low per capita income, low productivity in Agriculture and informal sector, small scale production, production for self-consumption, low levels of capital formation (physical and human) (education and health) rapid population growth rate and size, high rate of unemployment, illiteracy, underutilization of resources among others.

Developed countries are characterized by high per capita income, highly industrialized, highly developed infrastructure, low growth in population, low level unemployment, high presence of infrastructure capabilities, and low incidence of poverty.

Economic growth is measured by real Gross Domestic Product (GDP). GDP= consumer spending + gross investment + public expenditure + (export - import). Nigeria representing developing countries is characterized by its oil-rich economy, abundant human capital with unemployment rate at 23.1% (2018 Q3), and a large market in terms of population (approximately 184 million) (Wikipedia,). GDP growth from 2015 - 2018 shows 2.7%, 1.6%, 0.8%, 2.1% respectively. Dependency on oil, insufficient infrastructure, ineffective institutions, inequality in income, high level of unemployment, high poverty level and socio-political unrest (World Bank, 2018). With the drop in oil prices after the 1970s and '80s oil boom, it became imperative that dependent on oil alone as a major source of revenue for development could not carry the economy any longer. The need for other sources of revenue and savings accumulation became necessary.

Statement of the Problem

Growing literature has agreed that ICT, despite being a vehicle to economic growth, is a major determinant of FDI as it attracts FDI in ways such as reducing search time and related costs and through increases in efficiency and productivity (Economou, 2008). Growing evidence has shown that ICTs are transforming how modern economies operate even though their direct impact on economic growth may not be easily singled out which could be driven by "the lack of high-quality micro and macro level sets on ICT for these countries" (Niebel, 2014). World Bank (2012) accordingly gave an optimistic view on ICTs great impact on reducing poverty, increase productivity and boost economic growth.

Studies have given varied opinion on the impact of ICT on the growth of developing and developed countries' economies and the reasons behind these variations. Also, studies have however ascertained the impact FDI has on economic growth and production.

To add to existing literature, this study, therefore, evaluates the impact of ICT-driven FDIs on economic growth of developing and developed countries using Nigeria and Germany as a case study. Specifically, the study examines the influence of ICT on FDI and on other FDI determinants. Also, the study evaluates the impact of FDI on economic development.

Research Questions

• What impact has ICT on FDI?
• What is the correlation of ICT and FDI on economic development?
• What form of impact has FDI on economic development of developing (Nigeria) and developed countries (Germany)?

Literature Review

Empirical literature is reviewed on the impact of ICT on FDI and on other FDI determinant, impact of FDI on economic development focusing on differences in methodology, data sources and sample period with features of data used for the study. Various literature has analyzed the relationship between FDI and a country's economic growth thereof. However, in light of the growing technological trend, our focus will therefore be on ICT related FDI impact in economic growth.

History Review of ICT

In the wake of technological advancement ICT has become a key component in the development of a country. Pothitou, Hanna, and Chalvatzis (2017) asserts that at the beginning of 1980s various developed countries made it a compulsory for the integration of ICT into their education system. However, it was not the case in the developing counties which are now seen to work hard in experimenting ICT on a small scale. Pothitou, Hanna, and Chalvatzis (2017) further notes that the uncoordinated approach in the developing countries has resulted to the failure of the integration as there is poor leadership. Indeed, from the invention of the internet in the early 1960s the developing countries have been slow in endorsing technology in their operations.

Notably the internet today was invented after Vint Cert innovated TCP/IP protocol in 1973 (Schulte, 2015). The development allowed transferring of documents effectively as well as the posting of information for public review which resulted to the emergence of new services such as emails. Besides, the computer was introduced as a personal productivity device in 1977 especially for computers such as Apple and Commodore. Operations such as transferring files using the computes were complex although they would be connected in networks. Moreover, in 1989 Robert Caillliau was able to put forward a proposal for the management of files with his college Tim Berners-Lee using the computers (Schulte, 2015). The two developed a service that assisted in sharing of documents and sound files and dialogue and named it World Wide Web (WWW). The connection using WWW continued furiously until 2001 when there was the revolution of the dot com service which allowed provision of information worldwide.

Schulte (2015) states that thought the period one needed to purchase a computer and a desktop software which included utilities for assessing viruses as well as the operating system. Indeed, the installation of a software was vital to allow effective connection of computers and to promote the network servers to connect on the internet. From 1990 to 2001 WWW was responsible for the provision of an information service (Perez-Sanagustin et al., 2015). The educational institutions such as universities were able to develop websites which helped in the spread of information globally. Nonetheless, the websites were institutionalized which inhibited the access to the users and only offered data in text format which was user unfriendly. In 2001 there was the development of multiple services on the WWW such as Facebook, Google and Twitter which were friendly as they offered services freely. At this stage WWW effectively moved to a read or write platform which allowed the users to socialize and as well contribute to publishing of texts, videos or animations. In the same year, 2001, the term WWW was changed to Web 2.0 which became to be widely accepted but it did not go under any technical transformation but it was popular because of its interactive nature.

Moreover, the association of WWW and the internet promoted the maturity of communication as well as social networking without any standard in history. Gossart (2015) has conducted multiple research in order to identify the development of communication through the highlighting human interaction via written and verbal communication. He finds out that today we are in a world where communication has turned to be electronic which has assisted in enhancing global interactions which are personal. Besides, the electronic communication has affected education and business as the services and products are delivered efficiently. Gossart (2015) also noted that ICT has caused the end of hegemony of the formal education due to the enhanced capacity of personalization which is used by multiple groups for the education.

The history of ICT is critical in establishing that communication and productivity has improved since the invention of the personal computers. The current trend in technology has helped in effective performance of computers with access to internet without the installation of desktop software. Therefore, there is need to make further changes to help in advancing business and education and research to promote the experience of the online users.

Reviews of ICT and Economic Growth

The empirical literature has shown that there are numerous effects that impact economic growth where ICT plays a role in the process. Indeed, the rising level of economic integration is stimulated by the advances in information technology. Khan (2007) views that the economic theory has indicated that it is important for every country to learn the various aspects of the international economic activities especially for the developing countries. Besides, FDI is considered to be a critical channel of technology diffusion. Notably the multinational enterprises pose superior technology techniques which are exploited especially in the European countries and have shown positive relationship between economic growth and the telecommunication infrastructure. (Niebel, 2018) first noted the importance of technology as a key determinant of development which he identifies to be over the traditional factors in capital and in labor. In his demonstration he finds out that capital and labor alone cannot effectively lead to economic progress in a country. He emphasizes that the fundamental source of development is technological advancement under the postulation of the constant return to scale.

Ishida (2015) presented technology as an endogenous inconstant. According to his model, one of the critical factor of production is the human capital since the accumulation of capital results to the increase of theory and knowledge which are critical factors in growth. However, the model disproves the traditional growth approach and assumes that th...