Analyzing ICT's Contribution to Economic Growth in Kuwait

This report examines the significant impact of Information and Communication Technology (ICT) on economic growth, particularly within the context of Kuwait's developing economy. It explores how ICT enhances productivity by improving the efficiency of production factors, leading to increased output and economic growth, as evidenced by Kuwait's GDP growth following the adoption of ICT. The report highlights the spillover effects of ICT, such as reduced operational costs and increased disposable income, which stimulate consumption and further economic expansion. It also discusses the indirect effects of ICT on other technologies and industries, underscoring its role in innovation and investment. The analysis references Robert Solow's theory, emphasizing the importance of productivity improvements driven by ICT, and concludes that ICT has become a crucial driver of economic development, offering numerous opportunities for growth and investment.

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ARAB OPEN UNIVERSITY
FACULTY OF BUSINESS STUDIES
DD202A
TUTOR MARKED ASSIGNMENT (TMA), FALL SEMESTER, 2018 -
2019

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Table of contents
Introduction................................................................................................................................3
Discussion- Impact of ICT on productivity and economic growth............................................3
Conclusion..................................................................................................................................5
Reference....................................................................................................................................7

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Introduction
Information and communication technology or the ICT is an infrastructure that augments the
modern computation and data management. Although, the exact definition of the ICT is
multidimensional, it can be termed as the total system that includes networking of different
types of modern peripherals and devices for faster data processing and storage. Now the
biggest importance of ICT in the modern economy lies in the fact that it allows the
management to digitalize the knowledge. ICT helps in better accessibility of the data and
hence a faster decision making which is in line with the characteristics of the modern
economy. The modern economy is full of competition and equipped with better transparency
than before (Nica, 2015). ICT, therefore, is an important component of business that shapes
the characteristics of the modern economy. ICT directly influence the knowledge of the
economy which then further fosters the economic growth. In country like Kuwait, which is
considered as a developing economy, ICT provides a better vision in terms of distribution and
wellbeing to the government and the related intuitions. Apart from that, ICT also works as an
auxiliary system for the entrepreneurship which has been found to create 37% of the jobs in
the economy of Kuwait. In a developing country like Kuwait, labor is used as an important
factor for the production. Thus, the capability of the economy to rip most benefit lies mainly
on the productivity of the labour force of the Kuwait economy. The objective of this study is
to shed light on the contribution of ICT on the economic growth through various channels
such as productivity (Ishida, 2015). In addition to that, the paper also highlights the link
between the ICT and the economic growth taking the case of Kuwait.
Discussion- Impact of ICT on productivity and economic growth
The economist Robert Solo found out that, better performance in terms of the economy cannot
be achieved by increasing labor hour. Rather the capital per labor needs to be altered which
may further influence upon the productivity of the labors. That means the changing ratio of
input and output is what contributes towards the economic growth. Information and
communication technology improves the efficiency of the factors of production. This, in turn,
provides more output corresponding to the same input. According to the data, GDP
exponentially grew after the year 2000. It also needs to be noted that, around this, the use of
information technology also started in the corporate sector of the country. The introduction of
ICT in this sector not only reduced the cost of operation but it also increased the productivity
of labors. Tzedopoulos et al. (2016) pointed out that these two in collaboration ensured an
impressive economic performance of the country after 2000.

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Figure 1: The economic growth of Kuwait over the years
(Source: Leong, et al. 2016)
However, the growth has stalled after the year 2007 as part of the influence of the global
financial crisis. The somewhat same phenomenon has also been seen in other countries as
well. The investment in ICT increased by 43% since 2001 and output grew by around 80%.
The investment in the ICT in Kuwait was followed by a 5.9% increase in the labor
productivity that in turn helped the economy to cruise to a bigger value. The plant-level data
of the corporate sector of Kuwait has shown positive effects on external business
environments both inter and intra industry scenarios. Jorgenson and Vu (2016) pointed out
that, ICT investment has a high spillover effect that, distribute the gains from the ICT to
different sectors of the economy. For example, in the case of Kuwait, the lower cost of
production increased the disposable income of the people of the economy. After the year
2004, the consumption component of the aggregate demand pushed it to a higher value
leading to an impressive economic growth in the long run. ITC reduces the cost of operation
in the economy which is transferred to the other linked industries. This reduced cost of
operation along with the increased disposable income of the consumer expands the economy.
The MC curve falls downward along with the average total cost curve. The new equilibrium
where MC=MR= ATC is right to the initial output level shows the increase in output due to
ICT.

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Figure 2: The reduced cost of operation due to ICT and the increase in output
(Source: Skufina et al. 2016)
One important characteristic of ICT is that it has huge indirect effects on other similar types
of technology that eventually multiplies the effects of ICT on economic growth. Salemink et
al. (2017) pointed out that, ICT not only has a vertical spillover on the industry producing the
ICT but also on other industries that uses the ICT. The vertical spillovers of ICT take longer
time compared to the vertical spillovers and hence many concluded initially that ICT has no
significant impact on the productivity and hence the economic growth. Jin and Cho (2015)
noted that similar to the investment in traditional technological improvement, ICT also
reaches a point after which the productivity starts to diminish. This explains the slower
economic growth in almost all parts of the world. Apart from that, innovation in ICT provides
the flexibility to further expand the scopes of the economy. That means the introduction;
implementation and innovation in ICT boost the innovation process of the economy helping
the overall economy to grow. In addition to that, the structuralist- evolution approach to
technological improvement also states that technological complementarities evolve over time
and hence economic activities experience a boost (Asongu and Le Roux, 2017). ICT initially
helped the operation of big organizations and corporate sectors, however, the application of
ICT increased with the increase in the number of usage of ICT in the long term. Along with
that, ICT innovation and improvement in the economic activity also provides incentives to the
investors as ICT spillovers on productivity and economic growth cannot be considered an
externality. ICT as an investment destination has also been successful further amplifying
impacts of ICT on productivity and economic growth. Therefore, ICT has a huge number of
spillovers and each of the spillovers individually has its capability to create growth
opportunities (Skryabin et al. 2015). This vast array of opportunities sums up and makes ICT
an effective contributor for economic growth.

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Conclusion
Thus, ICT is an important technological advancement that was introduced in the mid-1990s. It
influenced the economic performance of most of the economies of the world. Studies have
shown that ICT has a spillover effect that diversifies the influences of technology in other
sectors as well. Although due to the occurrence of the global financial crisis, the economic
growth rate reduced despite surging investment in the ICT sector, it has become the backbone
of the economy. The theory by Robert Solow posits that it is not the increase in the labor hour
rather the improvement in the productivity that drives economic growth. ICT has positively
impacted the productivity of the workers and other means of production. Furthermore, the
indirect effects of ICT help different other sectors of the economy to grow at the same rate.
More the use of ICT in the economy the stronger is the multiplier effects that further boost the
economic growth. Again, ICT is different from another technological advancement as it does
not work as an externality. ICT has also proved itself as an interesting destination for
investment.

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Reference
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