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Example research essay topic: Developing Countries Income Countries - 1,853 words

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The advent of the new economy has already produced a sizable body of literature. This paper does not attempt to discuss all the issues involved in the new economy, but aims to extract the implications for the international regulatory framework and to provide guidelines for necessary changes. It will thereby focus on the establishment of standards, on policy co-ordination and on taxation. The new economy is sometimes seen as the herald for a truly borderless world. However, since the internet requires substantial prerequisites concerning technical infrastructure and human capital, some worry that the developing countries will be left behind. The paper addresses this fear of a growing 'technological apartheid' between the industrialized and the developing countries and looks at policies to overcome the digital divide.

The structure of the paper is as follows: The paper first clarifies the various catchwords of the new economy, examines the rapid growth of e-commerce and looks at the digital divide between countries. It then discusses the necessary modifications for the multilateral framework concerning the establishment of standards, the need as well as the scope for policy coordination, taxation and the overall treatment of e-commerce. Finally, the paper looks at strategies to tackle the digital gap between countries. 1. 1 Catchwords and Concepts for the New Economy to contents list Various catchwords have been coined to capture the essence of the economy- wide consequences resulting from an increased use of processed digital information and from the application of the internet for a wide array of services (software programming, webpage maintenance, ticket and hotel reservations, on-line information and support, ordering facilities, publishing, indexing or abstracting etc. ) as well as transactions (delivering music, movies, documents, literature or software in digital form). (1) The following catchwords aim at different characteristics of this phenomenon but are frequently used as synonyms: 'digital economy', 'information economy', 'knowledge-based economy', 'weightless economy', 'virtual economy', 'internet economy', 'electronic commerce', 'e-commerce', 'e-colony', or maybe more capacious 'new economy'. Some authors have tried to assign distinguishing concepts to this variety. For example, Kling and Lamb (2000) suggest to use the term 'information economy' to include all informational goods and services like publishing, research, legal and insurance services, entertaining, and teaching in all of its forms, and the term 'digital economy' to address (only) the goods and services whose development, production, sale, or provision is critically dependent upon digital technologies. Furthermore, the term 'new economy' is associated for them to possible consequences of the information economy and the digital economy, namely high growth, low inflation, and low unemployment. 2 However, in many papers - including the present one - the concept of the 'new economy' is wider and includes the characteristics of the 'information economy' and of the 'internet economy' as subsets.

In the following, the term 'new economy' describes an economy where both final output and intermediate input predominantly consist of information and where the modern (digital) information and communication technologies provide world- wide access to almost any available information. These new technologies might have the potential to enable an increase in the productivity of conventional business practices, but also facilitate the establishment of new processes and products. Consequently, the evolution of the new economy should not be considered as being restricted to the information sector, but as a far reaching process that might alter and extend the products and production processes within the whole economy. This description of the new economy does not necessarily imply growth rates for the whole economy above the average growth rate of past decades. In fact, doubts about sustainable higher growth rates have been voiced, for example, by Gordon (2000), who critically reviews the potential for productivity gains within the new economy. Furthermore, Gundlach (2001) questions the usefulness of residual measures of total factor productivity growth to deduct the existence of higher growth paths.

With the failure of several new economy enterprises ('dotcoms') during the year 2000 and the slow-down of the US economy in 2001, a more realistic assessment of the changes induced through the new economy will become more widely spread. 1. 2 Growth of International E-Commerce to contents list The various indicators for the use of telecommunication in the years 1990 to 2002 (projected data) show a steady growth of the use of personal computers and main telephone lines and, particularly, the rapid increase in the number of internet users and mobile cellular subscribers (Figure 1). Comparing the expected level of 2002 with the actual level of 1990, the amount of main telephone lines will more than double (factor 2. 1) in this period and the amount of personal computers will increase by the factor 5. 6, whereas the mobile phone subscribers will go up by the factor 90 and the number of internet users will explode by the factor 192. Figure 1 This rapid development in the use of the internet is also reflected in the accelerating growth of the number of internet hosts. From mid- 1994 to January 2001 world-wide internet hosts multiplied by the factor 22 from 4. 8 millions to more than 105 millions (Figure 2). Figure 2 3 Linked to the increase in internet users and internet hosts is a mounting importance of the internet for business transactions. Due to limited availability of secure on-line payment devices in previous years, many users were initially reluctant to purchase goods and services via the internet.

However, the standard of encoding and, consequently, the security of transaction have improved in the last years, and electronic commerce has become more popular so that it is set to gain quickly in significance relative to overall business. According to a survey conducted by the UNCTAD (2000: 7) about the various projections, the importance of on-line business for total cross-border trade flows is estimated to range between 10 and 25 per cent of world trade by the year 2003. This range of estimation exhibits on the one hand the considerable uncertainty concerning the rate of growth of e-commerce, but on the other hand underlines the expectation that e-commerce will become a major component of business life and cross-border trade even if a more cautious assessment turns out to be true. For the year 2005, the association of 67 multinational firms within the 'Global Business Dialogue on Electronic Commerce' expects that on-line business to business will amount to more than US$ 7 trillion annually (Global Business Dialogue 2000 a: 2). Furthermore, the association expects that more than one billion people will be connected to the internet by that date. Related to the progress of electronic commerce, the OECD (1999: 21) envisions a significant rise in international trade, especially in electronically delivered products.

These products are frequently services that are, until now, only traded to a limited amount and that are predominantly supplied on an international level within multinational firms. These shifts in business practices could be detrimental for sectors that have been protected until now by regulatory or structural barriers. Furthermore, the OECD expects from this development considerable pressures to reduce differences in regulatory standards concerning especially accreditation, licensing or restrictions on activity for these newly tradable products. 1. 3 The Digital Divide between Countries to contents list The previous section has documented the exponential rise of the use of the internet and the expected future importance of electronic commerce. However, it could be claimed that the internet age has arrived only in some parts of the world. Table 1 presents the density of the five main tools of the communication and information era (television sets, telephone mainlines, mobile phones, personal computers and internet hosts per 1000 people) according to an income classification of countries.

The classification of countries follows the World Bank (2000 a): 'Low income' are countries with a Gross National Product (GNP) of less than US$ 731 for the year 1998, 'lower middle income' are countries with a GNP between US$ 731 and US$ 3030, 'upper middle income' are countries with a GNP between US$ 3031 and US$ 9360, whereas 'high income' countries are the remaining ones with a GNP of more than US$ 9361. Table 1 4 Table 1 shows that the gap between the low income and the high income countries increases considerably with the state of technology of the communication and information equipment. Whereas the low income countries achieve with their density of television sets 56 percent of the world average, with their density of telephone mainlines 25 percent and with their density of mobile phones still 15 percent, the gap is more pronounced in internet related equipment: The density of personal computers in the low income countries is less than 10 percent of the world average and the density of internet hosts is even less than half of one percent of the world average. This gap is sometimes denominated 'digital divide' (cf. OECD, 2001 b). It is also interesting to note that the countries classified as upper middle income achieve quite high density values (above 70 percent) relative to the world average for four categories (television sets, telephone mainlines, mobile phones and personal computers per 1000 people) but fall to just 26 percent of the world average concerning the diffusion of internet hosts.

Since the internet hosts contain the data that are world-wide available, the density of hosts in a country indicate how much this country can influence the contents of the internet. (2) Table 2 displays the regional distribution of internet hosts and internet users and underlines the assessment of a digital divide separating the high income countries from the rest of the world. 91 percent of all internet hosts are in the EU, the USA, Canada and Japan. These countries account also for more than 80 percent of world total of internet users. Developing regions like South America or Africa account only for 1. 1 or 0. 2 percent of internet hosts, respectively, and 3. 4 or 0. 6 percent of the world total of internet users, respectively. Table 2 also shows that the USA are with 66. 9 percent of the world total of internet hosts and 38. 1 percent of the world total of internet users the decisive country for the spread of the internet. The United Kingdom or Germany, the two EU countries with the most internet hosts and internet users, have only a twentieth of the internet hosts of the USA. Table 2 The existing economic divide between the industrialized and the developing countries is, of course, partly the reason for the digital divide between the high income countries and the rest of the world.

Lack of computers, unstable electricity infrastructure, shortage of telephones and capacity of telephone lines aggravate the introduction of the necessary information technology for the digital economy. Furthermore, the fees for new software and internet services are prohibitive for many users in developing countries. The threatening danger of the digital divide has important economic implications. If the projected exponential rise of on-line business as percentage of total trade turns out to be true, the low participation rate of the developing countries at the internet may impede these countries to profit from the growing cake of business activities and will widen the economic gap between nations.


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