Wednesday, August 1, 2012

It’s a Small World after All: Internet Access and Institutional Quality

From the abstract: "We examine a panel of over 100 countries in up to 4 five year periods and estimate the effects of Internet use and access to broadband Internet access on the Economic Freedom of the World (EFW) index. We find evidence that the net effect of Internet access on institutional quality is non-linear. It is positive at low initial levels of institutional quality and turns negative at higher levels. We hypothesize that increased Internet access affects institutions through three channels: (i) it may strengthen institutions by solving coordination problems; (ii) it may increase the number of countries that can be viewed as “neighbors”, thus increasing the potential for institutional spillovers; (iii) increased Internet access may increase emotional contagion and the demand for collective action. We find that the effect of Internet use and access on economic freedom is largely positive but contingent on the initial level of economic freedom. Specifically, (i) and (ii) appear to dominate at lower initial levels of economic freedom and for most of the countries in our sample. However, at higher initial levels of freedom (iii) becomes relatively important; for a few OECD countries in our sample, the total effect is negative." Read more