Tuesday, October 18, 2005

Cell Phones and Economic Growth

There was an article in the Sunday New York Times on the rapid expansion of cell phone use in Africa. (Thanks to Norm Hardy for the pointer.) Many people have commented on the implications of cell phones vs. land lines in developing countries, but a new implication struck me on reading this one.

The general background is that in many developing countries, it's easier to install the infrastructure for cell phones than for land lines. No copper wires required, just occasional cell towers. That makes a huge difference when the consumer uptake at the beginning will be sparse, and will grow over time. Many things make installing the copper wires problematic, including political instability, lack of property rights (whose permission do you need in order to put up a line of phone poles or to dig a trench?), spotty infrastructure (roads, for instance) as well as the overall expense.

Norm commented on the possible applications for micro-currencies (think DSR) based on the fact that the phones have the ability to transfer prepaid air minutes phone-to-phone. But what I saw was a rapid ramp on person to person commerce that can grease the wheels to growing trade at the grass roots level. For many years, I have been contributing to Trickle Up, a charity (like Grameen Bank) that makes microfinance loans to the poorest of the poor all over the world. The promise of these organizations is that they give people a chance to start a business, which gives them money to send their children to school, or patronize other tiny local businesses, which ought to be able to kick a tiny local economy in may places.

The NYT article mentions one particular case where access to cell phones improves the prospects for very small scale entrepreneurs: fishermen who are able to choose the best market for their catch before heading to a particular port. It's easy to imagine that coordination on that scale: choosing markets, deciding what to harvest or when, taking orders for build-to-suit could help many small businesses to run more efficiently, which would make it more attractive to operate a business, and could inject more money into a local economy, providing an opportunity for organic local growth.

According to the article, cell phone use is exploding even more than the (presumably optimistic) providers' projections indicated. They calibrated their estimates according to official GDP numbers, not realizing that cell phones would make an even bigger difference in the heretofore informal economy, which the official numbers don't include.

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