Bridging the Digital Divide : How Enterprise Ownership and Foreign Competition Affect Internet Access in Eastern Europe and Central Asia

In transition economies, enterprises that are even partly foreign-owned are twice as likely to have access to the Internet as state- and privately owned enterprises with no foreign ownership. And there is some evidence of spillovers, because enterprises that compete with foreign-owned domestic enterprises or imports are also more likely to have Internet access. Employee-owned enterprises are less likely to have Internet access.Many observers attributed the rapid productivity growth observed in the United States in the mid- to late 1990s to the growing use of information and the Internet. This in turn created concern that developing and transition economies - where use of information technology and the Internet was less widespread - would be left behind as productivity and growth accelerated in technologically advanced countries and stagnated elsewhere.Using enterprise-level data from 21 transition economies, Clarke looks at factors that affect whether enterprises in these countries are connected to the Internet. He finds that foreign-owned enterprises are more likely to have Internet access than other enterprises and that employee-owned enterprises are less likely to have access.Even after controlling for other factors that might affect Internet connectivity, the quality of a country's telecommunications infrastructure appears to have a significant effect on the likelihood that an enterprise in that country has Internet access.Reducing corruption and taking other steps to improve the business environment would benefit domestic economies even if Internet access had little short-term impact on productivity or growth.This paper - a product of Regulation and Competition Policy, Development Research Group - is part of a larger effort in the group to understand the impact of the Internet on economic performance. The author may be contacted at gclarke@worldbank.org