Mobile Phones, Broadband, and the Poor

The Telecommunication Development Sector (ITU-D) released their 2016 ICT Facts and Figures with the following chart:


Technology analyst Benedict Evans tweeted the chart with the tongue-in-cheek caption “The evils of capitalism.” He followed up with, “That 5bn people have a phone & 2.5bn already have a smartphone is a huge achievement of, mostly, free markets and permissionless innovation…It’s been clear for a decade that access to communications transforms prospects for the poorest. A phone *does* put food in your belly.”

People are sometimes skeptical of this last claim, but they shouldn’t be. For example, a 2016 World Bank report found that “[a]lmost every study, despite the methodology and whether it was cross-country or single country, found a positive economic impact from fixed broadband” (pg. 11). A 2016 report from the McKinsey Global Institute found “that widespread adoption and use of digital finance could increase the GDPs of all emerging economies by 6 percent, or a total of $3.7 trillion, by 2025. This is the equivalent of adding to the world an economy the size of Germany, or one that’s larger than all the economies of Africa. This additional GDP could create up to 95 million new jobs across all sectors of the economy.” A 2012 report prepared by Deloitte for the GSM Association found that “[o]n average, across the sample of 14 countries considered, if countries doubled their consumption of mobile data per 3G connection between 2005 and 2010, they would have experienced a growth rate of GDP 0.5 percentage points higher each year” (pg. 7). A 2014 report from the Gates Foundation notes that “mobile data has been used by researchers, mobile operators and governments to help plan emergency response after natural disasters, enhance access to financial services for the poor, track the spread of infectious disease, and understand migration patterns of vulnerable populations. Indeed the full range of ways that mobile data can be used to improve the lives of poor people is only beginning to be explored” (pg. 4). A 2015 study found “evidence that the use of mobile money increases the use of formal savings accounts and allows for more effective risk sharing. In recent research, we show another important channel through which mobile money can enhance economic development. Namely, by allowing easier access to larger amounts of trade credit, mobile money allows firms higher production, with important macroeconomic repercussions.” The situation of Kerala fisherman also demonstrates the impact of mobile phones. As The Economist reports,

Dividing the coast into three regions, [economist Robert] Jensen found that the proportion of fishermen who ventured beyond their home markets to sell their catches jumped from zero to around 35% as soon as [phone] coverage became available in each region. At that point, no fish were wasted and the variation in prices fell dramatically. By the end of the study coverage was available in all three regions. Waste had been eliminated and the “law of one price”—the idea that in an efficient market identical goods should cost the same—had come into effect, in the form of a single rate for sardines along the coast.

This more efficient market benefited everyone. Fishermen’s profits rose by 8% on average and consumer prices fell by 4% on average. Higher profits meant the phones typically paid for themselves within two months. And the benefits are enduring, rather than one-off. All of this, says Mr Jensen, shows the importance of the free flow of information to ensure that markets work efficiently. “Information makes markets work, and markets improve welfare,” he concludes.

A 2008 World Bank study found that the mobile sector and use of mobile phones (1) boost GDP, (2) create jobs, (3) increase productivity, (4) increase tax revenue, (5) enable entrepreneurship and job search, (6) reduce information asymmetries, (7) correct market inefficiencies, (8) reduce transportation costs, (9) create consumer surplus, (10) aid disaster relief, (11) disseminate educational and health information, and (12) promote social capital and social cohesion. Other sources point to access to money and banking, improved governance, and disseminated agricultural, health, and educational information.

These various studies and reports confirm what economist Andreas Bergh found about globalization: larger information flows reduce poverty. If we want to help the poor, we need to integrate them into the global economy.

Infographic: Mobile Phones Tackling Poverty