Mobile phones, the Internet and the institutional environment

This paper empirically investigates the determinants of the Internet and cellular phone penetration levels ill a cross-country setting. It offers a framework to explain differences in the use of information and communication technologies in terms of differences in the institutional environment and the resulting investment climate. Using three measures of the quality of the investment climate, Internet access is shown to depend strongly oil the country's institutional setting because fixed-line Internet investment is characterized by a high risk of state expropriation, given its considerable asset specificity. Mobile phone networks, oil the other hand, are built On less site-specific, re-deployable modules, which make this technology less dependent oil institutional characteristics. It is speculated that the existence of telecommunications technology that is less sensitive to the parameters of the institutional environment and, ill particular, to poor investment protection provides an opportunity for better understanding of the constraints and prospects for economic development. (c) 2005 Elsevier Ltd. All rights reserved.