Impact of ICT on GDP per worker: A new approach using confidence in justice system as an instrument. : Evidence from 41 European countries 1996- 2010

Abstract: Although a number of studies have been conducted to understand the impact of ICT on a country’s economic output; a complete account for ICT’s influence on real GDP per capita has yet to be visualized. This study aims to investigate this topic, by exploring the hypothesis whether ICT has an impact (causal relationship) on real GDP per worker in 41 European countries from 1996-2010. Confidence in the judicial system is taken as an instrument to solve for endogeneity problems. ICT is defined as mobile, broadband and internet penetration per 100 people. We find that confidence in the justice system is a strong instrument for ICT. Therefore, using IV 2sls regression, it is observed that ICT does have a strong positive correlation and causal relationship with GDP per worker, with an elasticity of 0.4 between the variables. In light of the results, the author recommends that economic policies must be tailored to support ICT development in countries.