Information Technology as a Catalyst to the Effects of Education on Labor Productivity

Research by: John Paul C. Flaminiano, Jamil Paolo S. Francisco & Sunshine Therese S. Alcantara

Executive Summary

In the past five decades, developing countries have experienced a substantial decline in their age dependency ratios, from an average of 81.5 in 1970 to 54.6 in 2019 (World Bank, 2020). For some, this decline may have contributed to a “demographic dividend” of accelerated economic growth. In general, a lower dependency ratio reflects a lighter burden on the economically active population to support and provide for the needs of children and older persons who are often economically dependent. This demographic shift may provide a window of opportunity for economic growth driven by higher productivity for emerging economies with a predominantly young working population.

While a decline in the dependency ratio provides a window of opportunity for many young economies, relying entirely on population structure changes may not be sufficient to increase productivity as national economies become increasingly knowledge-based. Since the emergence of information technology, advanced economies have raised productivity by transitioning to knowledge-based economies. Knowledge-based economies utilize the production, distribution, and use of knowledge and information as a critical factor in productivity, employment, and growth.

This paper explores the interaction channels between human capital, information technology, and productivity. Using fixed-effects and two-step difference GMM panel regressions on data from 121 countries from 1990 to 2017, we estimated log values of labor productivity with respect to log values of capital per worker, labor force size, population size, education, and information technology. We found that education and information technology both have a positive relationship with labor productivity. In addition, we also found positive interaction effects between education and information technology. This result suggests that information technology enhances the positive impact of human capital on labor productivity. Our results are validated by robustness checks using alternative proxies for education and information technology and two-step difference GMM to address endogeneity.

Policies geared towards improving labor productivity should consider the complementary relationship between information technology and human capital, which are linked and, therefore, must be given the same level of prioritization. For countries to maximize the gains of demographic shifts as they transition to a knowledge-based economy, simultaneous investments in human capital and information technology are essential. Our results also suggest that increasing government expenditures on education alone may not necessarily result in increased labor productivity. Instead, these investments should translate to more inclusive and higher-quality education.

To maximize the productivity-enhancing benefits from the complementary relationship between information technology use and human capital, countries must first ensure that the necessary infrastructure to provide reliable internet connectivity exists. High-speed internet serves as a conduit for creating and exchanging ideas and information and helps facilitate the development of new products, processes, and business models. A national broadband plan and universal coverage to promote connectivity in urban and rural areas can be beneficial to boost productivity in developing countries. Likewise, for information technology to be an effective catalyst for human capital to create value, investment in complementary assets such as education, training, and skills development is necessary (Biagi, 2013). Educational programs should increasingly focus on digital competencies and critical thinking skills that encourage innovation. Simultaneously improving education and investing in information technology infrastructure may also address the labor market mismatch between skills and jobs as countries move towards knowledge-based economies.

Instead of relying solely on demographic factors such as population growth, developing countries can further boost productivity by promoting policies that prioritize improvements in human capital and information technology.

To cite this article:  Flaminiano, J. P. C., Francisco, J. P. S., & Alcantara, S. T. S.  (2021). Information technology as a catalyst to the effects of education on labor productivity. Information Technology for Development.  https://doi.org/10.1080/02681102.2021.2008851

To access this article: https://doi.org/10.1080/02681102.2021.2008851

About the journal  

Information Technology for Development (ABS 2), with an established record for publishing quality research and influencing practice, is the first journal to have explicitly addressed global information technology issues and opportunities. It publishes social and technical research on the effects of Information Technology (IT) on economic, social and human development. The objective of the Journal is to provide a forum for policy-makers, practitioners, and academics to discuss strategies and best practices, tools and techniques for ascertaining the effects of IT infrastructures in government, civil societies and the private sector, and theories and frameworks that explain the effects of IT on development. The concept of development relates to social, economic and human outcomes from the implementation of Information and Communication Technology (ICT) tools, technologies, and infrastructures.

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