ABSTRACT
Recent research in economics, political science and
public
policy
has outlined the factors that determine Internet
diffusion
from a
broad, global perspective. Usually wealth and the
level
of
infrastructure development are given as key factors
in
explaining
outcomes in per capita Internet penetration rates.
While
such findings
may provide a valid view of global trends, these
factors
fail to explain
outcomes in the Internet penetration rates of
several
transition
economies in Central and Eastern Europe (CEE).
This research uses new institutional economic and
political
theory
to investigate the impact of institutional change on
Internet
penetration
rates in Estonia, Latvia, Slovakia and Slovenia. Of
the
four cases studied,
Estonia and Slovenia have substantially different
institutional
settings and
paths of transition but the same Internet
penetration
rates. Latvia’s
institutions and path of transition are similar to
that
of Estonia but the
Internet penetration rate is significantly
different.
Slovakia’s institutions
and path of transition are closer to Slovenia than
Estonia,
but its
outcome in Internet diffusion is different from that
of
Slovenia.
Hence, substantially different settings of
institutions
and paths of transition
can lead to similar outcomes in Internet penetration
rates,
while similar
institutional frameworks and paths of transition
have
led to significantly
different outcomes in Internet diffusion. However,
once
the initial institutional
setting of countries before the transition from
socialism
to a market economy
is taken into account, it becomes clear that
institutional
change that has
encouraged openness throughout the economy is also
crucial
for increasing
Internet diffusion.
Based on the case studies, this paper argues that
the
Internet diffusion in
transition and developing economies is encouraged
through
the privatization
of the incumbent telecom company and the opening of
the
telecom market.
This requires that the telecom regulators be
independent
and stay free of
political interventions, in order to secure maximum
openness
and fair play
in the telecom sector. For this to be successful,
this
paper finds that these
sector specific rules of the game have to be
combined
with a liberal trade
and foreign direct investment regime.
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