Deficit versus balanced budget financing of ICT Infrastructure and Export Quality

Shrimoyee Ganguly and Rajat Acharyya

Journal of Asian Economics, 2021, vol. 77, issue C

Abstract: This paper examines whether and how provision of better quality of ICT infrastructure by the government incentivizes quality upgrading of exports of IT-enabled services of a small dependent economy that displays a diversified export basket. The central idea of the analysis is that infrastructure development has both benefits and costs, and thus may not necessarily improve quality of service exports.Method of financing the ICT infrastructure is also important. We show that if the skill-productivity augmenting effect of better quality of ICT dominates its adverse wage-cost effect, then the quality of the export of ITeS will be upgraded if the government switches from deficit financing to balanced budget financing (through an input tariff) of its expenditure on ICT development. An exogenous increase in expenditure on ICT development raises the quality of service exports regardless of how it is financed, though raises it by a larger magnitude when financed through an increase in the input tariff. Thus, when the primary objective is to incentivize upgrading of quality of exports, balanced budget financing of infrastructure development seems to be the more preferred policy.

Keywords: Export quality; ICT infrastructure; Non-traded good; Deficit financing; Balanced budget financing; Skill productivity; Cost cascading effect (search for similar items in EconPapers)
JEL-codes: F16 H42 H54 O18 R53 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:asieco:v:77:y:2021:i:c:s1049007821001305

DOI: 10.1016/j.asieco.2021.101401

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