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Impact of broadband on innovation in Latin America

30/03/2015

By Juan Jung*

One of the most striking elements of business performance is a company’s ability to produce innovations, in other words, its ability to generate new products or processes which will then translate into productivity gains. In Latin America, however, innovation indicators are far behind as compared to other regions.  Compared with those of other regions, Latin American entrepreneurs are less likely to introduce new products and processes, to invest in research and development (R&D) and to register patents. Given the above, it is very important to explore the channels through which we can contribute to increase innovative activity levels within the region. In this sense, a key element that might enhance Latin America´s innovation capacity is the deployment of broadband networks and their adoption and intensive by the corporate sector.

A paper titled “Impact of broadband on innovation activity: evidence from Latin America” that recently appeared in Cuaderno de Economía, a journal published by the Catholic University of Uruguay, studies the impact of connectivity and the use of broadband on the performance of the region´s corporate sector. To do so, the research takes advantage of an enterprise survey database that includes 13 Latin American countries and a variety of aspects relating to innovation and the availability and use of ICTs. Based on these data, econometric models are estimated for various indicators that allow deciphering the relationship between innovation and the Internet.

For the businesses of our region, results suggest that having broadband Internet connectivity and using the Internet to make online purchases, deliver services and conduct research results in a considerable increase of the likelihood of introducing new processes, new products, and registering international patents. In particular, the adoption and intensive use of broadband by the region´s companies would result, on average, in a 12% increase in the probability of introducing new processes, a 45% increase in the probability of introducing new products, and a 29% increase in the probability of registering international patents.

These results highlight the importance of creating conditions that support broadband deployment throughout the region, as well as the need to promote active policies that will encourage intensive Internet use. Specifically, the sample analyzed in this study suggests that average levels of connectivity and broadband utilization are lower among the region´s small businesses. This might suggest that incentives to innovation should focus on small businesses, and that these incentives should consider the importance of greater connectivity and a more intensive use of the Internet. A comprehensive approach with cross-cutting policies can secure and enhance the Internet’s positive impact, for example, through programs that support micro-entrepreneurs so that they can bridge the connectivity gap and make extensive use of new technologies.

The paper is available at the following link (page 65):

http://www.ucu.edu.uy/sites/default/files/cuaderno-de-economia-23-12-2014.pdf

*Studies and Regulation Coordinator at the Ibero American Association of Research Centers and Telecommunications Companies