Author(s)
Charles I. Jones
Source
TNIT Mimeo, Nov. 2005
Summary
This paper asks how information helps economies grow.
Policy Relevance
Economic growth results when economic actors can more easily learn what goods and services they need and how and where to get them.
Main Points
- “Information” refers to any understanding or know-how relating to the use of resources, including markets, government policies, regulation, and products.
- e.g. which of the millions of books sold would be best for each person to read.
- How exactly to get an import license for the best textile machinery.
- Improving information transmission can help buyers and sellers, employers and employees, and other find good “matches.” Many lack the information they need to find a good match.
- The Internet, with the advent of new firms like online booksellers, helps people learn about products that suit them. Improving information by one percent per year leads to growth in incomes and in Gross Domestic Product by as much as 2 percent per year.
- Information is crucial not only at the point of sale to consumers, but in every stage of production and economic development.
- Thinking about information distribution can explain the enormous differences in income and productivity between poor and rich countries.
- Small differences in how effectively information is produced result in large differences in income.
- Four different kinds of related information are needed for growth, so improvement in one area will not always lead to large growth. There is no “magic bullet.”
- A manual telling how to make socks is not helpful unless one also knows how to get the materials to make them, and knows where the socks can be sold.
- Incomes in rich countries diverge from incomes in poor countries, and the difference has grown between 1960 and 1999. People in rich countries are learning to invent, make, and use more and more goods of increasing quality. Divergence occurs as the poorest countries lag in learning to deploy these same things.
