Scandinavian Working Papers in Economics

Ratio Working Papers,
The Ratio Institute

No 99: A Dynamic Flexible Partial-Adjustment Model of International Diffusion of the Internet

Minkyu Lee () and Almas Heshmati ()
Additional contact information
Minkyu Lee: Seoul National University, Postal: Techno-Economics and Policy Program, , College of Engineering, Seoul National University, , San 56-1 Shinlim-dong, Kwanak-gu, Seoul 151-744, Korea,
Almas Heshmati: Ratio, Postal: The Ratio Institute, P.O. Box 5095, SE-102 42 Stockholm, Sweden

Abstract: The paper introduces a dynamic, flexible partial-adjustment model and uses it to analyze the diffusion of Internet connectivity. It specifies and estimates desired levels of Internet diffusion and the speed at which countries achieve the target levels. The target levels and speed of adjustment are both country and time specific. Factors affecting Internet diffusion across countries are identified, and, using nonlinear least squares, the Gompertz growth model is generalized and estimated using data on Internet users for 59 countries observed over the years 1995 to 2002. The empirical results show that infrastructure variables such as personal computer ownership and telephone service increase the equilibrium level of internet diffusion. The speed of adjustment toward a target level decreases over time. Regarding model performance, the generalized dynamic Gompertz model that accounts for unobserved country heterogeneity effects outperforms other, simpler and static model specifications.

Keywords: technology diffusion; Internet; panel data; technology adoption; Gompertz model

JEL-codes: C23; L86; L96; O33; O57

28 pages, May 19, 2006

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