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The Internet Economy: The World's Next Growth Engine

2941 words - 12 pages

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|The Internet Economy: the World's Next Growth Engine |
|Starting with the Middle Ages, the story of the human race has been marked by accelerating economic growth. In the 1400s, global per capita income |
|rose at only 0.1% per year, estimates economist J. Bradford DeLong of the University of California at Berkeley. Over the next five centuries, that |
|rate moved steadily upward, finally hitting nearly 3% in the second half of the 20th ...view middle of the document...

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|The initial manifestation of the new era is the stunning performance of the U.S. economy in the 1990s. For most of the postwar era, Western Europe |
|and Japan slowly gained ground on the U.S. by adopting U.S. technology and adding their own innovations. In 1970, U.S. per capita income was 31% |
|higher than that of other major industrialized countries. By 1991, the difference had narrowed to only 10%. |
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|But with the dawn of the Internet Age, the gap has started to widen again, to more than 22% this year. ''This is historically unique,'' says Luc |
|Soete, an economist at Maastricht University in the Netherlands and Europe's leading expert on the New Economy. ''For the first time in the postwar |
|period, you have growth divergence--the pulling away of the leading technology country.'' |
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|The acceleration of U.S. growth is only the opening act of a much larger drama of global economic change--and growth. For starters, the Internet |
|should make many more industries open to globalization. Historically, international trade flows have consisted mainly of goods. Whether it was spices|
|or airplanes, it was far easier to ship goods overseas than services. But with the Internet, it becomes much easier to provide services of all |
|types--banking, education, consulting, retailing, gambling--through a Web site that is globally accessible. ''The Internet is the backbone of greater|
|service trade,'' says Joseph Quinlan, senior international economist at Morgan Stanley Dean Witter. |
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|Beyond that, as more and more countries become tied into the global Net, there may well be an acceleration of the rate of innovation. New growth |
|theory predicts that as the size of the global market gets bigger, the rewards for uncovering lucrative new ideas get bigger and bigger. Moreover, as|
|new ideas flow back and forth across national boundaries faster and more easily, everybody will benefit. ''There are lots of reasons to think the |
|Internet will lead to much more rapid diffusion of knowledge,'' says Jonathan Eaton, an economist at Boston University. A study by Eaton and his |
|co-author, Samuel Kortum, has estimated that in the extreme case, if...

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