The "I"s have IT

• Author: Prakash Loungani
• Position: IMF External Relations Department
• Pages: 16

Page 16

The software industry is eyed by many emerging market economies as a pathway to export earnings and economic growth. At a talk at the IMF in December, Carnegie-Mellon University's Ashish Arora said that the success of software exports from the "I" countries-India, Ireland, and Israel-reflected as much good luck and trust in entrepreneurship as successful government policies or better human capital.

According to Arora, the information technology (IT) revolution in the 1980s opened a window of opportunity that could potentially have been exploited by many countries. But the greater success of software firms in the "I" countries shows that "comparative advantage sets the stage but does not provide the script." In hindsight, he said, it is possible to see three reasons why these countries were well positioned to take the lead:

The diasporic effect. Many of the "reserve army of underemployed" engineers and scientists in these countries had previously migrated to the United States and the United Kingdom. For instance, "people born in India are estimated to account for nearly 5 percent of the IT workforce in the United States," Arora noted. Likewise, a 2005 survey found that three-fourths of Irish software companies had a founder who had worked abroad. Through their work abroad, this diaspora gained an appreciation of the business practices of people who were to become their customers.

Freedom to experiment. Second, the software companies in the "I" countries had freedom to experiment. This trust in entrepreneurship by policymakers in these countries was important, he said. "It is forgotten that Indian software giants like Infosys made huge mistakes in their early days, but they were allowed to learn and adapt."

Luck helped, too. Fortunate timing also played a role. "India and Ireland, in particular," Arora said, "were lucky that they embarked on major economic reforms and liberalization" around the same time that the IT...