Working Paper No. 99. Minkyu Lee and Almas Heshmati (2006) A Dynamic Flexible Partial-Adjustment Model of International Diffusion of the Internet.

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.