Cell Phones' Impact On Markets Decrease Poverty


Cell Phones' Impact On Markets Decrease Poverty

With respect to reducing poverty, recent research indicates that the mobile phone is a very important invention in reaching this goal. This theory is best illustrated when examining the results compiled by researchers studying the economics of fishermen off the coast of Kerala, a region in southern India.

The premise of the study is as follows: before fishermen in the area had access to mobile phones, their ability to sell their fish was unpredictable. Researchers observed that when a fisherman had a good catch of sardines, typically other fishermen in the area also had good catches. That meant that the local beach market would have plenty of supply. That also meant that prices of all of the fishermen’s catches would be very low and they also ran the risk that their catches would not be sold at all - and therefore wasted.

The fishermen were faced with a daily question with respect to their catches: should they head to the local market where they always went, or should they go down the coast a little ways in hopes that the supply was not as great and therefore fetch a good price for their supply? Making the wrong choice was costly because once they chose their market, they could not travel to another market as fuel costs were too high. Moreover, each market is only open for a few hours before dawn.

This scenario was what fishermen faced prior to 1997. Obviously, this situation was troubling for both the fishermen and their customers. Fishermen more often than not chose to sell their fish close to home. The practice was wasteful because when one market was oversupplied, fish were thrown away - even though there may have been buyers just a little ways up the coast.

But, in 1997, mobile phones made their way to Kerala. Fishing practices changed. A fisherman was able to call several markets from his boat to determine where his catch would receive the highest price.

Those fishermen who traveled beyond their home markets to sell their fish went from 0% to about 35%. As a result, fish were not wasted and price variations fell dramatically. In essence, the price of fish became the same along the coast.

This more efficient market has benefited fishermen and customers alike. Fishermen’s profits rose by about 8%, while customer prices dropped by about 4%. The higher profits meant that the mobile phones essentially paid for themselves in a short period of time.

Robert Jensen, a development economist at Harvard University headed this research. He pointed out that, “Information makes markets work, and markets improve welfare.”

Critics of this analysis suggest that it is hard to tell if mobile phones promote growth or if growth promotes the adoption of mobile phones. Regardless of that inquiry, it is hard to argue with the results of the study. In the case of fishermen, their access to mobile phones has made their lives - and their profits - much better.

Read this next:

Must Read