Does the Internet have the potential to accelerate development in poor nations? Or is it an innovation that will widen the gap between wealthy and poor countries? This paper places the Internet in a framework of major innovations in modern economic history that have contributed to increased global economic inequality. To study whether the Internet has the potential to do the same, we investigate the determinants of Internet diffusion and explore differences between developed and developing nations. Our findings indicate that developing countries are being left behind as the transformation to the 'new economy' takes place in wealthier countries. If this trend continues, it may have dire consequences for world economic inequality and political stability, as did great innovations of earlier eras. We consider policies that might accelerate the development of information technology in poorer countries so these nations can benefit from the technological revolution occurring in wealthier countries. We also discuss why it might be in the interest of the developed countries to pursue such policies.
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