How Broadband Infrastructure Drives Economic Growth and Entrepreneurship

Table of Links

Abstract and Introduction

2. Literature Review

2.1 Reviewing Broadband Infrastructure’s Impact on the Economy

2.2 Previous Research into IO Modeling of Broadband Investment

2.3 Context of the Bipartisan Infrastructure Act through Previous Research

3. Methods and 3.1 Leontief Input-Output (IO) Modeling

3.2 Ghosh Supply-Side Assessment Methods for Infrastructure

3.3 Data and Application

4. Results and 4.1 To what extent does the Bipartisan Infrastructure Law allocate funding to unconnected communities in need?

4.2 What are the GDP impacts of the three funding programs within the Bipartisan Infrastructure Law?

4.3 How are the supply chain linkages affected by allocations from the Bipartisan Infrastructure Law?

5. Discussion

5.1 To what extent does the Bipartisan Infrastructure Law allocate funding to unconnected communities in need?

5.2 What are the GDP impacts of the three funding programs within the Bipartisan Infrastructure Law?

5.3 How are supply chain linkages affected by allocations from the Bipartisan Infrastructure Law?"

Conclusion

Acknowledgements and References

2 Literature Review

2.1 Reviewing Broadband Infrastructure’s Impact on the Economy

Access to broadband has many benefits, as examined in this review. While broadband is a necessary but not sufficient factor for development in modern economies, connecting more people to a faster Internet removes a significant barrier that constrains many communities, especially those rural and remote. However, it is also possible that broadband deployment could have a negative impact on employment in some industrial sectors (Zhou et al., 2022). In industries where Internet access cannot replace less efficient labor activities, such as manufacturing, increased broadband adoption positively affects productivity and output (Jung & López-Bazo, 2020; Zhang et al., 2022). However, the return from broadband investment generally depends on the wider level of availability and adoption within an economy. For example, regions with poorer broadband infrastructure generally see a greater contribution to employment and economic growth when finally deployed (Pradhan et al., 2018; Shideler & Badasyan, 2007). However, for regions that already have significantly comprehensive broadband infrastructure, there are generally diminishing returns to scale, with increased infrastructure spending leading to diminishing returns on investment (as is common in other infrastructure sectors such as transportation, energy, etc.).

In terms of macroeconomic impacts, the deployment of broadband infrastructure is generally found to have a positive effect on economic growth (Koutroumpis, 2009). Specifically, increased broadband penetration leads to positive impacts on GDP after more than half of the population has gained access to the Internet. For example, a 1% increase in broadband penetration yields a 0.02% increase in GDP in areas with low broadband penetration and 0.03% elsewhere. In contrast, one assessment estimates broadband’s marginal effect on GDP using pricing models and “willingness-to-pay” estimates, finding that approximately $8.3-$10.6 billion was generated from US broadband investment prior to 2006. The study conclusions suggest that broadband growth results directly in economic benefits from improvements in public health, education, local growth, and employment (Greenstein & McDevitt, 2011).

Moreover, another approach utilizing a Cobb-Douglas production function alongside a Generalized Least Squares model to obtain regression specifications quantifies the impacts of broadband on total output (Ghazy et al., 2022). The analysis finds that broadband has a significant positive association with economic output at the 1% significance level. Furthermore, the regression also estimates a 1% increase in connectivity leads to a 0.63% increase in new business entry into the market, concluding that a secure, dependable broadband connection provides entrepreneurs more incentive to enter a market, as increases in broadband penetration lead to an improved business development environment.

Broadband infrastructure investment expands opportunities for entrepreneurs and encourages business creation (Deller et al., 2022; Luo et al., 2022; Stephens et al., 2022). For example, improvements in broadband infrastructure are found to have enhanced firm formation throughout a wide variety of business sectors (Duvivier et al., 2021). This is for two key reasons. Firstly, access to broadband encourages entrepreneurs to enter the market. Secondly, broadband can relieve positional barriers that discourage entry into the market. Therefore, when regressed against entrepreneurial measures, like project investment, broadband infrastructure investment indicates a significantly positive effect with a coefficient of 0.03. The analysis also suggests there are benefits to innovation from broadband investment (Han et al., 2023; Rampersad & Troshani, 2020; Xu et al., 2019), with an additional 1% penetration associated with an increase of up to 1.4% in filed patents (analogous to innovation) (Yang et al., 2022).

To conclude, there is strong evidence that investing in broadband infrastructure positively affects a range of economic metrics, including industrial output, productivity, entrepreneurship, and innovation.