The Contribution of U.S. Broadband Infrastructure Subsidy and Investment Programs to GDP

Authors: (1) Matthew Sprintson (2) Edward Oughton 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 Abstract More than one-fifth of the US population does not subscribe to a fixed broadband service despite broadband being a recognized merit good. For example, less than 4% of citizens earning more than US $70k annually do not have broadband, compared to 26% of those earning below US $20k annually. To address this, the Biden Administration has undertaken one of the largest broadband investment programs ever via The Bipartisan Infrastructure Law, with the aim of addressing this disparity and expanding broadband connectivity to all citizens. We examine broadband availability, adoption, and need for each US state, and then construct an Input-Output model to explore the potential macroeconomic impacts of broadband spending to Gross Domestic Product (GDP) and supply chain linkages. Our analysis indicates that higher funding allocations do appear to be allocated to areas with poorer broadband. While this may be logical, as it illustrates funding going to areas most in need, this could not have been assumed a priori given politically-motivated funding is not always rationally allocated. In terms of macroeconomic impact, the total direct contribution to US GDP by the program could be as high as US $84.8 billion, $55.2 billion, and $5.99 billion for the BEAD program, ACP, and TBCP, respectively. Thus, overall, the broadband allocations could expand US GDP by $146 billion (0.13% of annual US GDP over the next five years). We contribute one of the first economic impact assessments of the US Bipartisan Infrastructure Law to the literature. 1 Introduction Reliable high-speed broadband is crucial for economic growth and improving productivity. For example, a broadband connection gives firms access to a larger pool of resources, suppliers, and customers, enhancing business growth in both urban and rural regions (DeStefano et al., 2023; Prieger, 2017; Stockinger, 2019) and lowering input prices (LoPiccalo, 2021; Lumpkin & Dess, 2004). Communities desire broadband investments for a variety of reasons, but the economic development benefits are a key motivation, particularly for rural and remote locations that want to boost extra-regional trade (Kumar & Oughton, 2023; Malgouyres et al., 2021; Rodriguez-Crespo et al., 2021). Fledgling companies (as well as established firms) also benefit, as broadband provides entrepreneurs advantages in generating new customers and business opportunities, enabling revenue growth (Chen et al., 2023; Hasbi, 2020; Prieger, 2023; Stephens et al., 2022). Given this context, broadband has been a regular news item in current affairs media in recent years across the political spectrum. CNN has reported that broadband infrastructure investment "could make a substantial dent in the country's digital divide" (CNN, 2021), with Fox News stating the plan would "expand broadband access to bring tech jobs to rural America" (Fox, 2020). While decision-makers from different political parties understand that high-speed, reliable broadband connectivity is crucial for societal and economic development, there are often disagreements. Contentions arise with regard to the magnitude of public spending, as well as how broadband infrastructure should be deployed (whether by market methods or government) (Alabama Political Reporter, 2023; Brookings, 2022). Consumers also benefit from good quality broadband infrastructure. Indeed, consumers can access a broader selection of goods and services (Greenstein & McDevitt, 2011), possibly bolstering inter-regional transactions. Investments in broadband can enhance education (Cullinan et al., 2021; Graves et al., 2021; Gu, 2021), expand access to vocational training (Goulas et al., 2021; Rosston & Wallsten, 2020), and develop new ways to participate in the labor force, increasing the productivity of regional and national economies (Gallardo et al., 2021; Mukhalipi, 2018; Pelinescu, 2015). Unfortunately, a significant economic divide exists between those with or without a high-speed broadband connection in US communities (Ali, 2022; Valentín-Sívico et al., 2023). Such divisions have become more apparent during the COVID-19 pandemic as rural communities struggled because they could be disproportionately less likely to have a reliable broadband connection (UCSB, 2022). These communities have also had difficulty participating in online commerce (Isley & Low, 2022), accessing essential services, and carrying out transactions online (Grubesic, 2006; Lai & Widmar, 2021). In 2020, the Biden administration introduced the Bipartisan Infrastructure Law, which includes broadband infrastructure subsidies and resources to boost deployment. The Bipartisan Infrastructure Law consists of three key approaches to expanding broadband coverage and adoption, including (i) the Broadband Equity, Access, and Deployment (BEAD) program, (ii) the Affordable Connectivity Program (ACP), and (iii) the Tribal Broadband Connectivity Program (TBCP). Currently, the FCC defines broadband as a connection with a download speed of more than 25 Mbps and an upload speed of more than 3 Mbps (Broadband USA, 2016; FCC, 2022). However, an FCC inquiry recently recommended that the standard be increased to 100 Mbps download and 20 Mbps for upload (Gorscak, 2023). Firstly, the BEAD program is the largest single congressional allocation to broadband, with $42.45 billion going to expanding broadband infrastructure (Congressional Research Service, 2023). The BEAD program’s aim is to catalyze broadband infrastructure investment and improve accessibility to a reliable, fast Internet connection to qualifying US citizens. Past assessments of broadband investment programs have estimated Keynesian multipliers of up to 4.75 (Katz & Suter, 2009), indicating for every one unit of government spending (e.g., US$ 1), there is a commensurate increase of 4.75 units in the wider macroeconomy (e.g., US$ 4.75). In addition to infrastructure challenges, there are also barriers ranging from adoption to technology and implementation costs which need to be overcome (Canfield et al., 2019). The Affordable Connectivity Program allocates a subsidy for households to purchase broadband connections; eligible families can receive a discount of up to US $30 per month, while those on tribal lands can receive up to US $75 per month. The program allocates US $14.2 billion for broadband investment and provides up to a US $100 discount for a computer or tablet (Af ordable Connectivity Program, 2023). Decreasing broadband prices has been shown to be positively associated with increased broadband penetration (Abrardi & Cambini, 2019; Flamm & Chaudhuri, 2007; Rosston & Wallsten, 2020). Finally, the Tribal Broadband Connectivity Program focuses on broadband deployment on tribal lands, which comprise approximately 2.3% of US land area, with the Bipartisan Infrastructure Law allocating $3 billion to invest in servicing these communities (Vincent et al., 2017). The TBCP targets increasing access in Tribal areas through awards, with one recent example being the allocation of $19.8 million to the Chippewa Indians living in Boise Forte to install fiber cables in their community (Oxendine, 2023). Grants for native territories have been found to positively affect broadband penetration (Korostelina & Barrett, 2023; Pipa et al., 2023). With this context in mind, this paper subsequently analyzes the economic impact of these three broadband investment and subsidy programs. This is undertaken by first exploring the availability, adoption, and need for broadband on a state-by-state level. Then secondly, developing an Input-Output (IO) model to quantify the macroeconomic effects in GDP terms. Finally, the potential supply chain linkage effects are quantified for different industrial sectors. The research questions include the following: To what extent does the Bipartisan Infrastructure Law allocate funding to unconnected communities in need? What are the GDP impacts of the three funding programs within the Bipartisan Infrastructure Law? How are supply chain linkages affected by allocations from the Bipartisan Infrastructure Law? In Section 2, a literature review is carried out examining studies pertaining to the research questions, before a method is presented in Section 3. Modeling results will be presented in Section 4, and we then return to the research questions in Section 5 to discuss the ramifications of the findings in the broader policy context. Finally, the research conclusions, contributions to the literature, and limitations of the approach will be presented in Section 6. This paper is available on arxiv under CC0 1.0 DEED license. Authors: (1) Matthew Sprintson (2) Edward Oughton Authors: Authors: (1) Matthew Sprintson (2) Edward Oughton Table of Links Abstract and Introduction Abstract and Introduction 2. Literature Review 2.1 Reviewing Broadband Infrastructure’s Impact on the Economy 2.1 Reviewing Broadband Infrastructure’s Impact on the Economy 2.2 Previous Research into IO Modeling of Broadband Investment 2.2 Previous Research into IO Modeling of Broadband Investment 2.3 Context of the Bipartisan Infrastructure Act through Previous Research 2.3 Context of the Bipartisan Infrastructure Act through Previous Research 3. Methods and 3.1 Leontief Input-Output (IO) Modeling 3. Methods and 3.1 Leontief Input-Output (IO) Modeling 3.2 Ghosh Supply-Side Assessment Methods for Infrastructure 3.2 Ghosh Supply-Side Assessment Methods for Infrastructure 3.3 Data and Application 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. 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? 4.2 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? 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? 5.1 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? 5.2 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?" 5.3 How are supply chain linkages affected by allocations from the Bipartisan Infrastructure Law?" Conclusion Conclusion Acknowledgements and References Acknowledgements and References Abstract More than one-fifth of the US population does not subscribe to a fixed broadband service despite broadband being a recognized merit good. For example, less than 4% of citizens earning more than US $70k annually do not have broadband, compared to 26% of those earning below US $20k annually. To address this, the Biden Administration has undertaken one of the largest broadband investment programs ever via The Bipartisan Infrastructure Law, with the aim of addressing this disparity and expanding broadband connectivity to all citizens. We examine broadband availability, adoption, and need for each US state, and then construct an Input-Output model to explore the potential macroeconomic impacts of broadband spending to Gross Domestic Product (GDP) and supply chain linkages. Our analysis indicates that higher funding allocations do appear to be allocated to areas with poorer broadband. While this may be logical, as it illustrates funding going to areas most in need, this could not have been assumed a priori given politically-motivated funding is not always rationally allocated. In terms of macroeconomic impact, the total direct contribution to US GDP by the program could be as high as US $84.8 billion, $55.2 billion, and $5.99 billion for the BEAD program, ACP, and TBCP, respectively. Thus, overall, the broadband allocations could expand US GDP by $146 billion (0.13% of annual US GDP over the next five years). We contribute one of the first economic impact assessments of the US Bipartisan Infrastructure Law to the literature. 1 Introduction Reliable high-speed broadband is crucial for economic growth and improving productivity. For example, a broadband connection gives firms access to a larger pool of resources, suppliers, and customers, enhancing business growth in both urban and rural regions (DeStefano et al., 2023; Prieger, 2017; Stockinger, 2019) and lowering input prices (LoPiccalo, 2021; Lumpkin & Dess, 2004). Communities desire broadband investments for a variety of reasons, but the economic development benefits are a key motivation, particularly for rural and remote locations that want to boost extra-regional trade (Kumar & Oughton, 2023; Malgouyres et al., 2021; Rodriguez-Crespo et al., 2021). Fledgling companies (as well as established firms) also benefit, as broadband provides entrepreneurs advantages in generating new customers and business opportunities, enabling revenue growth (Chen et al., 2023; Hasbi, 2020; Prieger, 2023; Stephens et al., 2022). Given this context, broadband has been a regular news item in current affairs media in recent years across the political spectrum. CNN has reported that broadband infrastructure investment "could make a substantial dent in the country's digital divide" (CNN, 2021), with Fox News stating the plan would "expand broadband access to bring tech jobs to rural America" (Fox, 2020). While decision-makers from different political parties understand that high-speed, reliable broadband connectivity is crucial for societal and economic development, there are often disagreements. Contentions arise with regard to the magnitude of public spending, as well as how broadband infrastructure should be deployed (whether by market methods or government) (Alabama Political Reporter, 2023; Brookings, 2022). Consumers also benefit from good quality broadband infrastructure. Indeed, consumers can access a broader selection of goods and services (Greenstein & McDevitt, 2011), possibly bolstering inter-regional transactions. Investments in broadband can enhance education (Cullinan et al., 2021; Graves et al., 2021; Gu, 2021), expand access to vocational training (Goulas et al., 2021; Rosston & Wallsten, 2020), and develop new ways to participate in the labor force, increasing the productivity of regional and national economies (Gallardo et al., 2021; Mukhalipi, 2018; Pelinescu, 2015). Unfortunately, a significant economic divide exists between those with or without a high-speed broadband connection in US communities (Ali, 2022; Valentín-Sívico et al., 2023). Such divisions have become more apparent during the COVID-19 pandemic as rural communities struggled because they could be disproportionately less likely to have a reliable broadband connection (UCSB, 2022). These communities have also had difficulty participating in online commerce (Isley & Low, 2022), accessing essential services, and carrying out transactions online (Grubesic, 2006; Lai & Widmar, 2021). In 2020, the Biden administration introduced the Bipartisan Infrastructure Law, which includes broadband infrastructure subsidies and resources to boost deployment. The Bipartisan Infrastructure Law consists of three key approaches to expanding broadband coverage and adoption, including (i) the Broadband Equity, Access, and Deployment (BEAD) program, (ii) the Affordable Connectivity Program (ACP), and (iii) the Tribal Broadband Connectivity Program (TBCP). Currently, the FCC defines broadband as a connection with a download speed of more than 25 Mbps and an upload speed of more than 3 Mbps (Broadband USA, 2016; FCC, 2022). However, an FCC inquiry recently recommended that the standard be increased to 100 Mbps download and 20 Mbps for upload (Gorscak, 2023). Firstly, the BEAD program is the largest single congressional allocation to broadband, with $42.45 billion going to expanding broadband infrastructure (Congressional Research Service, 2023). The BEAD program’s aim is to catalyze broadband infrastructure investment and improve accessibility to a reliable, fast Internet connection to qualifying US citizens. Past assessments of broadband investment programs have estimated Keynesian multipliers of up to 4.75 (Katz & Suter, 2009), indicating for every one unit of government spending (e.g., US$ 1), there is a commensurate increase of 4.75 units in the wider macroeconomy (e.g., US$ 4.75). In addition to infrastructure challenges, there are also barriers ranging from adoption to technology and implementation costs which need to be overcome (Canfield et al., 2019). The Affordable Connectivity Program allocates a subsidy for households to purchase broadband connections; eligible families can receive a discount of up to US $30 per month, while those on tribal lands can receive up to US $75 per month. The program allocates US $14.2 billion for broadband investment and provides up to a US $100 discount for a computer or tablet (Af ordable Connectivity Program, 2023). Decreasing broadband prices has been shown to be positively associated with increased broadband penetration (Abrardi & Cambini, 2019; Flamm & Chaudhuri, 2007; Rosston & Wallsten, 2020). Finally, the Tribal Broadband Connectivity Program focuses on broadband deployment on tribal lands, which comprise approximately 2.3% of US land area, with the Bipartisan Infrastructure Law allocating $3 billion to invest in servicing these communities (Vincent et al., 2017). The TBCP targets increasing access in Tribal areas through awards, with one recent example being the allocation of $19.8 million to the Chippewa Indians living in Boise Forte to install fiber cables in their community (Oxendine, 2023). Grants for native territories have been found to positively affect broadband penetration (Korostelina & Barrett, 2023; Pipa et al., 2023). With this context in mind, this paper subsequently analyzes the economic impact of these three broadband investment and subsidy programs. This is undertaken by first exploring the availability, adoption, and need for broadband on a state-by-state level. Then secondly, developing an Input-Output (IO) model to quantify the macroeconomic effects in GDP terms. Finally, the potential supply chain linkage effects are quantified for different industrial sectors. The research questions include the following: To what extent does the Bipartisan Infrastructure Law allocate funding to unconnected communities in need? What are the GDP impacts of the three funding programs within the Bipartisan Infrastructure Law? How are supply chain linkages affected by allocations from the Bipartisan Infrastructure Law? To what extent does the Bipartisan Infrastructure Law allocate funding to unconnected communities in need? What are the GDP impacts of the three funding programs within the Bipartisan Infrastructure Law? How are supply chain linkages affected by allocations from the Bipartisan Infrastructure Law? In Section 2, a literature review is carried out examining studies pertaining to the research questions, before a method is presented in Section 3. Modeling results will be presented in Section 4, and we then return to the research questions in Section 5 to discuss the ramifications of the findings in the broader policy context. Finally, the research conclusions, contributions to the literature, and limitations of the approach will be presented in Section 6. This paper is available on arxiv under CC0 1.0 DEED license. This paper is available on arxiv under CC0 1.0 DEED license. available on arxiv