ICTlogy

Abstract:

“Broadband” refers to high-speed Internet service that—unlike dial-up modem service—is always “on.” This technology has become widely available throughout the United States. It is essential for businesses, and well over half of American households have broadband access at home.

In recognition of its importance, public investment in broadband is surging. The American Recovery and Reinvestment Act (ARRA) of 2009 allocated $7.2 billion for broadband investment and commissioned a National Broadband Plan to promote universal access, foster economic development, and achieve additional potential benefits through this technology. Several California programs also support the expansion of broadband access, especially in areas where availability is lagging.

This report assesses whether policies to raise broadband availability will contribute, as hoped, to local economic development. Our analysis relies on the fact that broadband technology has diffused unevenly throughout the United States, thus allowing us to compare economic indicators between areas with greater and less growth in broadband availability. Using broadband data from the Federal Communications Commission and economic data from several government and proprietary sources, we examine broadband availability and economic activity throughout the nation between 1999 and 2006.

Our analysis indicates a positive relationship between broadband expansion and economic growth. This relationship is stronger in industries that rely more on information technology and in areas with lower population densities. Although the evidence leans in the direction of a causal relationship, the data and methods do not definitively indicate that broadband caused this economic growth.

The economic benefits to residents appear to be limited. Our analysis indicates that broadband expansion is also associated with population growth and that both the average wage and the employment rate—the share of working-age adults that is employed—are unaffected by broadband expansion. The economic benefits to households are thus more ambiguous than they would be if employment growth also led to an increase in wages or the employment rate. We also found that expanding broadband availability does not change the prevalence of telecommuting or other home-based work. Of course, local employment growth might still raise property values and the local tax base, but in the absence of more direct benefits for residents in the form of higher wages or improved access to jobs, we can only say that the local economic development benefits of broadband are mixed.

Broadband expansion may of course offer other social or economic benefits, such as improved health care delivery. Although our study does not examine such effects, we briefly review the limited evidence of other benefits in the conclusion of the report.