Digital Vulnerability and the Local Performances of Firms in Developing and Transition Countries
46 Pages Posted: 8 Sep 2017 Last revised: 3 Jun 2018
Date Written: April 20, 2018
Almost all coastal economies are now plugged into the global Internet through over 300 telecommunications submarine cables, so the global digital divide is shaped by two structural factors, independent from policy: the physical distance to infrastructures and the country’s exposure to infrastructure outages. We estimate the impact of Internet penetration on local firm performance by adopting an instrumental variable approach reflecting these two sources of digital vulnerability. Multilevel estimations are conducted over a sample of around 30,000 firms from about 2,600 locations in some 60 developing and transition countries. Results stress large impacts of higher Internet penetration rates at the location level, induced by lower digital vulnerability, on firms’ average revenue and labour productivity, and to a lesser extent, on temporary employment. This evidence is, amongst others, robust to the exclusion of exporters, big firms, foreign firms, and firms created after SMC arrival.
Keywords: NICT, Submarine cables, infrastructures, telecommunications, firm performance
JEL Classification: F02, O11, O33, O18, L25, L96
Suggested Citation: Suggested Citation