The Importance of Broadband and Other Infrastructure for Entrepreneurship
31 Pages Posted: 16 Mar 2018 Last revised: 24 Aug 2018
Date Written: August 17, 2018
Broadband network infrastructure, as a general purpose technology, has enabled new types of business activity and supported entrepreneurial endeavors. Policymakers have looked to broadband infrastructure to help spur economic growth for two decades. We now have long enough time series on broadband deployment and usage to assess credibly its importance as a driver of an important dimension of growth: new business creation in the U.S. This research explores how broadband infrastructure and other factors have promoted new business formation. We investigate empirically how regional broadband infrastructure, transportation infrastructure, and human capital affect the local formation of business establishments in U.S. counties, 2001-2015. Of particular interest is the role and broadband, in both its direct impacts and in how broadband infrastructure complements or substitutes for other regional drivers of entrepreneurship. For example, does broadband substitute for transportation (i.e., the “death of distance”) or complement it (by enabling enhanced logistics in the supply chain)? We examine entrepreneurship because new business ventures are a major contributing factor to economic growth. However, after the surge of entrepreneurship in the “soaring nineties,” new business formation has weakened. In the U.S. the birth rate of startups plummeted during the recent recession. We investigate whether entrepreneurship would be even more difficult without broadband infrastructure.
Our unique data set addresses primarily the role of infrastructure as a driving force that might affect entrepreneurship within a local region (in our case, a county). We therefore have three different sets of infrastructure in our data set: broadband, transportation variables, and knowledge/human capital. Most important is digital infrastructure. Since broadband is the least explored determinant of entrepreneurship in the literature, our greatest interest is in this particular determinant. Broadband infrastructure data come from the FCC and the NTIA. We use different data according to what is available for the time period. In the earliest years (2000 to 2008) we use FCC Form 477 data on the number of providers in the ZIP code. In later periods we explore residential fixed broadband connections per 1000 households (available after 2009), while in the most recent years we look at the maximum advertised download speed and counts of broadband providers from the National Broadband Map and Form 477 at the FCC.
Our (preliminary) findings using fixed and random effect models strongly support that broadband infrastructure facilitates entrepreneurship. We also demonstrate that broadband infrastructure is more conducive to entrepreneurship in innovative industries than to new business formation in general. There are complementarities (synergy) between broadband, transportation infrastructure, and local inventors, in which larger amounts of the latter two increase the margin effect of broadband on new business formation.
Our findings have policy implications. All types of infrastructure facilitate entrepreneurship, with large effects. We predict that there will be about 1,800 to 12,801 establishment births per year, when the broadband providers move from monopoly to duopoly on average in the counties’ ZIP codes, for instance. Policymakers should consider policies that promote infrastructure (perhaps by removing regulatory barriers to investment), particularly in rural areas, and sensible private investment in certain types of infrastructure ought to be encouraged.
Keywords: broadband, entrepreneurship, new business formation, new ventures, Form 477, National Broadband Map, transportation infrastructure, human capital
JEL Classification: R11, L96
Suggested Citation: Suggested Citation