Breaking Invisible Barriers: Does Fast Internet Improve Access to Input Markets?

Abstract

This paper explores how improved internet infrastructure impacts supply chains and economic activity, focusing on Türkiye. Using the expansion of fiber-optic networks and firm-to-firm transaction data, we find that better connectivity shifts input sourcing to well-connected regions and diversifies supplier networks. We estimate a spatial equilibrium model with endogenous network formation and rational inattention and find that high-speed internet reduced information acquisition and communication costs. Enhanced connectivity increased real income by 2.2% in the median province. Our findings underscore the importance of digital infrastructure investments in fostering economic growth by improving supply chain efficiency and broadening firms’ access to suppliers.

Keywords: digitalization, production networks, supply chains

JEL Classification: L140, O330, R120, D830, H540, F140, D220, F150, L860, R580, O180, C630, Q550, E220, H410