Monday, January 12, 2009

Effect of Broadband on the Economy

Many pundits and pols are pushing the National Broadband Strategy to stimulate the economy. Let's look at the effects of Broadband on the Economy:

First, there is the Lake County Florida case: "Our econometric model shows that Lake County has experienced approximately 100% greater growth in economic activity - a doubling - relative to comparable Florida counties since making its municipal broadband network generally available to businesses and municipal institutions in the county. ... The Bureau of Economic Advisors estimates that for each $1 invested in broadband, the economy benefits nearly $3."

In another report, Measuring Broadband╩╝s Economic Impact - Final Report Prepared for the U.S. Department of Commerce, Economic Development Administration, "The results support the view that broadband access does enhance economic growth and performance, and that the assumed economic impacts of broadband are real and measurable. We find that between 1998 and 2002, communities in which mass-market broadband was available by December 1999 experienced more rapid growth in employment, the number of businesses overall, and businesses in IT-intensive sectors, relative to comparable communities without broadband at that time."

The latest study I could find was published in 2007: The Effects of Broadband Deployment on Output and Employment: A Cross-sectional Analysis of U.S. Data by Brookings Institute. The results include the following: "for every one percentage point increase in broadband penetration in a state, employment is projected to increase by 0.2 to 0.3 percent per year. For the entire U.S. private non-farm economy, this suggests an increase of about 300,000 jobs, assuming the economy is not already at "full employment" ... Because broadband is an important basic infrastructure that is expected to produce spillover ... they estimated that Internet business solutions will add 0.43 percentage points to future productivity growth through 2011 ... We find that non-farm private employment and employment in several industries is positively associated with broadband use." That says a lot: You want to Stimulate productivity and job growth? Deploy More Broadband!

The problem that Brookings sees is that "States have few policy levers that affect the overall demand for broadband. However, given that the demand for broadband is price elastic, the most effective policies are likely to be those that contribute to lower prices. The surest route to lower prices is provided by increasing competition in the delivery of broadband services." This is the exact opposite of the recent FCC decisions - whether it was in TRRO, Forbearance actions, or radio spectrum, the FCC has continually coddled the Duopoly at the expense of competition, innovation, and the Digital Divide. What has this cost us in terms of Productivity, Jobs, and Economic Growth?

There was a study just in the state of California: A rising tide: Measuring the economic effects of broadband use across California. "This research estimates the economic effects of broadband use across 39 California counties between 2001 and 2006. The surveys were conducted in California counties twice each year from 2001 to 2006. Estimates from panel regression analysis demonstrate that increased broadband use within California has had a positive and significant effect on growth in employment and total payroll. [The report is priced at $31.50 and can be purchased at Science Direct]. The conclusion was: "The results show that the broadband share and the migration from dial-up to broadband each have a positive and statistically significant effect on growth in employment and total payroll, inclusive of county fixed effects."

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