Measuring Broadbands Economic Impact

1
Measuring Broadbands Economic Impact
Sharon E. Gillett, William Lehr, Carlos
Osorio Massachusetts Institute of
Technology Communications Futures Program
(CFP) Marvin Sirbu Carnegie Mellon
University Engineering and Public Policy March
2006 Research supported by the Economic
Development Administration of the U.S. Department
of Commerce, with matching funds provided by MIT
ITC and CFP industry sponsors Papers available at
http//cfp.mit.edu/groups/broadband/measuring_bb_p
p.html
2
Why Broadbands Economic Impact Matters?

• To governments and non-profits
• Competitiveness issue Local, regional / state,
  national
• Funding, involvement in broadband
• Spillover benefits / positive externalities
• To firms
• Investment decisions, revenue opportunities
• Government relations
• To citizens
• Economic implications of broadband public
  policies
• Brand X, network neutrality, municipal broadband,
  video franchising, interconnection, spectrum, etc.

3
Many Reasons to Expect Economic Impacts

• Firms
• Increased productivity via information
  communications technology (ICT)
• Forman, Goldfarb and Greenstein (2005)
  Bresnahan, Brynjolfsson, and Hitt (2002)
  Brynjolfsson and Hitt (1996) Autor, Levy and
  Murnane (2003)
• ICT users use ready-made applications such as
  email and web to raise quality, lower cost of
  gathering market intelligence, communicating with
  customers and suppliers
• ICT enhancers develop, customize, and
  integrate more complex e-business applications
  e.g. automated supply chain management, online
  sales into remote markets
• Workers ICT complements knowledge workers,
  substitutes for more routine jobs
• Overall effect on jobs ambiguous
• Individuals (residential users)
• Work at home / self-employment / remote
  employment
• Educational opportunities (workforce quality)
• Civic participation, social capital, quality of
  life
• More efficient job hunting, household management
  (e.g. online bill pay), shopping etc.
• Overall effect on local economy ambiguous

4
But Impacts Likely Hard to Measure

• Solows IT Productivity Paradox
• Poor measures of inputs (e.g. rapid depreciation,
  lack of usage metrics)
• Inputs work in conjunction with each other and
  organizational / institutional changes
• Outputs hardest to measure in service sector,
  where impacts most likely
• Impact happens over time
• Particular to broadband
• BB as an input Local variability in quality,
  price, adoption
• But FCC data only lets us observe availability
  (poor proxy) at the local level
• Have statewide penetration, but statewide data
  aggregation masks effects
• Limited output data available at local level (not
  GDP)
• Different types of impact at different time
  scales
• BB changes internal business processes,
  entry/exit decisions, prices, worker skills, etc.
• Local impact (temporary advantage) vs. national
  (competitive necessity)
• Need good micro data to resolve!

5
Progression of BB Impact Studies
2001-2 2003 2005

• 1G Prospective, hypothetical
• Crandall Jackson (Verizon) BB to add 500b to
  GDP by 2006
• Pociask (New Millenium Research Council) BB to
  create 1.2m jobs
• Ferguson (Brookings) Lack of BB to lower
  productivity growth by 1 annually

• 2G Case studies, individual communities
• Kelley Cedar Falls, Iowa (muni bb since 1997)
  improved vs. neighboring Waterloo
• Strategic Networks S. Dundas, Ontario (muni
  fiber since 2000) grew sales, jobs, tax revenues

• 3G Controlled, statistical, larger geographic
  scope
• Ford Koutsky (Applied Economic Studies) Retail
  sales grew in Lake County, Florida (muni bb since
  2001) vs. 10 control counties
• This study U.S. national scope, compares 2002
  economic indicators by zip code, based on FCC
  report of BB availability by 1999

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Data Sources
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Key Findings

• National data supports the conclusion that
  broadband positively affects economic activity
• Even after controlling for community-level
  factors known to influence BB availability and
  economic outcomes
• Controls urban, income, education, growth in
  previous period
• Communities where mass-market BB was available by
  December 1999 experienced more rapid growth by
  2002 in
• Jobs (employment)
• Number of businesses (overall)
• Businesses in IT-intensive sectors
• Property values higher in 2000 where BB available
  by 1999
• Higher market rates for rental housing in 2000
• Rents reported more accurately than home values
  in Census data

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Estimated Magnitude of Impacts
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How Strongly is Causality Supported?

• Does BB cause or follow economic activity?
• Impacts stronger than expected
• Be aware of methodological limitations
• Three controlled regression approaches tested
  here
• State-level
• BB metric penetration (FCC data on residential
  small biz lines in service)
• Weak results due to excessive geographic
  aggregation
• Zip code level
• BB metric availability (FCC data on of bb
  providers)
• Two methods tested ordinary controls matched
  sample (hidden controls)
• Leads to estimated range of results
• Issues
• How independent (exogenous) are control variables
  from economic growth?
• Accuracy of BB availability data (esp. in rural
  areas), and relation to penetration / use
• Short time scale, limited data (small universe of
  potential methods, for now)
• Future improvements always possible!

10
Potential Next Steps

• Further refinements to methodology
• Pursue data for instrumental variables as
  alternative approach to causality issue
• More micro-level look within firms
• Further exploit enterprise panel data set(s)
• Case study research on BB impacts
• Incorporate additional data of economic
  impacts/effects
• Later years of business census
• Next household census -gt voting behavior, eGov
  metrics, self-employment
• Richer FCC BB metrics as of 2005
• Stimulate better data about BB use
• Penetration and QoS of BB data? (Generation of
  technology)
• FCC? States? Private (e.g. Pew)?

11
Conclusions

• Results consistent with view that broadband
  access does enhance economic growth and
  performance, and that the assumed (and
  oft-touted) economic impacts of broadband are
  real and measurable
• Analysis suggests stronger-than-expected impacts
• Data limitations warrant cautiously optimistic
  interpretation
• While we have not proven that BB causes economic
  impact, neither have we proven that it doesnt,
  and data clearly show association
• Support will be stronger over time as data
  improves and multiple studies reinforce
• Policy makers promoting BB are doing the right
  thing
• How much BB is enough?
• As BB becomes more uniformly available, will be
  competitive necessity rather than local
  advantage. Suggests shift of policy emphasis
  toward how BB used. Need for balanced portfolio
  of economic development strategies availability
  AND adoption/usage.
• Can you improve the data available to assess the
  impacts of broadband policy?