THE STUDY OCTOBER 27, 2011
There was more good economic news buried beneath today’s reassuring reports of faster GDP growth: The FCC has just approved a $4.5 billion fund to expand broadband access to the 5 percent of Americans living in rural areas without high speed Internet—nearly 20 million people. The FCC touts this as an economic growth measure, predicting that the expansion will create 500,000 jobs and strengthen the “infrastructure” of the U.S. economy. Are these optimistic claims well-founded?
According to a 2009 paper by four German economists, expanding broadband infrastructure indeed results in economic growth, regardless of where it is done. The scholars reviewed broadband expansion and economic growth in 25 OECD countries over the period 1996-2007. They note that there are many reasons to assume greater broadband access will have positive economic effects: It leads to wider distribution of information and business models, lower barriers of entry into existing markets, and greater transparency and productivity. Tests of its impact on over two dozen national economies confirm this judgment. Even when controlling for other factors, the authors found that “an increase in the broadband penetration rate by 10 percentage points raises annual growth in per-capita GDP by 0.9 to 1.5 percentage points.” That’s heartening news, particularly at a time when economic growth is proceeding all too slowly.