Broadband has a positive impact on the local economy, but the underlying story is more complex

12th March, 2015

Today we publish our review of evidence on the economic effects of broadband.

Broadband technologies are a basic building block of today’s internet, and governments around the world are keen to roll out broadband (or ‘always on’) networks: many of you will have seen the current UK campaign on superfast broadband, for example. Research commissioned by DCMS projects that fast broadband could add £17bn to the UK’s annual GVA by 2024. This would be a transformative impact if it came to pass. So what did we find on broadband to date? The review covers 16 evaluations, of which 14 found positive impacts of broadband provision on the local economy. That’s encouraging, although the underlying story is more complex. We also found that:

  • Extending broadband to an area can affect firm productivity, number of businesses, and local labour market outcomes (such as employment, income and wages).
  • These effects are not always positive, are not necessarily large, and may depend on complementary investments by firms (for example, training workers, or reorganizing sales strategy or supply chains to take advantage of faster internet connections).
  • Effects can vary across different types of industries and workers with service industries and skilled workers possibly benefiting more than manufacturing industries and unskilled workers.
  • The economic effects of broadband tend to be larger in urban areas (or close to urban areas) than in rural areas.

A number of other lessons emerge.

First, like many ICTs, broadband is a ‘general purpose technology’, which has a huge range of potential economic and social impacts. That’s important, as it means policy decisions about broadband provision have to take account of social benefits as well as economic effects. In rural areas, for example, the social impacts of broadband could be substantial.

Second, as other research makes clear, new technology is a disruptive phenomenon, and broadband is no exception: it creates winners and losers, and has spillover effects across local boundaries. Local policymakers shouldn’t imagine broadband is a silver bullet for economic growth.

Third, it’s clear that the effects of broadband adoption differ from simply providing it in an area. As we find in the review, the benefits of faster internet are often only realised if firms also make other changes to key workflows. Smaller businesses might find that more challenging: this was a big talking point in our Liverpool roundtable. So schemes that target SMEs, such as the current UK broadband vouchers scheme, could usefully explore whether linking vouchers to business support would be more effective than vouchers alone.

Fourth, there are many areas of policy design where the evidence base is simply non-existent. This is largely because most countries leave broadband provision to the market: there is little direct policy intervention (we only found three actual policy evaluations in the 16 studies we considered). In the future we’d like to see a lot more local demonstrator and public-private pilot programmes, along the lines of Superfast Cornwall and YorkCORE in the UK, or Google Fiber in the US. If you’re interested in taking ideas forward, please get in touch.

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