Broadband Internet and New Firm Location Decisions in Rural Areas

Younjun Kim, Peter F. Orazem
First published: 16 November 2016 https://doi.org/10.1093/ajae/aaw082

Abstract

Improving rural broadband access has been touted as a rural development strategy, but there is limited evidence that broadband service affects rural economic growth. We measure the effect of broadband deployment on location decisions of new rural firms. Location-specific fixed effects are controlled by a counterfactual baseline that measures how local broadband service in the early 2000s affected local new firm entry in the early 1990s before broadband was available anywhere. The change in location choice probability of new firms from the counterfactual baseline to the actual response ten years later is the difference-in-differences estimate of the effect of broadband deployment on locations of new firms. We find that broadband availability has a positive and significant effect on location decisions of new firms in rural areas, which is confirmed by a robustness test using ZIP Code dummy variables. The broadband effect is largest in more populated rural areas and those adjacent to a metropolitan area, suggesting that this effect increases with agglomeration economies.