How the Emergence of Broadband Internet Affected New Business Activity

Studies investigating the linkages between broadband and new business activity in countries around the world have produced mixed results and found important nuances in this relationship related to particular industries, geography, the skill level of the workforce, and broadband speed. Findings related to speed are particularly important in the context of the present study because it suggests access to the latest Internet technology is what matters to new businesses creation. Given this likely nuance behind broadband availability and new business creation, the goal of this study is to investigate the connection between the Internet and new business activity, building on regional and rural-focused studies within the United States (U.S.). Specifically, our paper conducts a nationwide assessment of the relationship between broadband and new business activity, focusing on the impact of broadband at the dawn of the Internet age when it had the most potential to disrupt industries and open up new entrepreneurial opportunities. Using an instrumental variables approach based on the development of the Internet by the U.S. military, we estimate the impact of broadband infrastructure on total and net new business creation in the early years of broadband availability. Results suggest that access to broadband was associated with an increase in new business activity and in the net creation of new businesses. We also find evidence that access to broadband was important in the creation of businesses in certain industries, especially those that benefited from the rise of the Internet. At the same time, this result may have crowded out business activity in the manufacturing industry. Our results also suggest that disruptive innovations (such as the internet) are important for small business creation and for regions that are still underserved by internet access, expanding such access may help generate business growth