Panel Paper: Public ICT Policy and the Provision of Fiber: Does Ultra-Fast Broadband Increase Firm Productivity?

Thursday, November 8, 2018
8229 - Lobby Level (Marriott Wardman Park)

*Names in bold indicate Presenter

Richard Fabling, Independent Researcher and Arthur Grimes, Victoria University of Wellington; Motu Economic and Public Policy Research

Since the turn of the millennium, analysts and policy agencies have stressed the importance of the internet as a factor that can improve the performance of individual firms. Furthermore, as internet speeds have increased through technological advances, arguments have been made for the importance of investment in ultrafast broadband (UFB) infrastructure to enable beneficial economic spillovers. A result has been the emergence of government initiatives to promote investment in fiber infrastructure, which underpins UFB, to complement or enhance private sector roll out initiatives.

One large-scale example of such support is the New Zealand Government's Ultra-fast Broadband Initiative, announced in 2011. This initiative is designed to roll out fiber optic cable across the country to make UFB available to 80 percent of the population by 2022. Over the following four years, UFB usage more than doubled from 9 percent to 22 percent of all private sector firms with 6 or more employees; 62 percent of large (100+ employment) firms had fiber-to-the-door by 2014.

We analyze whether this policy initiative had an impact on firms’ productivity. Specifically, we estimate whether there have been productivity gains from ultrafast broadband (UFB) adoption and whether any gains are higher when firms also undertake complementary organizational investments. Our analysis uses a unique combination of unit record firm data (covering ICT use plus other firm characteristics and practices) collected by the national statistics agency combined with tax records of the same firms that are used to provide our productivity measures.

Using an IV strategy based on proximity to schools (that were targeted in the UFB roll-out), we find that the average effect of UFB adoption on employment and (labor and multifactor) productivity is insignificantly different from zero, even for firms in industries where we might expect the returns to UFB to be relatively high. Conversely, we find that firms making concurrent investments in organizational capital specifically for the purpose of getting more from their ICTs appear to experience higher productivity growth, at least in first-difference specifications. Firms making these joint (UFB-organizational) investment decisions are significantly more likely to report other positive outcomes from their ICT investments, consistent with the identified relationship with productivity being causal.

The key policy implication of our findings is that government policy to promote the availability of fiber for UFB use does not in itself raise firm productivity. It does, however, provide an option for firms to make complementary investments that do raise firm productivity, and hence contribute more broadly to the wealth of the nation.

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