Panel Paper: The Importance of Broadband for Entrepreneurship in Disadvantaged Areas

Thursday, November 7, 2019
Plaza Building: Concourse Level, Plaza Court 4 (Sheraton Denver Downtown)

*Names in bold indicate Presenter

James Prieger, Pepperdine University

Entrepreneurship is an important aspect of a health local economy because new business ventures are a major contributing factor to economic growth. However, after the surge of entrepreneurship in the 1990s, new business formation has weakened. In the U.S. the birth rate of startups plummeted more than 30 percent during the recent recession.

Minorities seeking to open new businesses may face higher barriers than whites as they attempt to pursue market opportunities by securing retail venues, financing their venture, and entering established networks of suppliers and demanders. The challenges facing minorities as entrepreneurs reflect their broader societal constraints and opportunities. However, starting a new small business can be especially important for both the owner and the vitality of the neighborhood in lower income areas and neighborhoods with large minority or ethnic communities.

Broadband network infrastructure, as a general purpose technology, has enabled new types of business activity and supported entrepreneurial endeavors. Policymakers have looked to broadband infrastructure to help spur economic growth for two decades. We now have long enough time series on broadband deployment and usage to assess credibly its importance as a driver of an important dimension of growth: new business creation in the U.S.

Broadband may help ease some constraints faced by minority entrepreneurs. The disintermediation offered by online transactions may reduce barriers to securing financing or real estate, as well as to entering mainstream business networks. Thus it is especially important to examine new business formation in minority areas, how broadband infrastructure promotes entrepreneurship, and the links between the two.

I investigate empirically how regional broadband infrastructure and other factors affect the local formation of business establishments in U.S. counties, 2000-2014. Of particular interest is the role of broadband in minority and economically disadvantaged areas. I investigate whether entrepreneurship would be even more difficult for minorities without broadband infrastructure.

The (preliminary) findings using fixed and random effect models strongly support that broadband infrastructure facilitates entrepreneurship. Also, broadband infrastructure appears to be even more conducive to entrepreneurship in minority and low-income areas.

These findings have policy implications. Policymakers should consider policies that promote infrastructure (perhaps with subsidies or by removing regulatory barriers to investment), particularly in minority and low-income areas.