Broadband’s Economic Impacts: The Public ROI on Investment in Broadband Deployment

This article is a continuation of our ongoing series on broadband and economic development.

Governments across the country have jumped on to the broadband bandwagon, using public resources to increase broadband penetration and broadband speeds. We have all heard about the “big gig” boast (one gigabit per second internet connection) as the new minimum offered speed goal necessary to achieve status as a hyper-connected community. Numerous local, state and federal programs are in place to ensure that even sparsely populated areas have access to fast connections at reasonable prices.

So what do governments get in return for all of this public investment in broadband? The best answer appears to be, “A lot, but we don’t know how much.” We have all sorts of qualitative responses, described below, but scant few (reliable, definitive) quantitative ones. This is not for want of trying, but rather is because of the very nature of the internet: diffuse networks, nearly ubiquitous presence and only loose ties to desired outcomes. Let’s put that in the context of other public investments in, for example, roads. When a state invests in a road project, it can measure conditions before and after the improvement and document outcomes. Those outcomes are limited to reducing (hopefully!) congestion, pollution, lost commuting time and accidents, while increasing (hopefully!) access, traffic flows and future development. These are all quantifiable gains in productivity and reductions in costs.

Broadband is quite different, with many potential indirect impacts that would lead to the same hoped-for gains in productivity and reductions in costs. Below is an image from “Socioeconomic Impacts of Broadband Speed” (Research by Ericsson, Arthur D. Little and Chalmers University of Technology).

The outcomes are shown in the green boxes, above, and include: improved welfare, consumer benefits, reduced environmental impact, new jobs and increased GDP. (The authors also cited “increased innovation” and “increased productivity”, but we would classify those not as the desired outcomes but as interim effects leading to desired outcomes). As shown, many of the paths leading to outcomes are hard to measure: “increased political transparency”, “e-health”, “possibility to deal with larger digital online content.”

Nevertheless, attempts have been made to quantify the economic impacts in a statistically reliable way. In a frequently-cited World Bank study (Qiang, p.45), the authors conclude that high-income countries would be expected to enjoy a 1.21 percentage point increase in per capita GDP growth per 10 percent increase in broadband penetration. Translation? Moving from 70% of your population having broadband available to 80% having it available would mean we would expect your economy to grow 1.21 percentage points faster, all other factors held constant. Sounds modest, but in a low-growth world, that is a fabulous growth bonus. (For context, note that the World Bank estimate for per capita US GDP growth in 2014 is 1.6%.) Various studies note different anticipated impacts of the same 10% increase in broadband penetration, from as low as 0.24 percentage points to as high as 1.5 percentage points.

  • Example: New York State’s GDP in Q3 2015 was $1.46 trillion according to the US Bureau of Economic Analysis. If the state could increase broadband penetration by 1%, that would equate to another 200,000 people being connected at high speeds to the internet, given the state’s population of 20 million. We would anticipate a change of 0.121 percent to GDP to result from this increased penetration, or $1.76 billion in GDP using the World Bank estimate, all other factors held constant.

But broadband penetration is not the only statistic of interest. What about speed? The Ericsson study cited previously found that:

  • Doubling broadband speeds for an economy can add 0.3 percent to GDP growth, and
  • Moving from a speed of 0.5 Mbps to 4 Mbps correlates to an increase in household income by $3,864 per year.

While there are, no doubt, thorny issue around causation (do the increases in speed cause the increase in household income or are just happening simultaneously?), it does point to some fairly significant outcomes that are at least associated with broadband improvements. As economic developers, we cannot expect to have high precision in the enumeration of impacts, but the above statistics are a good starting point in the public discussion about future public investments in broadband. The answer to the question of “Is it worth it?” continues to be “We think so, but we just can’t say for sure or know how big the impact will be.” Our response would be, “What is the cost of doing nothing?” and “Can we afford to be left behind?”.

Sources:

Ericsson, Arthur D. Little and Chalmers University of Technology. Socioeconomic Impacts of Broadband Speed. (2013).

Qiang, Christine Zhen-Wei and Carlo M. Rossotto, IC4D: Extending Reach and Increasing Impact, Chapter 3: Economic Impacts of Broadband, GICT Dept., World Bank. (2009). 

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