Broadband and Entrepreneurship - A cross-country study of 23 OECD countries between 2004 and 2009

Abstract: Broadband internet is becoming an increasingly essential part of our economy. Its widespread use is creating a connected information society that is fundamentally changing the business environment in an increasing number of sectors. While academia has devoted much attention to this topic and established the positive effects of this development on economic growth and employment, the work of determining how these effects are obtained has only just begun. In this paper, we investigate the impact of broadband penetration on the level of entrepreneurial activity in 23 OECD countries in the period 2004-2009. We employ robust econometric methods to analyze a panel data set on new business registrations and broadband subscribers. In our aspiration to isolate the causal relationship between these variables, we use an instrumental variable approach based on infrastructure interdependence and an empirically established technology diffusion model. The results verify the prevalence of a significant direct effect on new business creation, as we find that an increase in broadband subscriptions of 1 per 100 inhabitants causes an average increase of 3.8% in the number of new businesses registered. In the average OECD country studied, this corresponds to 1,625 new firms. We acknowledge the inherent difficulties in controlling for the wide range of determinants of entrepreneurship, but find the estimate to be robust to different specifications and different instrumental variables.