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Broadband Internet and Firm Entry: Evidence from Rural Iowa

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  • Kim, Younjun
  • Orazem, Peter

Abstract

The availability of broadband Internet service should have increased firm productivity and lowered firm entry costs. �However, validating the broadband effect is complicated by the rapid deployment of broadband Internet service across metropolitan areas, removing meaningful variation in broadband availability. �Deployment in rural markets was much more uneven, suggesting that the presence or absence of broadband service may have altered the site selection of firms targeting rural markets.� We investigate the effect of broadband availability on firm location decision in rural Iowa. �We establish a counterfactual baseline firm entry rate for each zip code area in rural counties by showing how the presence of broadband service in a ZIP code in 2001 affected firm entry in 1990-1992 before Broadband was available. �We then measure how the actual presence of broadband service in the same ZIP code affected firm entry in 2000-2002. �We show that the difference in estimated probability of entry between the counterfactual baseline and the actual response ten years later is the Difference-in-Differences estimate of the effect of broadband deployment on firm start-ups. �We find that broadband availability in a rural ZIP code has a positive and significant effect on firm entry in the ZIP code but only in rural markets adjacent to a metropolitan area or with a larger urban population.� Broadband access does not affect new firm entry in more remote rural markets

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Bibliographic Info

Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 35696.

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Date of creation: 03 Dec 2012
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Handle: RePEc:isu:genres:35696

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Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
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Fax: +1 515.294.0221
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Web page: http://www.econ.iastate.edu
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Keywords: Internet; Rural; urban; : broadband; firm entry; metropolitan area;

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  1. Kolko, Jed, 2012. "Broadband and local growth," Journal of Urban Economics, Elsevier, vol. 71(1), pages 100-113.
  2. Röller, Lars-Hendrik & Waverman, Leonard, 2000. "Telecommunications Infrastructure And Economic Development: A Simultaneous Approach," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2399, C.E.P.R. Discussion Papers.
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  12. David Autor, 2000. "Wiring the Labor Market," NBER Working Papers 7959, National Bureau of Economic Research, Inc.
  13. Dimelis, Sophia P. & Papaioannou, Sotiris K., 2011. "ICT growth effects at the industry level: A comparison between the US and the EU," Information Economics and Policy, Elsevier, Elsevier, vol. 23(1), pages 37-50, March.
  14. Bradford Mills & Gautam Hazarika, 2001. "The Migration of Young Adults from Non-Metropolitan Counties," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, Agricultural and Applied Economics Association, vol. 83(2), pages 329-340.
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