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The Broadband Bonus: Accounting for Broadband Internet's Impact on U.S. GDP

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  • Shane Greenstein
  • Ryan C. McDevitt

Abstract

How much economic value did the diffusion of broadband create? We provide benchmark estimates for 1999 to 2006. We observe $39 billion of total revenue in Internet access in 2006, with broadband accounting for $28 billion of this total. Depending on the estimate, households generated $20 to $22 billion of the broadband revenue. Approximately $8.3 to $10.6 billion was additional revenue created between 1999 and 2006. That replacement is associated with $4.8 to $6.7 billion in consumer surplus, which is not measured via Gross Domestic Product (GDP). An Internet-access Consumer Price Index (CPI) would have to decline by 1.6% to 2.2% per year for it to reflect the creation of value. These estimates both differ substantially from those typically quoted in Washington policy discussions, and they shed light on several broadband policy issues, such as why relying on private investment worked to diffuse broadband in many US urban locations at the start of the millennium.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14758.

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Date of creation: Feb 2009
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Handle: RePEc:nbr:nberwo:14758

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  1. Avi Goldfarb, 2004. "Concentration in advertising-supported online markets: an empirical approach," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 13(6), pages 581-594.
  2. Zvi Griliches & Iain Cockburn, 1993. "Generics and New Goods in Pharmaceutical Price Indexes," NBER Working Papers 4272, National Bureau of Economic Research, Inc.
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  4. Marshall Reinsdorf, 1993. "The Effect of Outlet Price Differentials on the U.S. Consumer Price Index," NBER Chapters, in: Price Measurements and Their Uses, pages 227-258 National Bureau of Economic Research, Inc.
  5. Mélisande Cardona & Anton Schwarz & B. Yurtoglu & Christine Zulehner, 2009. "Demand estimation and market definition for broadband Internet services," Journal of Regulatory Economics, Springer, Springer, vol. 35(1), pages 70-95, February.
  6. Jerry A. Hausman, 1997. "Valuing the Effect of Regulation on New Services in Telecommunications," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 28(1997 Micr), pages 1-54.
  7. Hong, Seung-Hyun, 2007. "The recent growth of the internet and changes in household-level demand for entertainment," Information Economics and Policy, Elsevier, Elsevier, vol. 19(3-4), pages 304-318, October.
  8. Savage Scott J. & Waldman Donald M., 2004. "United States Demand for Internet Access," Review of Network Economics, De Gruyter, De Gruyter, vol. 3(3), pages 1-20, September.
  9. Downes, Tom & Greenstein, Shane, 2002. "Universal access and local internet markets in the US," Research Policy, Elsevier, Elsevier, vol. 31(7), pages 1035-1052, September.
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Cited by:
  1. Bronwyn HOWELL & Arthur GRIMES, 2010. "Productivity Questions for Public Sector Fast Fibre Network Financiers," Communications & Strategies, IDATE, Com&Strat dept., IDATE, Com&Strat dept., vol. 1(78), pages 127-146, 2nd quart.
  2. M. Bourreau & C. Cambini & P. Dogan, . "Access Pricing, Competition, and Incentives to Migrate From "Old" to "New" Technology," Working Paper 36919, Harvard University OpenScholar.
  3. Arthur Grimes & Cleo Ren & Philip Stevens, 2009. "The Need for Speed: Impacts of Internet Connectivity on Firm Productivity," Working Papers, Motu Economic and Public Policy Research 09_15, Motu Economic and Public Policy Research.
  4. Carlo Cambini & Laura Rondi, 2009. "Access Regulation, Financial Structure and Investment in Vertically Integrated Utilities: Evidence from EU Telecoms," EUI-RSCAS Working Papers, European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS) 68, European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS).
  5. John Mayo & Scott Wallsten, 2011. "From Network Externalities to Broadband Growth Externalities: a Bridge not yet Built," Review of Industrial Organization, Springer, Springer, vol. 38(2), pages 173-190, March.
  6. Shane Greenstein & Ryan C. McDevitt, 2010. "Evidence of a Modest Price Decline in US Broadband Services," NBER Working Papers 16166, National Bureau of Economic Research, Inc.
  7. repec:reg:wpaper:574 is not listed on IDEAS
  8. Bellou, Andriana, 2013. "The Impact of Internet Diffusion on Marriage Rates: Evidence from the Broadband Market," IZA Discussion Papers 7316, Institute for the Study of Labor (IZA).
  9. António Madureira & Nico Baken & Harry Bouwman, 2011. "Value of digital information networks: a holonic framework," Netnomics, Springer, Springer, vol. 12(1), pages 1-30, April.
  10. repec:reg:wpaper:609 is not listed on IDEAS
  11. Kolko, Jed, 2012. "Broadband and local growth," Journal of Urban Economics, Elsevier, vol. 71(1), pages 100-113.
  12. Shane Greenstein, 2011. "Nurturing the Accumulation of Innovations: Lessons from the Internet," NBER Chapters, in: Accelerating Energy Innovation: Insights from Multiple Sectors, pages 189-223 National Bureau of Economic Research, Inc.
  13. Catherine L. Mann, 2014. "Information Lost: Will the "Paradise" that Information Promises, to both Consumer and Firm, be "Lost" on Account of Data Breaches? The Epic is Playing Out," NBER Chapters, in: Economics of Digitization National Bureau of Economic Research, Inc.
  14. Carlo Cambini & Laura Rondi, 2010. "Regulatory Independence and Political Interference: Evidence from EU Mixed-Ownership Utilities’ Investment and Debt," Working Papers, Fondazione Eni Enrico Mattei 2010.69, Fondazione Eni Enrico Mattei.
  15. Madureira, António & den Hartog, Frank & Bouwman, Harry & Baken, Nico, 2013. "Empirical validation of Metcalfe’s law: How Internet usage patterns have changed over time," Information Economics and Policy, Elsevier, Elsevier, vol. 25(4), pages 246-256.
  16. repec:reg:wpaper:604 is not listed on IDEAS

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