Effect of Enterprise Ownership and Foreign Competition on Internet Diffusion in the Transition Economies

Using enterprise-level data from 21 low and middle income economies in Eastern Europe and Central Asia, this paper looks at factors that influence whether enterprises in these countries are connected to the Internet. The paper finds that foreign-owned enterprises are more likely to have Internet access than domestically owned enterprises and that employee-owned enterprises are less likely to have access than other domestically owned enterprises. Further, there is evidence of positive externalities from foreign investment, with foreign direct investment increasing Internet access among domestic enterprises other than the recipient firm. In particular, the paper finds evidence of ‘spillover effects’, where enterprises directly competing with foreign-owned enterprises and imports are more likely to have Internet connections than similar enterprises that compete mainly with domestically owned enterprises. The results are robust to the inclusion of country fixed effects to control for unobserved country-level characteristics that might affect Internet adoption. Comparative Economic Studies (2004) 46, 341–370. doi:10.1057/palgrave.ces.8100038