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Breaking Invisible Barriers: Does Fast Internet Improve Access to Input Markets?

Author

Listed:
  • Banu Demir
  • Beata Javorcik
  • Piyush Panigrahi
  • Banu Demir Pakel
  • Beata Smarzynska Javorcik

Abstract

This paper explores how improved internet infrastructure impacts supply chains and economic activity, focusing on Türkiye. Using the expansion of fiber-optic networks and firm-to-firm transaction data, we find that better connectivity shifts input sourcing to well-connected regions and diversifies supplier networks. We estimate a spatial equilibrium model with endogenous network formation and rational inattention and find that high-speed internet reduced information acquisition and communication costs. Enhanced connectivity increased real income by 2.2% in the median province. Our findings underscore the importance of digital infrastructure investments in fostering economic growth by improving supply chain efficiency and broadening firms’ access to suppliers.

Suggested Citation

  • Banu Demir & Beata Javorcik & Piyush Panigrahi & Banu Demir Pakel & Beata Smarzynska Javorcik, 2024. "Breaking Invisible Barriers: Does Fast Internet Improve Access to Input Markets?," CESifo Working Paper Series 11567, CESifo.
    • Handle: RePEc:ces:ceswps:_11567
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    References listed on IDEAS

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    1. Filip Matêjka & Alisdair McKay, 2015. "Rational Inattention to Discrete Choices: A New Foundation for the Multinomial Logit Model," American Economic Review, American Economic Association, vol. 105(1), pages 272-298, January.
    2. Andrew B. Bernard & Emmanuel Dhyne & Glenn Magerman & Kalina Manova & Andreas Moxnes, 2022. "The Origins of Firm Heterogeneity: A Production Network Approach," Journal of Political Economy, University of Chicago Press, vol. 130(7), pages 1765-1804.
    3. Anders Akerman & Edwin Leuven & Magne Mogstad, 2022. "Information Frictions, Internet, and the Relationship between Distance and Trade," American Economic Journal: Applied Economics, American Economic Association, vol. 14(1), pages 133-163, January.
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    2. Wiedemann, Verena Christina & Kirui, Benard K. & Khandelwal, Vatsal & Chacha, Peter W., 2024. "Spatial Inequality and Informality in Kenya’s Firm Network," Policy Research Working Paper Series 10932, The World Bank.

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    Keywords

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    JEL classification:

    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • F15 - International Economics - - Trade - - - Economic Integration
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
    • R58 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Regional Development Planning and Policy
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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