Broadband Shocks, TFP Growth and Polarisation of European Firms

Is the roll-out of (fast)broadband connections a driver of firms' total factor productivity (TFP) growth in the European Union? Does broadband generate convergence or polarisation? In this regard, which firms benefit most from a broadband connection and is the traditional divide between rural and urban deployment areas important? To answer these questions, we estimate the effects of broadband coverage shocks on individual firms' TFP growth, exploiting broad firm-level coverage from the ORBIS dataset and a relatively long time span (2011–2022) over which broadband shocks are observed. Broadband shocks permanently raise firms' TFP, but their effect is uneven: fast-growth firms improve their relative position. They are more beneficial for the TFP of firms in non-digital sectors, supporting the view that internet connectivity is a general-purpose technology. Firms in urban areas are also better equipped to benefit from increased broadband connectivity. TFP responses to fast-broadband shocks are almost muted.