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Broadband Internet and Firm Entry: Evidence from Rural Iowa

  • Kim, Younjun
  • Orazem, Peter

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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File URL: http://www.econ.iastate.edu/sites/default/files/publications/papers/p15696-2012-12-03.pdf
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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
Contact details of provider: Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
Phone: +1 515.294.6741
Fax: +1 515.294.0221
Web page: http://www.econ.iastate.edu
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  1. Glaeser, Edward L., 2008. "Cities, Agglomeration, and Spatial Equilibrium," OUP Catalogue, Oxford University Press, number 9780199290444, March.
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  9. Kolko, Jed, 2012. "Broadband and local growth," Journal of Urban Economics, Elsevier, vol. 71(1), pages 100-113.
  10. Erik Brynjolfsson & Lorin M. Hitt, 2000. "Beyond Computation: Information Technology, Organizational Transformation and Business Performance," Journal of Economic Perspectives, American Economic Association, vol. 14(4), pages 23-48, Fall.
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  15. Daron Acemoglu, 2002. "Technical Change, Inequality, and the Labor Market," Journal of Economic Literature, American Economic Association, vol. 40(1), pages 7-72, March.
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