Broadband Internet and Firm Entry: Evidence from Rural Iowa
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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