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The Broadband Bonus: Accounting for Broadband Internet's Impact on U.S. GDP

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  • Shane Greenstein
  • Ryan C. McDevitt

Abstract

How much economic value did the diffusion of broadband create? We provide benchmark estimates for 1999 to 2006. We observe $39 billion of total revenue in Internet access in 2006, with broadband accounting for $28 billion of this total. Depending on the estimate, households generated $20 to $22 billion of the broadband revenue. Approximately $8.3 to $10.6 billion was additional revenue created between 1999 and 2006. That replacement is associated with $4.8 to $6.7 billion in consumer surplus, which is not measured via Gross Domestic Product (GDP). An Internet-access Consumer Price Index (CPI) would have to decline by 1.6% to 2.2% per year for it to reflect the creation of value. These estimates both differ substantially from those typically quoted in Washington policy discussions, and they shed light on several broadband policy issues, such as why relying on private investment worked to diffuse broadband in many US urban locations at the start of the millennium.

Suggested Citation

  • Shane Greenstein & Ryan C. McDevitt, 2009. "The Broadband Bonus: Accounting for Broadband Internet's Impact on U.S. GDP," NBER Working Papers 14758, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:14758
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    Cited by:

    1. Andriana Bellou, 2015. "The impact of Internet diffusion on marriage rates: evidence from the broadband market," Journal of Population Economics, Springer;European Society for Population Economics, vol. 28(2), pages 265-297, April.
    2. Arthur Grimes & Cleo Ren & Philip Stevens, 2012. "The need for speed: impacts of internet connectivity on firm productivity," Journal of Productivity Analysis, Springer, vol. 37(2), pages 187-201, April.
    3. Candelaria, José Alberto, 2015. "A panel data analysis of temporary and permanent effects of fixed broadband penetration over economic growth," 2015 Regional ITS Conference, Los Angeles 2015 146312, International Telecommunications Society (ITS).
    4. Bourreau, Marc & Cambini, Carlo & Doğan, Pınar, 2012. "Access pricing, competition, and incentives to migrate from “old” to “new” technology," International Journal of Industrial Organization, Elsevier, vol. 30(6), pages 713-723.
    5. Carlo Cambini & Laura Rondi, 2010. "Regulatory Independence and Political Interference: Evidence from EU Mixed-Ownership Utilities’ Investment and Debt," Working Papers 2010.69, Fondazione Eni Enrico Mattei.
    6. Bronwyn HOWELL & Arthur GRIMES, 2010. "Productivity Questions for Public Sector Fast Fibre Network Financiers," Communications & Strategies, IDATE, Com&Strat dept., vol. 1(78), pages 127-146, 2nd quart.
    7. Tselekounis, Markos & Varoutas, Dimitris & Martakos, Drakoulis, 2014. "A CDS approach to induce facilities-based competition over NGA networks," Telecommunications Policy, Elsevier, vol. 38(3), pages 311-331.
    8. Rosston Gregory L. & Savage Scott J & Waldman Donald M, 2010. "Household Demand for Broadband Internet in 2010," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 10(1), pages 1-45, September.
    9. António Madureira & Nico Baken & Harry Bouwman, 2011. "Value of digital information networks: a holonic framework," Netnomics, Springer, vol. 12(1), pages 1-30, April.
    10. Shane Greenstein, 2011. "Nurturing the Accumulation of Innovations: Lessons from the Internet," NBER Chapters,in: Accelerating Energy Innovation: Insights from Multiple Sectors, pages 189-223 National Bureau of Economic Research, Inc.
    11. Catherine L. Mann, 2013. "Information Lost (Apologies to Milton)," NBER Working Papers 19526, National Bureau of Economic Research, Inc.
    12. Carlo Cambini & Laura Rondi, 2009. "Access Regulation, Financial Structure and Investment in Vertically Integrated Utilities:Evidence from EU Telecoms," RSCAS Working Papers 2009/68, European University Institute.
    13. Kavetsos, Georgios & Koutroumpis, Pantelis, 2011. "Technological affluence and subjective well-being," Journal of Economic Psychology, Elsevier, vol. 32(5), pages 742-753.
    14. David M. Byrne & John G. Fernald & Marshall B. Reinsdorf, 2016. "Does the United States Have a Productivity Slowdown or a Measurement Problem?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 47(1 (Spring), pages 109-182.
    15. Kolko, Jed, 2012. "Broadband and local growth," Journal of Urban Economics, Elsevier, vol. 71(1), pages 100-113.
    16. Stenberg, Peter L., 2014. "The Farm Bill and Rural Economies: Broadband Investment Over the last Decade," 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota 173277, Agricultural and Applied Economics Association.
    17. Madureira, António & den Hartog, Frank & Bouwman, Harry & Baken, Nico, 2013. "Empirical validation of Metcalfe’s law: How Internet usage patterns have changed over time," Information Economics and Policy, Elsevier, vol. 25(4), pages 246-256.
    18. Nakamura, Leonard I. & Soloveichik, Rachel, 2015. "Valuing “free” media across countries in GDP," Working Papers 15-25, Federal Reserve Bank of Philadelphia.
    19. Chad Syverson, 2017. "Challenges to Mismeasurement Explanations for the US Productivity Slowdown," Journal of Economic Perspectives, American Economic Association, vol. 31(2), pages 165-186, Spring.
    20. John Mayo & Scott Wallsten, 2011. "From Network Externalities to Broadband Growth Externalities: a Bridge not yet Built," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 38(2), pages 173-190, March.
    21. Lucia Bazzucchi, 2012. "Nuovi strumenti di sviluppo locale: l’effetto delle infrastrutture digitali sulla creazione di lavoro autonomo. Analisi di un caso applicato nello stato di New York," Working Papers 1208, c.MET-05 - Centro Interuniversitario di Economia Applicata alle Politiche per L'industria, lo Sviluppo locale e l'Internazionalizzazione.
    22. Catherine L. Mann, 2015. "Information Lost: Will the "Paradise" That Information Promises, to Both Consumer and Firm, Be "Lost" on Account of Data Breaches? The Epic is Playing Out," NBER Chapters,in: Economic Analysis of the Digital Economy, pages 309-351 National Bureau of Economic Research, Inc.
    23. Bourreau, Marc & Cambini, Carlo & Hoernig, Steffen, 2012. "Ex ante regulation and co-investment in the transition to next generation access," Telecommunications Policy, Elsevier, vol. 36(5), pages 399-406.
    24. Greenstein, Shane & McDevitt, Ryan, 2011. "Evidence of a modest price decline in US broadband services," Information Economics and Policy, Elsevier, vol. 23(2), pages 200-211, June.
    25. Connolly Michelle & Prieger James E., 2013. "A Basic Analysis of Entry and Exit in the US Broadband Market, 2005–2008," Review of Network Economics, De Gruyter, vol. 12(3), pages 229-270, September.

    More about this item

    JEL classification:

    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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