The (fuzzy) digital divide: the effect of universal broadband on firm performance

Abstract

Abstract Differences in access to high-speed broadband between urban and rural locations are known as the ‘digital divide’. Governments around the world have committed to spending considerable amounts of money to alleviate disparities in broadband infrastructure. However, to date, there is limited causal evidence for broadband and firm performance with even less of an understanding on whether the effects are distinct between firms located in urban versus rural localities. In this article, we exploit geographical discontinuities in broadband availability across the UK to capture the causal effects on firms on both sides of this divide. We find for both urban and rural firms that broadband causes an increase in their size, but not labor productivity. In addition, we find evidence that these size effects are strongest for urban firms, but for both urban and rural firms, the effects are concentrated in knowledge-intensive industries.