Summary
Over the last decade our home and work lives have been transformed by the increased availability of technologies that exploit the internet. For firms this has meant greater connectivity with their customers and suppliers and they have responded by developing new business models, offering new types of products and services and by participating in increasingly complex international supply-chains. Typically, those firms that have been the most active users of these technologies have been the ones that have been most successful and seen the most rapid sales and employment growth. This has led some to conclude that the technologies caused the good firms and therefore governments need to intervene to improve access to broadband internet. But how confident can we be of that conclusion? What if is that the good firms were run by those that were the best at recognising and exploiting the potential of these technologies? If that is true then a policy of improving broadband access is a waste of money.
In this Nottingham School of Economics working paper DeStefano, Kneller and Timmis test for the direction of causation between use of broadband and firm performance. To provide this test they exploit a geographical discontinuity in the availability of ADSL broadband, where firms located one side of the digital divide had access to broadband services that those on the other side did not. The discontinuity stems from an historical accident, whereby the telecommunications in the area around Hull in North East England is delivered by a separate company (Kingston Communications) to the rest of the UK (British Telecom). As a result firms near this boundary had access to broadband infrastructure at different points in time and for reasons that have nothing to do with the quality or foresight of their managers. The analysis strongly suggests that broadband use has no statistically significant effect on the performance of firms and to a conclusion that it is talented managers, and not access to new technologies, that makes successful firms.
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School Discussion Paper 2014-06, The (Fuzzy) Digital Divide: The Effect of Broadband Internet Use on UK Firm Performance by Timothy DeStefano, Richard Kneller and Jonathan Timmis, November 2014
Authors
Tim DeStefano, Richard Kneller and Jonathan Timmis
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Posted on Saturday 1st November 2014