Broadband’s Economic Impact

We hear a lot of claims about the economic impact of broadband in rural areas. The data shows that high rates of broadband adoption do contribute to income growth, lower unemployment and other measures of economic success.

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EDITOR’S NOTE: Previous articles in this series examined broadband availability and trends in broadband adoption in rural areas of the U.S. This article explores the relationship between broadband and the rural economy. The academic paper on which this article is based may be found here.

Much has been made about the potential benefits of broadband for rural communities. There are plenty of examples relating to education, health, telecommuting, entrepreneurship and e-services that suggest broadband can be a panacea for rural economies.

But since broadband has been around for a while now, what can we really say about the impact it has had on rural areas? Is it really true that rural areas that have embraced broadband are growing faster, have lower levels of unemployment or have more businesses or firms than those that have not?

To get an answer, we looked at all non-metropolitan counties across the country. The FCC has some great data sets that tell us, at the county level, the percentage of households that have a broadband connection (note that these only include wired connections, and meet the traditional FCC definition of broadband of 200kbps in at least one direction). Using data from 2010, we put all non-metro counties into categories from the lowest-adopting (with rates of less than 20%) to the highest-adopting ( more than 80%), and compared them in terms of their 2010 median household income, education levels, number of firms, poverty rates and unemployment rates. Here is what we found:

Figure 2. Education, Unemployment Rate, and Poverty Rate for Non-metro Counties, by Broadband Adoption Category, 2010.

Clearly, the non-metro counties with the highest levels of adoption are doing great – they have the highest levels of income and education, have more firms and have relatively low unemployment and poverty rates. The non-metro counties with the lowest adoption rates are doing the worst.

However, correlation does not necessarily imply causation. In other words, it might be true that counties have higher levels of broadband adoption because of their higher incomes or higher education levels, and not the other way around.

To attempt to account for this, economists use several techniques. One of the more popular ones is to use county characteristics (education, income, age, race) before broadband was even available (i.e. during the 1990s or around 2000) to predict the likelihood of that county ultimately obtaining high levels of broadband adoption. Some of the predictions turn out to be true, and some don’t. But the neat part is that you are left with two groups of non-metro counties that had similar characteristics before broadband was even available. One of the groups impressively adopted broadband after that time, and the other did not. Comparing growth rates between these two groups can tell us what impact (if any) broadband had.  

Once this is done, and we compare these “otherwise similar” communities, can we make the claim that high (or low) levels of broadband adoption actually cause certain types of economic growth? Our latest research says yes, in the following cases:

Figure 3. Median Household Income Growth for Non-metro Counties with High Broadband Adoption (>60%) and Otherwise Similar Counties, 2001-2010.

As shown in the graph above, non-metro counties that had high levels of broadband adoption (greater than 60%) in 2010 had significantly higher growth in median household income – 23.4% versus a little over 22% – between 2001 and 2010 when compared to counties that had similar characteristics in the 1990s but were not as successful at adopting broadband.

Figure 4. Unemployment Growth for Non-metro Counties with High Broadband Adoption (>60%) and Otherwise Similar Counties, 2001-2010.

Similarly, the unemployment rates of these high-adopting counties increased at a much slower rate during the 2000s – 75% versus a little over 84% – as shown in the graph above. (Note that nearly all counties had higher unemployment rates over this time due to the recession.)

Figure 5. Growth in Number of Firms for Non-metro Counties with Low Broadband Adoption (<40%) and Otherwise Similar Counties, 2001-2010.
Figure 6. Total Employment Growth for Non-metro Counties with Low Broadband Adoption (<40%) and Otherwise Similar Counties, 2001-2010.

We also found that counties that had relatively low broadband adoption rates (less than 40%) had lower growth in both the number of firms and total employment than did counties with similar 1990 / 2000 characteristics but higher adoption rates as of 2010. (Again, most non-metro counties lost firms and employment over this time).

Interestingly, when we repeated this analysis for levels of broadband availability (versus adoption), there were almost no results to report. The only positive result was that when very high download speeds were available (greater than 10mbps), the growth in creative class employment between 2001 and 2010 was larger. All other measures related to simply providing broadband showed no significant differences between the two groups of counties.

These results tie back to our suggestion from the previous article in this series that government policies dealing with rural broadband may need to have a more explicit focus on actually adopting (and effectively using) the technology. The traditional focus of these programs on simply providing infrastructure may not be enough to encourage true economic growth.

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The final article in this series will build upon the trends and findings we have written about so far and will look more deeply into the current (and future) policy arena related to rural broadband.  

About the Authors and This Study

Brian Whitacre is an associate professor in the department of Agricultural Economics at Oklahoma State University. His research, extension and teaching appointments are focused on rural economic development, with a heavy emphasis on the role of broadband access.

Roberto Gallardo is an associate extension professor at Mississippi State University, where he serves as project manager for the statewide broadband adoption initiative.

Sharon Strover is a Regents Professor in Communication at the University of Texas, where she directs the Telecommunications and Information Policy Institute.  Her teaching and research focus on technology, policy and regulation.

Funding for this study was provided by the National Agricultural and Rural Development Policy Center (NARDeP).

 

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