About the research
Under the prevailing view, broadband access enables businesses to have greater national and international connectivity; enhancing productivity, enabling more effective communication, and improving the monitoring and evaluation of performance. Businesses are likely to increase sales, employment and raise their income. However, there is sparse evidence as to whether such a causal relationship exists. Timothy DeStefano, Richard Kneller and Jonathan Timmis from the University of Nottingham investigated whether the adoption of Asymmetric Digital Subscriber Line (ADSL) broadband impacts firm performance in the UK. The research focuses on a five-year period during which there was disparity in the regional availability of ADSL broadband, where firms in one location had access to broadband services while those in the other location did not. The project, ICT and firm performance, was partially funded by the Nottingham School of Economics and was awarded £27,000.
The results showed that greater access to broadband infrastructure significantly increased the likelihood of firms adopting it. However, there was no evidence suggesting that using broadband, as a result of availability of ADSL, had an effect on employment, sales, labour productivity or firm survival. This project suggests that ADSL broadband access does not have economic impacts for UK firms and has the potential to informing government policy about the provision of broadband coverage.
The method used in this study is a Fuzzy Regression Discontinuity design that exploits a discontinuity in the availability of ADSL broadband. The digital divide stems from a historical accident, whereby the telecommunications in one areas of the North East of England was delivered by a separate company to the national monopoly provider. The discontinuity was analysed at the boundary between these two telecommunication providers which rolled out broadband infrastructures at different times.
In order to conduct the analysis the researchers relied on two main types of data from multiple sources. The first type of data provides UK firm level information on business location, performance, and broadband usage and the second provides detailed information on the geographic rollout of ADSL broadband by BT and Kingston Communications across the UK. Among the sources of UK firm data are three datasets available from the UK Data Service. The Business Structure Database Longitudinal provided demographic information for nearly every plant in the UK. Information on firm-level broadband adoption was obtained from the E-commerce Survey, whereas The Annual Respondent Dataset was used to gather firm level information including sales, sales growth and labour productivity.
Impact of the research
The research was featured in a media brief from the Royal Economics Society, BROADBAND ACCESS: All very useful but it doesn’t make UK firms more successful:
‘Typically, those firms that have been the most active users of these technologies have been the ones that have been most successful, experiencing rapid growth in sales and employment. This has led some to conclude that broadband caused greater firm performance and therefore governments need to intervene to improve access to broadband.
But how confident can we be of that conclusion? It may just as likely be the case that successful firms, run by more proficient managers, were more likely to adopt and exploit the potential of broadband? If that is true, as this study suggests, then a policy with the sole purpose of improving broadband access will end up wasting taxpayers’ money.’
The study also contributed to the Evidence Review of Broadband report, by the What Works Centre for Local Economic Growth research centre.
DeStefano, T., Kneller, R., Timmis, J. (2014) ‘The (Fuzzy) Digital Divide: The Effect of Broadband Internet Use on UK Firm Performance’, School Discussion Paper 2014-06. Retrieved online 15 September 2015 from https://www.nottingham.ac.uk/economics/documents/discussion-papers/14-06.pdf