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Study Looks for Economic Effects of Municipal Broadband, Finds None

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Dr. Oh will present her study at the Western Economic Association annual conference this June 27, 2020 at 2:30 pm. We will send a link when it is available.

Proponents of broadband provided by local governments often claim that such networks will increase broadband adoption, economic growth, and employment. In principle, this claim is true. In reality, that depends how much incremental value the city-owned network adds and the resources required by taxpayers to build and operate the networks. 

TPI Senior Fellow Sarah Oh disentangles empirically various factors affecting growth to examine whether municipal broadband tend to stimulate economies in her paper “What Are the Economic Effects of Municipal Broadband?” Her results do not support the conclusion that municipal broadband has economically beneficial effects.

Dr. Oh compiles a list of municipalities with publicly funded broadband networks that self-reported data to the FCC via Form 477. Of the 528 public networks, only 71 submitted data to the FCC. She matches towns with municipal broadband to a control group of similar towns without municipal broadband. She then runs a series of regressions on three dependent variables: change in household broadband subscription rate, change in unemployment rate, and change in labor force participation. For these regressions, the effect of municipal broadband is not statistically different from zero. 

Despite controlling for number of other providers, population, density, age, and income, these regressions are not complete because the decision to build municipal broadband is not random. To help with causal identification, she runs a series of two-stage least squares regressions, using data from the Cook’s Partisan Voting Index for the congressional district of the municipality to help identify the decision to build. Partisanship should be correlated with the decision to make a public broadband network and uncorrelated with broadband adoption, unemployment, and labor force participation and thus serves as an effective instrument. Using this instrument, she finds again that the effect of municipal broadband is not statistically different from zero.

This paper is a welcomed contribution to the literature with its use of econometrics to compare effects in towns with different demographic and economic characteristics. Rather than a case study or qualitative study, her empirical study looks at the set of municipal networks with available Form 477 data and household subscription data. Read the study online here or download it from SSRNSarah will present her findings at the virtual WEAI conference this June 26-30, 2020 and Nebraska Law School in September 11-12, 2020.