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Economic Impact of Broadband Difficult to Measure

Economic Impact of Broadband Difficult to Measure

Research Should Focus on Microeconomic Effects on Business

Contact: Amy Smorodin
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September 10, 2010 – While policymakers focus on driving residential broadband adoption as a key factor in economic recovery and growth, little research supports claims that such policies can have short-term economic effects, explains Scott Wallsten in “The Future of Digital Communications Research and Policy.” To assist policymakers, researchers should focus on the effects of broadband use in business to measure how the technology will impact productivity and, ultimately, in what ways it will shape the economy. The piece was first published in “The Future of Digital Communications: Policy Perspectives,” a collection of essays sponsored by Time Warner Cable, and will be published in the forthcoming volume of the Federal Communications Law Journal.

If broadband proves to be a general purpose technology that will fundamentally affect the economy, explains Wallsten, TPI Vice President for Research and Senior Fellow, it will cause economic disruption in the near-term and economic benefits will not be distributed evenly. In the long-term, “the disruptive aspects of these changes in economic activity are likely to be offset by productivity improvements that ultimately contribute to new economic growth,” the author explains. Therefore, policymakers should not assume short-term benefits from policies that promote broadband investment and adoption.

Furthermore, although research and policy has been focused on residential broadband, residential adoption is unlikely to drive productivity and spur economic growth. “Instead, it is how new communications technologies affect business that will affect productivity and determine whether those technologies radically reshape the economy,” Wallsten explains. This is because residential broadband activity mostly involves economic transfers rather than new economic activity because individuals are replacing offline pursuits, such as shopping or entertainment, with online activities. Whether broadband will truly have a transformative effect on the economy will instead be determined by how broadband is implemented in business production processes. “In short,” Wallsten explains, “how business incorporates digital communications technologies will have a much bigger effect on our standard of living over the next 20 years than will whether we reach 70 percent household broadband penetration in six months or in a year.”

Wallsten states that in order to accurately study the economic effects of broadband, scholars “should focus on microeconomic effects, which are more likely to be identifiable and measurable, in order to establish conceptual and tested pathways from micro to macro effects.” Therefore, accurately measuring the effects of broadband on economic growth will require an extended timeline. “It may be unrealistic to expect politicians to embrace the long view, but serious researchers and others who want to understand and foster the digital economy should recognize the need for an empirical and conceptual foundation,” Wallsten concludes.

The Future of Digital Communications Research and Policy” is available on the TPI website.

The Technology Policy Institute

The Technology Policy Institute is a research and educational organization that focuses on the economics of innovation, technological change, and related regulation in the United States and around the world. More information is available at https://techpolicyinstitute.org/.

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