New Study Finds "No Significant Effect" of Broadband on Productivity

The consensus view on broadband access for business is that it leads to higher productivity. But a new study by Ireland’s Economic and Social Research Institute finds “small positive associations between broadband and firms’ productivity levels, none of these effects are statistically significant.”

“We also find no significant effect looking across all service sector firms taken together,” ESRI notes. “These results are consistent with those of other recent research that suggests the benefits of broadband for productivity depend heavily upon sectoral and firm characteristics rather than representing a generalised effect.”

“Overall, it seems that the benefits of broadband to particular local areas may vary substantially depending upon the sectoral mix of local firms and the availability of related inputs such as highly educated labour and appropriate management,” says ESRI.

In other words, broadband--in and of itself--might not be a general driver of enhanced productivity or economic growth, absent other more-basic drivers. Some earlier studies do not clearly establish a direct relationship between productivity and broadband, except in the computing and information technology industry itself.

To be sure, economic activity and broadband are correlated. What is harder to determine is the degree of any causality, though many studies suggest broadband is correlated with economic growth, productivity and income.   

ESRI does note that  “significant gains from broadband availability in two services sectors: information and communication services and administrative and support service activities.”

Some have looked at the application of information technology and called it a productivity paradox. “You can see the computer age everywhere but in the productivity statistics,” Professor Robert Solow famously said.

In fact, productivity sometimes has dropped after more information technology was deployed. Of course, there could be other explanations. Productivity might have dropped for other reasons. IT might have prevented faster productivity declines. Perhaps we can not measure the productivity gains (qualitative improvements perhaps cannot be quantified, by definition).   

Some believe the earlier productivity paradox in computing now is seen in cloud computing, the internet and mobility as well, though productivity did seem to rise in some industries. Perhaps few would argue that information technology does not matter.

Still, despite the instances of correlation, causal relationships remain tough to identify. We note that consumption of high-quality broadband services is correlated with high income and education levels, for example. We might note high correlation between broadband and economic activity. Still, a causal relationship never is completely clear.  

It might be the case that high economic activity attracts highly educated and better-compensated people, who then have the resources to buy quality broadband, and live where that can be accomplished.