Does Broadband Cause Growth, or Does Growth Cause Broadband?

Despite ongoing information technology investments, labor productivity growth declined sharply across OECD countries over the past decades, the OECD said in a 2019 report. The OECD argues that information technology has supported productivity, but that economy-wide productivity gains have been disappointing for other reasons.

source: OECD

That is worth keeping in mind. IT intensity--in and of itself--does not explain productivity or economic growth, any more than the mere existence of broadband internet access, no matter how high the quality or low the cost, alone drives economic growth, though this sometimes is argued. “If we only had better broadband…”

One can note correlations, to be sure. But correlation is not causation. Many would agree that broadband contributes to growth. But many things contribute. And the evidence about broadband access actually driving growth is unclear. 

It might well be the case that economically vibrant areas create the demand for quality broadband. 

What matters is how much value can be wrung from broadband and all the other complementary assets that must be in place to drive significant economic growth. 

“Digital technologies are characterised by strong complementarities (i) between the technologies themselves; (ii) with firms’ capabilities and assets, such as technical and managerial skills, organisational capital, innovation and financing capacity; and (iii) with policies that promote competition and an efficient reallocation of resources in the economy,” OECD says. 

In other words, economic growth results from many complementary sources. “Shortfalls in these complementary factors have slowed the diffusion of digital technologies and reduced the associated productivity benefits,” OECD said.  

It has been argued that gains are happening, but we cannot measure them. OECD does not believe that. 

“This is not just a measurement issue,” the report states. “Most researchers assess that mismeasurement is not the main reason of the observed productivity slowdown.” 

To the extent more-intensive application of IT has helped, it has not been enough to counteract the other negative forces. Perhaps that is typically the case. IT investment helps, but the drivers of results largely come from other sources.