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BROADBAND AND ECONOMIC DEVELOPMENT:
A MUNICIPAL CASE STUDY FROM FLORIDA


George S. Ford
President, Applied Economic Studies, Birmingham, Alabama, USA

Thomas M. Koutsky
Principal, First Academy Advisors, Silver Spring, Maryland, USA

In this paper, we explore whether broadband investment by municipalities has an effect
on economic growth. To do so, we employ an econometric model to compare economic
growth between counties in the State of Florida. Our econometric model shows that Lake
County – a small county in central Florida – has experienced significantly greater growth in
economic activity relative to comparable Florida counties since making its municipal fiberoptic
network generally available to businesses and municipal institutions in the county.
Our findings are consistent with other analyses that postulate that broadband infrastructure
can be a significant contributor to economic growth.

1. Introduction
The future of a community is often directly related to that community’s public infrastructure.
Good schools, adequate roads and transportation, access to affordable health care, and quality of
life factors such as parks and cultural venues play a role in whether communities will attract new
businesses and residents, and be vibrant. Economic research shows that public infrastructure
investment is a powerful driver of business productivity, investment, and economic growth
(Aschauer, 1989; Blum, 1982; Button et al., 1995; Gramlich, 1994; Nadiri and Mamuneas,
1994. Seitz, 1995; Seitz and Licht, 1995).
Several countries around the world have undertaken substantial direct government investment
in broadband infrastructure, often treating it like other areas of public infrastructure. The
South Korean government has utilized direct investment, guaranteed loans, and construction on
consignment programs (in which private firms build facilities with the government acting as a
sort of guarantee of service) to build the world’s leading broadband capability (Speta, 2004).
The Korean Information Infrastructure Project invested $7.3 billion from 1995–2002 and has
plans to invest an additional $17.8 billion by 2010.1 Korea now leads the world with a 24.9%
household broadband penetration rate, compared with 13.0% in the United States.2

TheUnited States has historically relied on private investment to build and construct its communications
infrastructure. However, the United States has subsidized this private investment
over the decades through a number of support and subsidy programs, including federal and
state universal service programs. These subsidy flows are often justified by reference to social
equity grounds, an implicit recognition of the importance a communications infrastructure has
on economic development.
In the last few years, the desire to deploy broadband ubiquitously throughout the United
States has led national and local political leaders to argue for a more direct governmental role by
federal, state, and local governments.3 President Bush has stated that all corners of the United
States must have “universal, affordable” broadband service by 2007, so that no community
forgoes the “great opportunity” afforded by broadband services.4 Community leaders are concerned
that communities without broadband service will wither and be left behind as firms and
jobs move to regions – either elsewhere in the USA or abroad, where instant, high-bandwidth
connectivity is available and affordable. For example, Federal Communications Commission
(FCC) Michael J. Copps has observed:

Providing meaningful access to advanced telecommunications for all our citizens may also spell
the difference between stagnation and economic revitalization. One study estimates that universal
broadband access could add half a trillion dollars to the U.S. economy every year. Even that may
be conservative. Broadband is already becoming key to our nation’s systems of education and
commerce and jobs and, therefore, key to America’s future. It’s going to be front-and-center in
America’s Twenty-first century transformation. Bet on it.

Many municipalities have begun to directly invest in constructing broadband infrastructure,
just as cities build schools, pave roads, and construct hospitals.6 Justification for such
construction is nearly always tied to the pro-growth potential of broadband services, and frequently
tied to the failure of private firms to provide adequate broadband services, if any, to thecommunity.

 These municipal investment projects have been criticized, however, as moneylosing,
inefficient and potentially wasteful use of taxpayer resources.
In this paper, we explore whether direct municipal broadband investment in broadband
infrastructure creates positive economic gains for the community as a whole, beyond those
that private investment supplies. Theoretical research suggests that it might, particularly in
economically disadvantaged communities (Robinson, 1977; Martin 1999; Martin and Rogers
1995; Hesham 2000). Our empirical approach is necessarily limited, given the lack of detailed
data on this relatively recent phenomenon. There exists, however, sufficient data to perform a
straightforward test of the impact of municipal broadband on economic activity, even though
the results should be qualified as “preliminary evidence.” Broadband deployment by the public
or private sector is an important policy issue in nearly every industrialized nation and, to our
knowledge, this paper represents the first systematic effort to quantify its impact on economic
activity.
Our findings provide support for the position that municipal broadband infrastructure
stimulates economic growth. Since 2001, when the municipal fiber-optic network launched
in Lake County, Florida, the county has experienced a significant burst of economic activity
relative to its peers. If these external benefits of broadband services cannot be captured by
private firms, which they most likely cannot, then public investment in broadband infrastructure
may be warranted.


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