Yes, internet bandwidth IS a key driver of economic growth


A commenter on my last blog post The latest country comparisons in that key economic driver: broadband speed questioned whether bandwidth does drive economic growth.

While it is easy to take that for granted, there are in fact many studies that have demonstrated this fact. One of the more interesting is a Booz & Co study that compared labor productivity growth over 5 years with bandwidth, titled Digital Highways: The Role of Government in 21st-Century Infrastructure.


Another useful study is The Digital Road to Recovery by the US Information Technology and Innovation Foundation, which estimated that of the 500,000-odd jobs created by a $10 billion broadband stimulus package, just 64,000 would be in direct employment, and the remaining 434,000 would be from indirect, induced or network effect jobs.

Just a handful of the many many ways that increased bandwidth stimulates the economy are:

– increased productivity

– greater price transparency

– efficiencies in the supply chain

– lower communications costs

– development of major new industries including telemedicine and connected homes

– higher levels of education through access to online resources

– more efficient work and use of public infrastructure through telecommuting

– more efficient labor allocation through better job advertising

Breadth of access to broadband is critical to economic development – this is not just about speed of access available to a minority.

I am certain that we can readily gain substantial benefit from speeds 10-100 times what we have currently. I will return to this juicy topic later.

  • I think it is the other way around!
    Economic growth is a key driver for bandwidth penetration. I also believe that bandwidth have some effect on the economy but not that much…
    In the graph, where are China and India? The two biggest countries in the world that wouldn’t fit in this graph at all. (I think…)
    Anyway nice blog!

  • Causality is not certain here, but there is no particular reason to think that productivity growth will drive broadband penetration, as shown in the chart.
    Good question re China and India – I haven’t seen their productivity growth stats recently.

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