Broadband infrastructure deployment, digital vulnerability, and local firm performance in developing and transition countries

FERDI Working paper P195, revised version March 2018This paper provides evidence on the impact of fast Internet on firm performance in developing and transition economies. Over the last three decades, international connectivity has been boosted by the laying of more than 300 submarine telecommunications cables (SMC). Almost all coastal developing and transition countries are plugged into the global Internet, so the remaining structural impediments to the Internet economy’s growth are twofold: first, the digital isolation induced by the distance of Internet users from key telecommunications infrastructures; and second, the country’s exposure to SMC outages. We therefore adopt an instrumental variable (IV) approach reflecting these two sources of digital vulnerability. Exploiting the hierarchical structure of the World Bank Enterprise Survey dataset, multilevel IV estimations are conducted on a large sample of firms from more than 2,600 locations in some 60 developing and transition countries. They stress the large local impacts of an increase in the local incidence of email use by firms, induced by a lesser digital vulnerability, on a firm’s average annual sales and sales per worker, and, to a lesser extent, on temporary employment. Estimated relationships are robust across a range of alternative sampling and specifications