Does broadband infrastructure boost firm productivity? Evidence from a quasi-natural experiment in China

Abstract

Broadband infrastructure underpins the development of the digital economy and has a significant impact on firm operations. However, the effect of broadband infrastructure on firm productivity have been rarely studied. By using the enforcement of the "Broadband China" strategy as an exogenous shock, this study investigated the effect of broadband infrastructure on firm productivity. A significant positive effect of broadband infrastructure on firm productivity was identified. It is further shown that information development, reallocation efficiency, innovation promotion and transaction cost reduction were four rational mechanisms through which broadband infrastructure enhances firm productivity. Finally, our findings were more pronounced for non-state-owned enterprises, highly capital-intensive firms and capital-strapped firms. Overall, this study provides insights into broadband infrastructure for enhancing firm productivity in developing countries.