Member Blog: Peter F. Orazem and Younjun Kim

You’ve got internet!– connecting rural areas

Published on: OUPBlog
 Twenty years ago, if you wanted internet access in many rural areas of America, you had to plug your computer into a phone line, listen to the dialing sound, and hope for the best. Today many people can easily join the cyber world at reliable speeds that few imagined decades ago. The internet has become a gateway to consumption opportunities and information that boggles the mind. It has transformed how businesses operate in both rural and urban areas. Although the percentage of people with broadband has increased, many in rural communities still lack broadband access and the accompanying benefits.

The US government adopted policies to address this issue with the goal of establishing universal access by 2020. The USDA Rural Utilities Service and FCC Universal Service Fund subsidize rural access by providing resources for upfront capital and operating costs respectively. Proponents argue that better broadband access will improve economic growth in rural areas by lowering production costs and increasing the size of the market for the sale of goods. Transaction costs will fall allowing rural business to better reach customers. Similarly, employers will have a better chance of finding employees who have the skills they want, and employees will more likely find firms that offer the compensation packages they desire. Consumers will face lower costs due to increased competition that raises their real income. Economic growth from broadband access offers numerous other benefits such as telemedicine, on-line educational opportunities, and more social capital from increased community interaction.

By improving the access to the internet, economic growth in rural areas would reduce the gap with the more affluent urban areas. In general populous, urban areas tend to have higher incomes than sparsely populated rural areas. Regional inequalities pervade the US, and public policies that address it have risen in importance in recent years. Expanding broadband access offers a potential way to reduce these inequalities.

Empirically assessing the impact of increased access to broadband has proven difficult. Often broadband access takes place when regional economies expand. Separating cause and effect is not easy. Maybe broadband access improved because of the region’s growth. Maybe access to broadband Internet increases economic growth because it lowers firm production costs and broadens the market for firm output. Identifying the relationship becomes more difficult since broadband access increased very quickly in urban areas and therefore reducing variation.

(Continued on OUP's Blog: 

https://blog.oup.com/2018/03/internet-broadband-connection-rural-areas/)