Digital highways and firm turnover

Abstract

We study the impact of ultra-broadband (UBB) internet connections on firm entry and exit dynamics. These connections are based on optical fiber cables that link telecommunication operators to final users, allowing a significantly higher performance compared with traditional copper-line networks. We leverage on a unique comprehensive dataset collecting municipality-level information on broadband diffusion and firm turnover in Italy for the period of 2012–2019. Our empirical strategy exploits the staggered roll-out of UBB, starting from 2015. Our identification strategy is based on an instrumental variable approach that exploits plausibly exogenous variation in the physical and geographical peculiarities of the telecommunication infrastructure. Results suggest that UBB increases firm exit, particularly for small firms. On the contrary, firm entry rises only in digital intensive sectors and in the most developed geographical areas. Our findings have important implications for the ongoing debate around the massive investments in high-speed digital infrastructures, as they argue against the conventional idea that business activities equally benefit from last-generation broadband technologies.