The Effects of Broadband to GDP

"The Effects of Broadband to GDP"

I read the article entitled, “Broadband Penetration and Economic Growth” by Ben Rooney in The Wall Street Journal published on July 19th, 2013. It looks at data produced by The Organization for Economic Cooperation and Development and draws a relationship between the percentage of a given countries’ population that has a broadband connection and average GDP (gross domestic product) per capita of that country. The main graphic shows this relationship between these two statistics from 34 different countries in an unconvincing fashion. The histogram with an overlaid line plot has a simple correlation of 0.64, which is not a strong correlation. The author suggests that if you remove the outlier, Luxembourg, the simple correlation would increase to 0.77. That’s problematic because Luxembourg has the highest GDP per capita by far at approximately $90,000 USD PPP in 2011 with only 32% broadband penetration. I disagree with removing Luxembourg, also because this study only has 34 countries. There has been enough selection already.

It seems as though the article is attempting to support the likely outcome, which is that greater broadband penetration increases productivity. Luxembourg’s GDP clearly outpaces its broadband penetration, which begs the question why? The financial sector is one of the largest contributors to the Luxembourg economy. Perhaps broadband penetration helps certain industries more than others. Economies that rely on technology, research and financials would benefit more from broadband than farming, manufacturing and other labor-intensive economies. I argue that the industries, businesses and individuals that would materially benefit from broadband connectivity will seek it out, because their livelihood depends on it. The rest will see it as an unnecessary expense. Thus, the penetration rates will reflect the demand for broadband in a given country. They won’t necessarily indicate a material increase in productivity, unless only those who use it to increase productivity actually get it.

     Other factors to consider are population, culture and growth. The 3 countries with the highest broadband penetration (Switzerland, Netherland and Denmark) all have populations of less than 16 million. Those countries also have significant technology sectors’ contributing to their GDP. Notable for its absence on this list is China. With 1.3 Billion citizens it would take a monumental effort to achieve the lowest broadband penetration rate on this chart of 10% (in Turkey). With a per capita GDP of only $9,233 (Wikipedia) and an economic dependence on cheap manufacturing, China will likely be lagging in this list for years to come. Yet China is a very rich and successful country.

Broadband penetration rates are not a good indicator of GDP growth. There are many uses for broadband that have nothing to do with productivity. For instance, if internet gaming drives broadband penetration in developing countries, I doubt there will be a correlated increase in GDP. The likelihood is that the broadband consumers that need it to increase productivity set up their connections already. Now that the costs of broadband are coming down, it is more likely that recreational broadband users represent the vast majority of those who don’t have a connection. The most reasonable conclusion I could come up with is that broadband does not boost efficiency across the board. Rather, it is more beneficial to some than others.

Reference:

Rooney, Ben. "Broadband Penetration and Economic Growth." Wall Street Journal. N.p., 19 July 2013. Web. 10 Oct. 2013. <http://blogs.wsj.com/tech-europe/2013/07/19/broadband-penetration-and- economic-growth/>.