This paper provides city-level evidence on the impact of fast Internet on firm performances in developing and transition economies. Over the last two decades, international connectivity has been boosted by the laying of more than 300 sub-marine telecommunication cables (SMC). Almost all coastal developing and transition countries are henceforth plugged to the global Internet, so that the remaining structural impediments to Internet economy’s growth are twofold: first the digital isolation, i.e. the gap between Internet users and the existing and often lacking terrestrial telecommunication infrastructure network; and second, the country’s exposure to SMC faults. We estimate the impact of Internet access on firm performance by adopting an instrumental variable (IV) approach reflecting these two digital vulnerabilities. Estimations are carried out using large a sample of firms from more than 2,600 cities in some 60 developing and transition countries. They stress that a 10% increase in the incidence of e-mail use among firms, induced by lower digital vulnerabilities, raises the firm’s average annual sales by 24%, average sales per worker by 18%, and temporary employment by 15%. This result is robust to the exclusion of outliers, of exporters and big firms, of firms created after SMC arrival, and to the use of other proxies for firms’ access to Internet. It therefore suggests the existence of large spillover effects of fast Internet at the local level.
Cariolle, J., Le Goff, M., and Santoni, O. (2017) "Fast Internet, digital vulnerabilities and firm performances in developing and transition countries", FERDI Working paper P195, July