A major new report co-authored by the chair of the Reserve Bank of New Zealand says that independent data from over 6,000 New Zealand businesses shows no positive productivity impact when they adopt high speed broadband services.

The study is claimed as the first international examination of high speed broadband’s productivity effects on firms and was funded by the New Zealand Ministry of Economic Development and non-profit economic institute Motu under a programme financed by the NZ government’s Foundation for Research, Science and Technology.

It found that while there were positive impacts from adoption of broadband, there was no measurable impact from using higher-speed broadband which it defines as above 10Mbps — in the New Zealand context, effectively the use of cable Internet over ADSL or dial-up.

The paper concludes: “We find a ... productivity effect of broadband relative to no broadband of approximately 10% across all firms."

"The estimates indicate a marginally stronger impact on firm productivity for firms in rural (low population density) relative to urban (high density) areas but the differences are not significantly different. Our estimates show that all of these productivity gains can be attributed to adoption of slow relative to no broadband, with no discernable additional effect arising from a shift from slow to fast broadband,” the paper said.

What makes the paper most interesting is the identity of its three authors and the source of its data. Dr Arthur Grimes, a senior fellow at Motu Economic and Public Policy Research and a professor at the University of Waikato, is considered one of New Zealand’s top economists and presides as chair of the Reserve Bank of New Zealand. His paper was supported by another Motu alumna, economist Cleo Ren and Ministry of Economic Development adviser Phillip Stevens, who has an extensive background in Britain’s economics academia. Their study used data sourced from an extensive NZ Statistics survey of over 6,000 businesses that not only measured broadband use by firms but also other characteristics such as whether they sold or purchased over the Internet and whether they maintained a website, particularly one that had attracted new international custom for the firm.

LITTLE RESEARCH: In explaining the motivations and methodology behind their research, the authors say “Despite articulate pleas for network upgrades to accelerate internet access, there is little rigorous research quantifying benefits to individual firms that arise from upgraded internet connectivity. We use a large New Zealand micro survey of firms linked to unit record firm financial data to determine the impact that differing types of internet access have on firm productivity. Propensity score matching is used to control for factors, including the firm’s (lagged) productivity, that determine firms’ internet access choices.”

But they also warn that binding conclusions cannot yet be drawn from the results, noting, for example that adoption of high-speed broadband is relatively recent and its benefits may not yet be apparent in firm performance, likewise that benefits may become more apparent when high speed broadband becomes more pervasive. They also note that their research appears to be the first in the world measuring the productivity effects of high speed versus low speed broadband, noting that prior international research has tended to compare broadband usage with dial-up or no Internet usage at all.

That said the paper comes at an unfortunate time for its ultimate sponsor –the New Zealand government — which is proposing to spend NZ$1.5b on a series of FTTH networks across the country. Other regional governments in Australia, Singapore and Malaysia are also making extensive public investments in broadband, based partially on what they see as the productivity boons for their economies.

Grahame Lynch 

* The paper can be downloaded at http://motu-www.motu.org.nz/wpapers/09_15.pdf