Broadband Shocks, TFP Growth and Polarisation of European Firms

We study whether the roll-out of (fast) broadband is associated with firm-level total factor productivity (TFP) growth in the European Union and whether it promotes firms’ convergence or polarisation. We identify broadband shocks as unexpected innovations in internet coverage and estimate their dynamic relation with firms’ TFP growth. Broadband expansions are associated with immediate and persistent productivity gains. Fast broadband displays a short-run J-curve response, while long-run effects are comparable to those of standard broadband. Productivity gains are uneven: firms with higher TFP levels and faster TFP growth benefit disproportionately. Effects are stronger in less digitally intensive sectors, consistent with the interpretation of broadband as a General Purpose Technology. Moreover, firms in rural areas do not experience systematically weaker productivity responses than firms located elsewhere.