Modelling broadband access impact on the economic growth at NUTS 3 level

DESIRA carried out a quantitative analysis of the impact of broadband infrastructure on economic growth, at regional level, in order to consider the dynamics between urban and rural areas and eventual gaps between them.  

At the conceptual level, a first distinction was made between digitisation and digitalisation. 

The first step was to construct a Rural Digitisation Index (RDI) reflecting the digital performance of European rural areas. The aim was to use the Rural Digitisation Index to map digitalisation at the lowest territorial level covered by Eurostat (i.e. the NUTS 3 level) when classifying regions by urban-rural typology. Due to data limitations at NUTS 3 level, the RDI includes only fixed broadband coverage related indicators.  

The main assumption for using only the broadband coverage out of all the Digital Economy and Society Index (DESI) indicators in the RDI is because  broadband coverage is a necessary condition for the development of the other dimensions targeted by the DESI. Therefore it can be partially regarded as a one-directional proxy for these policy areas. Furthermore, at NUTS 3 level, data exists only for fixed broadband coverage. 

The next step was to map the evolution of broadband coverage (> 30 Mbps) in all EU Member States per NUTS 3 region between 2011 and 2018. This examination of regional broadband access between 2011 and 2018 is then analysed quantitatively in relation to its contribution to economic growth.  

A quantitative model, the system generalised method of moments estimator, was used.  

Regression models were run for connectivity rates of at least 30 Mbit/s and then for connectivity rates of at least 100 Mbit/s. The regression results showed that after a certain threshold speed level is reached, further increasing broadband speed does not translate into additional economic growth.  

Moreover, the regression results indicated a decreased upper bound of speed-related gains for the provision of broadband access in rural Europe compared to urban areas and in the agricultural industry compared to other sectors. 

The results show that the provision of high-speed broadband access has a significant and positive impact on real output per capita. The results indicate a relatively weaker effect in rural areas compared to their urban counterparts.  

Second, the 30 Mbit/s broadband variable were replaced with the share of households that has access to network speeds of at least 100 Mbit/s. There, the significant impact on economic growth disappears for the agricultural sector but remains when we consider the different economies as a whole. Contrary to the conclusions drawn from the 30 Mbit/s regression, economic growth in intermediate and predominantly rural areas benefits more from the provision of broadband infrastructure in terms of connectivity rates offering 100 Mbit/s and up, as opposed to the more urbanised regions.  

In terms of connectivity rates offering at least 100 Mbit/s, this threshold level has long been attained in urban Europe, while rural areas are still falling behind significantly in 100 Mbit/s broadband infrastructure compared to their urban counterparts. At the sectoral level, the agricultural industry witnessed large gains from digitalisation between 2011 and 2018, aligning with the emergence of innovations in smart farming technologies and reassuring its importance in the future.

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