Information Communication Technologies and Firm Performance: Evidence for UK Firms

A recent literature has begun to recognise that ICT is heterogeneous and the effects from improving communication are distinct from those that improve the storage and processing of information. In this paper we use the arrival of a new communication technology, ADSL broadband internet, to study the effects of communication ICT on firm performance. To do so free from endogeneity bias, we construct instruments using the infrastructure underlying broadband internet - the pre-existing telephone network. We show that, after placing various restrictions on the sample, instruments based on the timing of ADSL broadband enablement and the cable distance to the local telephone exchange satisfy the conditions for instrument relevancy and validity for some types of ICT. We find in turn, that communication-ICT causally affects firm size (captured by either sales or employment) but not productivity.

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