Is Ultra-Broadband Enough? The Relationship between High-Speed Internet and Entrepreneurship in Brandenburg

Recent improvements in broadband infrastructure in Europe have introduced augmented possibilities for both businesses and individuals. As expected, the provision of high-speed internet connections for European users will be an important step towards Industry 4.0 as well as a better entrepreneurial milieu. Still, though scientific literature is replete with examples of how modern communication technologies boost productivity and economic performance, not much research indicates how broadband technologies may bolster entrepreneurship, especially at a very detailed, municipal level. The aim of this study was to find out whether high-speed broadband provision had any effect on higher firm entry rates in Brandenburg, Germany. This region was chosen because of its favorable position in the vicinity of the capital state, Berlin. We carried out an ordinary less square estimated regression analysis using a dataset built for 417 municipalities. The results show that ultra-broadband provision had no significant impact on well-performing municipalities and those located close to Berlin, with no impact in the general model, and also had a negative correlation in underperforming and peripheral areas (significant at a 5% level). This leads to the conclusion that advanced broadband infrastructure does not automatically translate into higher firm entry rates; there is no such urgency in the need for speed, as it might appear at first glance.

Broadband; Entrepreneurship; Germany; ICT

Level of entrepreneurial activity, traditionally represented by firm formation rate, is considered a main indicator of both regional and national economic development (Noseleit, 2013). Since higher firm entry rates create the appearance of a competitive milieu, a positive net entry ratio represents a sign of further development, along with a reduction ot the possibility of lock-in situations (David, 2001).

Clearly firms do not show up from nowhere, but rather local infrastructure is a fundamental prerequisite in attracting potential founders to the region (Haynes and Nijkamp, 2006). Recent scientific literature mentions a wide range of factors that are conducive to increased market entry, from physical infrastructure to the presence of high-skilled labor. One more factor — digital infrastructure — seems to be of particular importance in recent years: modern information and communication technologies (ICTs) introduced a paradigm-shift in entrepreneurship over the past decades by blurring both time and space boundaries.

More countries are recognizing that ICTs may bolster both economic development and entrepreneurship, paving the way to tremendous transformations in broadband provision globally (OECD, 2012). Some areas seems to be more advanced in their digital strategies, such as the European Union with its comprehensive policy called the Digital Agenda for Europe (European Commission, 2010), which proposes bringing high-speed internet to European households and encourages the promotion of next-generation access networks (NGAN). It is expected that advanced digital infrastructure will be a fundamental step in the transition towards Industry 4.0 and will promote entrepreneurship quickly, starting at a regional level.

        The latter notion, however, represents a common misconception that developments in broadband provision lead to positive transformations in entrepreneurial patterns. Truly, businesses require better connections, for instance, in terms of data exchange or ensuring the smooth functioning of web-based applications. However, broadband cannot guarantee higher net entry rates or significant advantages for existing and new firms. Even though scholars have observed a positive impact of ICTs on entrepreneurship (McCoy et al., 2018) and the innovative capabilities of firms (Xu et al., 2019), the rule the faster, the better does not necessarily work in the context of economic benefits (Bai, 2017).

        Still, while most scholars analyzed the effects of ICTs’ development at aggregated levels (cross-regional or [multi]national), very few studies try to dive a bit deeper. Our paper is not the first to explore the relationship between broadband and firm entry rates in Germany (Audretsch et al., 2010), but it is among the first ones searching for such effects at a very detailed level (municipalities). Older papers on the municipality level (Fabritz, 2013) date back to outdated internet technologies such as DSL.

        The Brandenburg region was chosen for our study, to a great extent because of its geographical features: first, it is located in the eastern part of Germany, where a partial inheritance of socialistic patterns (particularly in terms of entrepreneurship) is still present; second, Brandenburg is adjacent to Berlin, so new and incumbent firms may benefit from most of the advantages of the German capital (Regionaldatenbank Deutschland, 2018). Though the role of broadband internet in Brandenburg may seem questionable given that the vast majority of its territory is rural, with a relatively small number of big cities, Kim and Orazem (2016) found that such an adjacency to a metropolitan area with good high-speed internet availability can be conductive to potential entrants. In our research, we used data from Breitbandatlas Deutschland (Broadband Map for Germany) as well as officially distributed data of the Federal Statistical Office of Germany from Regionaldatenbank (Regional Data Bank) and Unternehmensregister (Registry of Companies) for 417 Brandenburg municipalities. An ordinary less square (OLS) estimated regression was chosen as the scientific method for our empirical analysis.

        Our paper unfolds as follows: Chapter 2 provides a brief background on the existing literature. Then Chapter 3 presents an overview of the EU Digital Agenda and its fulfillment in Germany, with special consideration of Brandenburg. Chapter 4 describes existing entrepreneurial patterns in Germany, first from a nationwide scope and then focusing on our particular case. The data and results of our regression analysis follow in Chapters 5 and 6, respectively, and finally Chapter 7 concludes our paper with a short summary.

The aim of this paper was to evaluate the impact of ultra-broadband provision on firm creation at a municipal level in Brandenburg, Germany. While the existing scientific literature shows high-speed internet provision to be a key factor in economic success, we were unable to confirm the same in our case. We did not find any statistical significance for ultra-broadband provision in better-performing municipalities and those located in the vicinity of the capital, Berlin, or in the general model. In contrast to that, in underperforming and peripheral areas the relationship was significant and negative, which does not allow us to state that ultra-broadband is an important prerequisite for better regional entrepreneurship. Hence, digital policies may have to incorporate additional aspects (such as the improvement of technological skills or encouragement of entrepreneurial spirit), and not solely focus on the development of digital infrastructure: even though modern technologies might seem fascinating, there is no urgency in the need for speed over a certain broadband rate.

        While we observed some interesting outcomes for the broadband variable, the results for the rest of the parameters stay remained in line with the existing literature. Still, some problems were excluded from this paper due to the scarcity of data on the municipal level. For instance, we were unable to test the effects of broadband provision along with the presence of technological skills in a region on productivity, innovativeness of firms, and possible location patterns. Though this paper is a rare example of a study trying to investigate the impact of digital infrastructure at a very detailed level (municipalities), much more work has to be done to uncover and explain the wide array of effects of high-speed internet. 

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