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Broadband Internet’s Value
for Rural America
Peter Stenberg, Mitch Morehart, Stephen Vogel, John Cromartie,
Vince Breneman, and Dennis Brown
Economic Research Report No. (ERR-78) 70 pp, August 2009
The Internet has become widely, but not universally, available. Two-thirds of U.S. adults had
in-home Internet access by 2008. Rural businesses and consumers have become almost as likely as
their urban counterparts to use the Internet, though broadband—or high-speed—access is less prevalent
in rural areas than in more densely populated areas. The 2008 Farm Act reauthorized USDA’s
telemedicine, distance learning, and rural broadband access grant and loan programs.
What Is the Issue?
Broadband access is viewed as necessary to fully utilize the Internet’s potential. As the Internet
economy has matured, more applications now require higher data transmission rates, even in the
case of simple shopping websites. In a recessionary economy a number of Internet activities—
including job searches and home businesses —may become more critical for households. Whereas
an estimated 55 percent of U.S. adults had broadband access at home in 2008, only 41 percent of
adults in rural households had broadband access. Evidence suggests that this shortfall in broadband
use is involuntary, and may be due to the higher cost of broadband provision or lower returns to
broadband investment in sparsely populated areas.
What Did the Study Find?
Analysis suggests that rural economies benefit generally from broadband availability. In comparing
counties that had broadband access relatively early (by 2000) with similarly situated counties that
had little or no broadband access as of 2000, employment growth was higher and nonfarm private
earnings greater in counties with a longer history of broadband availability.
By 2007, most households (82 percent) with in-home Internet access had a broadband connection.
A marked difference exists, however, between urban and rural broadband use—only 70 percent of
rural households with in-home Internet access had a broadband connection in 2007, compared with
84 percent of urban households. The rural-urban difference in in-home broadband adoption among
households with similar income levels reflects the more limited availability of broadband in rural
settings.
Areas with low population size, locations that have experienced persistent population loss and an
aging population, or places where population is widely dispersed over demanding terrain generally
have difficulty attracting broadband service providers. These characteristics can make the fixed cost
of providing broadband access too high, or limit potential demand, thus depressing the profitability of providing service. Clusters of lower service exist in sparsely populated areas, such as the Dakotas, eastern Montana,
northern Minnesota, and eastern Oregon. Other low-service areas, such as the Missouri-Iowa border and Appalachia,
have aging and declining numbers of residents. Nonetheless, rural areas in some States (such as Nebraska, Kansas, and
Vermont) have higher-than expected broadband service, given their population characteristics, suggesting that policy,
economic, and social factors can overcome common barriers to broadband expansion.
In general, rural America has shared in the growth of the Internet economy. Online course offerings for students in
primary, secondary, post-secondary, and continuing education programs have improved educational opportunities, especially
in small, isolated rural areas. And interaction among students, parents, teachers, and school administrators has been
enhanced via online forums, which is especially significant given the importance of ongoing parental involvement in children’s
education.
Telemedicine and telehealth have been hailed as vital to health care provision in rural communities, whether simply
improving the perception of locally provided health care quality or expanding the menu of medical services. More accessible
health information, products, and services confer real economic benefits on rural communities: reducing transportation
time and expenses, treating emergencies more effectively, reducing time missed at work, increasing local lab and
pharmacy work, and savings to health facilities from outsourcing specialized medical procedures. One study of 24 rural
hospitals placed the annual cost of not having telemedicine at $370,000 per hospital.
Most employment growth in the U.S. over the last several decades has been in the service sector, a sector especially conducive
for broadband applications. Broadband allows rural areas to compete for low- and high-end service jobs, from call
centers to software development, but does not guarantee that rural communities will get them.
Rural businesses have been adopting more e-commerce and Internet practices, improving
efficiency and expanding market
reach. Some rural retailers use the Internet to satisfy supplier requirements. The farm sector, a pioneer in rural Internet use,
is increasingly comprised of farm businesses that purchase inputs and make sales online. Farm household characteristics
such as age, education, presence of children, and household income are significant factors in adopting broadband Internet
use, whereas distance from urban centers was not a factor. Larger farm businesses are more apt to use broadband in
managing their operation; the more multifaceted the farm business, the more the farm used the Internet.
How Was the Study Conducted?
This report summarizes all available nationwide data on broadband use and availability and analyzes the data to isolate
interactions between broadband use and economic activities. It also presents results from an ERS-sponsored workshop on
rural broadband and ERS-commissioned research studies conducted by others. The aim is to assess the economic impact of
not having broadband service on rural communities and their growth, community facilities, access to health care, and wellbeing,
as requested by Congress on December 26, 2007.
We first analyze who uses broadband, what it is used for, and what differences exist between the average urban and rural
user to better understand the perceived usefulness of the Internet, especially broadband. We then identify rural areas that
have broadband (by ZIP Code), determine when they acquired broadband service, and develop measures of broadband
availability over time. We analyze the effect of broadband Internet access on the rural economy using quasi-experimental
design (QED), which allows us to compare two sets of counties alike in most aspects but broadband availability. The results
are interpreted using further analysis of rural businesses and consumers, including farm business logistic regression analysis,
rural-farm linkage logistic regression analysis, and workshop research exploring many complex interactions between
the Internet and socioeconomic components of the rural community: rural community social interactions; telemedicine;
distance education; and rural businesses, including retail, service, and farm.
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