Banu Demir (Oxford, Bilkent, and CEPR)
How do improvements in internet infrastructure affect supply chain organization and distribution of economic activity across space? We exploit an episode of massive investment in optical fibre networks across Turkish provinces to shed light on this question. Using rich micro-data on firm-to-firm transactions and information on expansion of optical fibre networks, we show that fast internet affects firms’ supplier networks by facilitating doing business. Firms not only reallocate their purchases to-wards suppliers with better internet connectivity but also diversify their input sourcing patterns. We develop and estimate a tractable spatial equilibrium model with endogenous production networks under rational inattention. We find that the elasticity of manufacturing firm-to-firm trade with respect to internet connectivity is sizeable. Through the lens of the estimated model, we find that improvement in high-speed internet infrastructure leads to a 2% gain in the real income in the median Turkish province.
Banu Demir (Oxford, Bilkent, and CEPR) – Beata Javorcik (Oxford, Bilkent, and CEPR) – Piyush Panigrahi (World Bank)
Lecture Hall (A-032)