Broadband access and knowledge spillover influence on SBIR phase II awards in non-metropolitan regions

Information and knowledge spillovers are critical for innovation creation. However, innovation creation is clumpy across regions, and there are noticeable innovation gaps between rural and urban areas. We hypothesize that broadband Internet connections help rural firms gain access to virtual knowledge spillovers, which improves their success with research and development (R&D) activities. To test this hypothesis, we estimate the extent that broadband access impacts two measures of an innovative firm’s early R&D activities: (1) the likelihood of receiving a phase II Small Business Innovation Research (SBIR) award for a first-time phase I awardee and (2) the number of phase II SBIR awards received for all firms that received a phase I award. The models use a novel Census tract level database consisting of broadband availability data matched to firm-level Dun and Bradstreet data (similar to NETS), firm-level SBIR awards data, and other tract-level and county-level secondary data. Results show that the number of Internet providers in a non-metropolitan area increases the number of phase II awards that firms receive on average, and greater broadband access increases the likelihood of non-metro first-time phase I awardees receiving phase II awards. The policy implication of these results is that investments in broadband can help close the innovation gap between urban and rural areas, thereby encouraging economic growth in rural areas.