Measuring the Ease of Doing Internet Business in the United States

How do you build the next Silicon Valley? This paper offers an empirical examination of the factors that help foster internet firms and employment. It builds off literature examining factors related to the economic potential of places. We examine the internet industry using the identification methodologies established by the sector's trade association, the Internet Association (Siwek, 2015). First, we develop a theoretical conceptualization of the key factors for an internet business environment and develop a simple index to examine the correlation between factors and internet sector productivity using U.S. states. Building off the first exercise, we then develop a parsimonious model predicting the percent share of Internet Sector Establishments and Internet Sector Employees for over 3000 US counties. We adjust for spatial auto-correlation by using Huber-White heteroscedasticity-consistent standard errors and through fixed-effects for US Census Bureau Divisions. The results reveal a strong and statistically significant relationship between the number of internet establishments and key internet factors generally categorized into four themes: 1) Internet Business Environment, 2) Internet Accessibility, 3) Innovation Financing, and 4) General Business Governance. We find similar results for internet sector employment, though weaker and less significant. The findings suggest that the development of certain business environmental factors within an area can help, though not guarantee, the development of an area's internet sector, but also that there are no single ‘silver bullets'. We argue that economic potential factors should be seen as prudent ‘first steps' for policymakers that can lay a foundation for other policies