The Broadband Bonus: Accounting for Broadband Internet's Impact on U.S. GDP

How much economic value did the diffusion of broadband create? We provide benchmark estimates for 1999 to 2006. We observe $39 billion of total revenue in Internet access in 2006, with broadband accounting for $28 billion of this total. Depending on the estimate, households generated $20 to $22 billion of the broadband revenue. Approximately $8.3 to $10.6 billion was additional revenue created between 1999 and 2006. That replacement is associated with $4.8 to $6.7 billion in consumer surplus, which is not measured via Gross Domestic Product (GDP). An Internet-access Consumer Price Index (CPI) would have to decline by 1.6% to 2.2% per year for it to reflect the creation of value. These estimates both differ substantially from those typically quoted in Washington policy discussions, and they shed light on several broadband policy issues, such as why relying on private investment worked to diffuse broadband in many US urban locations at the start of the millennium.