Broadband Speed and Firm Entry in Digitally Intensive Sectors: The Case of Croatia

Abstract

We explore how improvements in digital infrastructure
contribute to digital transformation of the Croatian
economy. More specifically, we investigate under what
conditions improvements in broadband speed are
conductive for firm entry in digitally intensive sectors
at the local level (cities and municipalities; LGUs)
during the period 2014–2017. The results of the
benchmark random effects panel data model suggest
that a 10 percent increase in broadband speed increases
the number of new digitally intensive firms by 0.68.
Two-way interactions between explanatory variables indicate
that improvements in broadband infrastructure yield the
greatest number of new firm entries in densely populated
LGUs, and in LGUs with a higher quality of human capital
and greater public investment in physical infrastructure.
Using the spatial Durbin panel method, we find
improvements in broadband infrastructure exhibit positive
firm entry effects both within and between cities and
municipalities.