Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/328265 
Year of Publication: 
2025
Series/Report no.: 
Research Paper No. 31
Publisher: 
EcoAustria - Institute for Economic Research, Vienna
Abstract: 
This paper provides a comprehensive empirical analysis of the economic impact of submarine cable (SMC) infrastructure, which is critical for global digital connectivity and carries almost all intercontinental data traffic. Despite their fundamental role in the digital economy, robust evidence on the economic returns of SMC investments is very scarce. To address this, we use a panel dataset of developed countries and causal identification strategies, such as two-way fixed effects models and instrumental variables exploiting exogenous variation from factors like a country's coastline length and legacy market competition. First, our analysis establishes that increased international bandwidth (IBW) capacity resulting from submarine cable deployment significantly improves broadband quality by increasing speeds and reducing latency. We then quantify the impact on broadband demand, finding distinct yet robust demand elasticities for mobile and fixed services. We find that a 1% increase in IBW capacity drives mobile broadband demand up between 0.044% and 0.088%, while the increase for fixed broadband demand is slightly lower at between 0.041% and 0.062%. Finally, we translate these estimates into a simple cost-benefit framework using an illustrative transatlantic cable project connecting Ireland and the United States. This analysis shows that the substantial GDP spillovers - quantified at between US$121.05 billion and US$163.09 billion for the Irish landing site alone - overwhelmingly exceed the total private deployment costs of $180-$260 million. Our findings affirm that SMC deployments generate significant positive externalities and high social returns. While it has been argued that these effects are critical to developing nations lacking infrastructure, our findings indicate this to also be applicable to advanced economies. Consequently, we argue that policymakers in coastal nations have a strong economic incentive to facilitate private investment by reducing regulatory barriers and transaction costs associated with, for example, cable permits and landing stations.
Abstract (Translated): 
Dieses Papier bietet eine umfassende empirische Analyse der wirtschaftlichen Auswirkungen von Unterseekabel-Infrastruktur (SMC), die für die globale digitale Konnektivität von entscheidender Bedeutung ist und nahezu den gesamten interkontinentalen Datenverkehr trägt. Trotz ihrer fundamentalen Rolle in der digitalen Wirtschaft gibt es bislang nur sehr wenige belastbare Belege über die wirtschaftlichen Erträge von Investitionen in Unterseekabel. Um diese Lücke zu schließen, verwenden wir ein Panel-Datenset entwickelter Länder sowie kausale Identifikationsstrategien wie Zwei-Wege-Fixed-Effects-Modelle und Instrumentvariablen, die exogene Variationen aus Faktoren wie der Küstenlänge eines Landes und dem historischen Wettbewerbsniveau auf dem Markt nutzen.
Subjects: 
Submarine cables
economic impact
costs and benefits
panel econometrics
JEL: 
L50
L52
L86
L96
Document Type: 
Working Paper

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