Breaking invisible barriers: Does fast internet improve access to input markets?

We combine rich data with theory to study how access to fast internet affects firm’s supplier network by facilitating doing business. By augmenting data on the quasi universe of firm-to-firm transactions with the information on the length of fibre optic internet cable in each of 81 province during 2012-2019, a period of large investments in internet infrastructure, we show that buyers increase their purchases from sellers with better internet connectivity. The effects of high-speed internet on buyers’ input purchases are stronger for initially concentrated input markets. Next, we present a tractable model of firm-to-firm connections to recover the key parameter of interest: the elasticity of firm-to-firm trade with respect to internet connectivity. The estimated elasticity is sizable across all sectors. In manufacturing and trade, the elasticity with respect to internet connectivity is of comparable magnitude with the elasticity with respect to travel time.