Connectivity is not enough: digital infrastructure, human capital, and regional business dynamism in Türkiye
This study of Türkiye's 81 provinces reveals that while mobile broadband fosters business entry, increased fixed and fibre broadband penetration is unexpectedly associated with lower company formation rates, a negative effect that is most pronounced in low-education regions and underscores the critical role of human capital in realizing the economic benefits of digital infrastructure.
Original paper licensed under CC BY 4.0 (https://creativecommons.org/licenses/by/4.0/). This is an AI-generated explanation of the paper below. It is not written or endorsed by the authors. For technical accuracy, refer to the original paper. Read full disclaimer
For decades, policymakers have operated under a simple, comforting belief: if you build the roads, the people will come. In the modern world, those roads are digital. The assumption is that laying down high-speed internet cables—fiber optics that carry vast amounts of data—acts as a universal spark for local economies. The theory goes that when a region gets connected, it lowers the cost of doing business, making it easier for entrepreneurs to find customers, hire workers, and start new companies. This idea has driven massive infrastructure projects across the globe, including in Turkey, where the government has aggressively expanded its digital network, hoping to turn connectivity into a engine for regional growth and job creation. But there is a gap between the promise of a connection and the reality of a business. A new study suggests that simply having the wire is not enough; the people using it and the skills they possess matter just as much, perhaps more.
Researchers set out to test this assumption by looking at the entire country of Turkey, examining all 81 of its provinces over a six-year period from 2020 to 2025. They did not just ask if businesses were happy with the internet; they looked at the hard numbers of new companies being registered and old ones closing down. They tracked the growth of fiber-optic subscriptions, fixed broadband, and mobile internet, comparing these infrastructure changes to the birth and death of formal businesses. Crucially, they also measured the education levels of the local population, specifically the share of residents with university degrees, to see if human talent changed how the internet affected the economy. They used a rigorous statistical approach that treated business counts as actual numbers rather than just rates, a method that avoids common errors in how data is often interpreted.
The results challenged the standard narrative. Instead of finding that more fiber-optic cables led to more new businesses, the study found the opposite. In provinces where fiber penetration grew, the rate of new company registrations actually fell. For every standard increase in fiber subscriptions within a province, the number of new companies dropped by about 3.3 percent. This negative link held true even when the researchers accounted for local economic trends, income levels, and population changes. It suggests that high-speed, fixed internet might be helping existing businesses grow or operate more efficiently without needing to register new legal entities, or perhaps it is allowing companies in stronger regions to serve customers in weaker ones remotely, reducing the need for local startups. In contrast, mobile internet showed a different pattern, with higher mobile broadband usage associated with a slight increase in new business formation, likely because mobile access directly empowers individual entrepreneurs and small, consumer-facing ventures.
The study also revealed that the local workforce's education level acts as a crucial filter for these effects. The negative impact of fiber on new business formation was strongest in provinces with lower levels of higher education. As the share of university graduates in a province increased, the negative effect became smaller, though it did not disappear entirely. This points to a concept known as skill complementarity: high-capacity digital tools seem to require skilled workers to be used effectively for starting new firms. Without those skills, the infrastructure may not translate into new business creation. However, the researchers were careful to note that even in the most educated provinces, fiber did not become a positive driver of new companies; it simply stopped being a negative one. The "crossover point" where fiber would start helping new businesses start was estimated to be at an education level far higher than any province in Turkey currently possesses.
When the researchers looked at whether one province's internet growth helped its neighbors, they found no evidence of a spillover effect. A province did not benefit from the fiber expansion of the province next door. Instead, the patterns of business activity across the country were driven by shared, invisible factors—like regional economic conditions or supply chains—that affected neighboring areas simultaneously. This distinction is vital because it means that building a network in one place does not automatically lift up the surrounding region; each area must build its own internal capabilities.
Perhaps the most significant finding of the study was not about the internet itself, but about how we measure success. The researchers discovered that if they had used the traditional method of looking at business rates (dividing the number of businesses by population), the data would have told a completely different story. That older method suggested that fiber expansion led to a wave of "creative destruction," where old businesses closed to make way for new ones. However, when the researchers switched to counting the actual number of businesses, that story vanished. The apparent boom and bust was an artifact of the math, a distortion created by how the data was scaled. This serves as a stark warning to policymakers and researchers: the tools we use to measure economic health can create illusions of progress or failure that do not exist in reality.
Ultimately, the study concludes that connectivity alone is not an entry engine for new businesses. While fiber-optic networks are essential for modern economic activity and have been shown to support employment and wages, they do not automatically generate new companies. The digital infrastructure is a platform, but its value depends entirely on the skills of the people who use it. For regions hoping to use internet expansion to spark entrepreneurship, the lesson is clear: laying the cable is only the first step. Without a corresponding investment in education and human capital, the digital road may lead to efficiency for the few, rather than opportunity for the many.
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