Businesses in rural areas have a higher adoption rate of basic commercial Internet technologies, such as e-mail, Web browsing and passive document sharing, than small and mid-sized metropolitan areas, according to an economic report prepared for the Federal Reserve Bank of San Francisco.

The report, prepared by researchers for the Center for the Study of Innovation and Productivity, a part of the bank’s Economic Research Department, found that 85.1 percent of businesses in rural areas have adopted these basic Internet technologies, compared with 75.5 percent in small metro areas with a population below 250,000, 84.9 percent in mid-sized metro areas with a population from 250,000 to 1 million, and 90.4 percent in large metro areas with populations above 1 million. Overall, about 88.6 percent of U.S. businesses participate in these basic levels of Internet technology.

A sample of 86,879 businesses with 100 or more employees at the end of 2000 were included in the study, which projected the survey results to all U.S. businesses with more than 100 employees. The survey covered the workplaces for two-thirds of the U.S. labor force.

The study also measured the adoption of Internet technology as a means of enhancing sophisticated business computing processes, and this level of adoption was far lower. “In spirit, enhancement uses Internet technologies to change existing internal operations or to introduce new services,” the researchers reported. “Examples of our measure of enhancement include electronic commerce transactions with value chain partners and final purchasers, as well as Internet-enabled internal business applications, like enterprise resource planning.”

Overall, about 12.6 percent of U.S. businesses have enhanced their business through the use of advanced Internet technologies, according to the study. Small metropolitan statistical areas have a 9.9 percent average adoption rate of these enhanced Internet technologies, the report found, while rural areas have a 10.6 percent rate, mid-sized metro areas have an 11.2 percent rate, and large metro areas have a 14.7 percent rate.

The study examined fundamental issues relevant to the “global village” and “urban leadership” concepts of Internet usage. Under the global village scenario, Internet technology “would diffuse more quickly to rural areas than to urban areas,” while the urban leadership scenario provides that “the Internet, like many other (information technology) innovations, requires complementary infrastructure and support services, which are more readily available in urban settings.” The urban leadership view is often expressed in conjunction with the theory of a “digital divide” between large urban areas and smaller or rural areas.

“Our research shows that there are elements of both the global village and urban leadership views in the geographic pattern of Internet adoption. By 2000, participation activities like e-mail and Web browsing had diffused almost everywhere, indicating that the pattern for participation adoption is better explained by the global village view,” researchers concluded. “In contrast, for complex enhancement technologies, adoption behavior is better explained by urban leadership theory.”

The study notes, “It is well-known that certain industries tend to be concentrated in different parts of the country – automakers in the Detroit area, film production and distribution in the Los Angeles area, and financial services in New York, just to cite a few. Our results suggest another kind of concentration. Specifically, we find that the mix of industries with the highest enhancement adoption rates tends to be in the biggest cities.”

Chris Forman, assistant professor of the Tepper School of Business at Carnegie Mellon University; Avi Goldfarb, assistant professor of the Rotman School of Management at the University of Toronto; and Shane Greenstein, Elinor and Wendell Hobbs Professor at Northwestern University’s Kellogg School of Management, participated as lead researchers in the study.

The Federal Reserve Bank of San Francisco is one of 12 regional Federal Reserve Banks across the U.S. that, together with the Board of Governors in Washington, D.C., serve as the nation’s central bank. The 12th Federal Reserve District includes the nine western states: Alaska, Arizona, California, Hawaii, Idaho, Nevada, Oregon, Utah, and Washington; and American Samoa, Guam, and the Northern Mariana Islands. Branches are located in Los Angeles, Portland, Salt Lake City, and Seattle, and there is a cash-processing office in Phoenix, Ariz. The largest district, it covers 35 percent of the nation’s landmass, ranks first in the size of its economy, and is home to about 20 percent of the nation’s population.


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