Digital Infrastructure Policy and Small Business Digitalisation: Evidence From the UK Gigabit Broadband Rollout During Covid-19

This thesis examines the causal impact of digital infrastructure and grant policies on firm digitalisation using comprehensive panel data from 1,514 UK firms over 2017-2022. Observing the staggered geographic rollout of the UK government's £5 billion Project Gigabit broadband infrastructure programme and COVID-19 business support grants, I employ difference-in-differences identification strategies to assess heterogeneous policy effects across firm size categories. Drawing on theoretical frameworks from infrastructure economics, resource-based views of firm capabilities, and policy capture mechanisms, this research develops and tests hypotheses regarding differential policy benefit distribution between small-medium enterprises (SMEs) and large firms. Using a comprehensive digitalisation index constructed from textual analysis of corporate annual reports—capturing strategic commitments across ICT investment, digital skills, online presence, e-commerce capabilities, and digital business processes—I measure firm-level responses to policy interventions. The empirical results reveal important heterogeneity in policy benefit capture that diverges from conventional resource constraint predictions. Combined infrastructure and grant policies generated point estimates suggesting substantially larger effects for large firms compared to SMEs. Statistical inference is anchored by the Grant×SME interaction coefficient which provides robust evidence that grant programmes systematically failed to benefit SME targets. This negative interaction reveals that while large firms showed a 4.8 percentage point estimate from business support grants, SMEs experienced near-zero net effects. Infrastructure effects similarly favored large firms in point estimates, although neither the main effect nor the Infrastructure×SME interaction have achieved statistical significance. The combined effect points towards substantial policy capture, with statistical support concentrated in the grant heterogeneity finding demonstrating systematic failure of SME-targeted programmes to deliver intended benefits. The core heterogeneity finding emerges from the combined specification controlling for firm fixed effects, year fixed effects, innovation investment, and firm size. The finding remains substantively consistent when examining alternative SME definitions, indicating that the policy capture pattern reflects systematic organisational advantages rather than specification-dependent artifacts. This research makes several key theoretical and empirical contributions. In particular, it demonstrates that grant programme design features may prove insufficient to overcome organisational advantages in programme navigation and benefit realisation that large firms possess through superior administrative capacity, established institutional relationships, and complementary digital capabilities. The findings extend resource-based theory by revealing that resource constraints, while binding, operate alongside capability gaps and access barriers that prevent effective policy benefit capture even when connectivity and financial support become available. Methodologically, the analysis advances natural experiment approaches by leveraging staggered policy rollout to identify causal effects while focusing on policy heterogeneity (which firms benefit) across size categories. The combined specification enables clean identification of differential benefit capture between large firms and SMEs during the COVID-19 period. Empirically, it provides evidence on heterogeneous infrastructure and grant policy effects in developed economy contexts, filling critical gaps in policy evaluation literature that typically examines average effects without systematic attention to distributional consequences across firm types. The policy implications prove substantial, while the findings reveal critical implementation gaps where explicit SME-targeting provisions failed to ensure intended beneficiaries captured proportionate policy benefits. This pattern suggests need for fundamental programme redesign addressing capability barriers, information asymmetries, and administrative requirements that systematically disadvantage smaller enterprises despite policy intent. Recommendations emphasize simplified application processes reducing administrative burden disproportionately constraining SMEs; proactive outreach and implementation support addressing information gaps about programme availability; complementary capability-building interventions enabling effective utilisation of infrastructure and financial resources; monitoring systems tracking benefit distribution across firm sizes ensuring equity objectives achievement. These insights extend beyond immediate UK contexts to inform infrastructure and business support policy debates internationally, particularly regarding optimal targeting mechanisms, capability requirements for effective benefit capture, and comprehensive programme design ensuring equitable distribution of public investment benefits across firm size categories facing systematically different barriers and capabilities.<p></p>

Author dc:creator

• Andrew Lee (21041636)

• Digitalisation
• Digitalisation Process
• Natural Language Processing
• Firm Value
• Information

Statement dc:rights

• All rights reserved
• Open Access after 2027-10-13

Identifier

10779/exe.32033460.v1

OAI identifier oai:identifier

oai:figshare.com:article/32033460