From Cables to Commerce: How Fast Internet Reshaped Turkey’s Industrial Networks

A groundbreaking study by researchers from the International Finance Corporation and the World Bank Group, authored by Banu Demir (Oxford University, Bilkent University, CEPR), Beata Javorcik (Oxford University, EBRD, CEPR), and Piyush Panigrahi (International Finance Corporation), offers compelling evidence that digital infrastructure plays a vital role in reshaping economic networks. The paper examines how the rollout of high-speed fiber-optic internet across Turkey between 2012 and 2019 fundamentally altered the way firms source their inputs. Using an extensive database of firm-to-firm transactions, the researchers reveal that faster internet connectivity not only encouraged businesses to shift their sourcing to better-connected regions but also diversified their supplier base. These changes led to measurable economic benefits, including a 2.2% rise in real income in the median Turkish province.

A Digital Transformation Backed by Infrastructure and Policy

Turkey’s journey toward high-speed internet began with a regulatory pivot in 2011, when the country’s Information and Communication Technologies Authority (ICTA) allowed private internet providers to use existing BOTAS oil and gas pipelines to install fiber-optic cables. This decision sparked a massive infrastructure expansion. By 2019, the fiber-optic network had grown to nearly 390,000 kilometers, up from about 200,000 in 2012. Internet speeds increased dramatically, and adoption followed. By the end of the period, nearly 30 percent of Turkish firms had access to connections above 100 Mbps. The authors used this staggered rollout to create a quasi-experimental setting in which they could analyze the causal impact of improved connectivity on firm behavior. They constructed a dataset that linked over 27 million buyer-supplier transactions among nearly 1.5 million firms with data on fiber length, internet speed, firm characteristics, and geospatial data related to the fiber network’s expansion.

The Internet as a Driver of Supplier Diversification

The research found that better internet connectivity between regions caused firms to not only reallocate their input sourcing toward better-connected suppliers but also to increase the number of suppliers they worked with. Purchases were more evenly distributed among suppliers, reducing concentration and improving supply chain resilience. This shift was particularly notable in manufacturing firms, which rely on multiple inputs across various regions. Improved internet access made it easier and more cost-effective for these firms to search for, evaluate, and maintain relationships with distant suppliers. The key insight is that high-speed internet lowers the cost of both information acquisition and synchronous communication, such as video calls, real-time design collaboration, and electronic billing, all essential for modern business-to-business relationships.

Modeling Rational Inattention and Economic Welfare

To explain and quantify these behavioral shifts, the researchers developed a spatial equilibrium model incorporating the concept of rational inattention. In this framework, firms are assumed to face limits on how much attention they can allocate to exploring suppliers. When information is expensive or hard to obtain, as in regions with poor connectivity, firms are less likely to identify better or more cost-effective options. Improved internet access reduces these frictions, allowing firms to make better-informed decisions and engage more efficiently with suppliers. The model also integrates match-specific productivity and trade costs, and shows that enhanced connectivity benefits firms through two distinct channels: by lowering the cost of communication and by making it cheaper to explore alternative sourcing opportunities. Notably, the researchers found that both channels contributed almost equally to the observed welfare gains.

Quantifying the Gains of Going Digital

The economic impact of Turkey’s digital infrastructure investment was substantial. By simulating a counterfactual scenario in which all other economic conditions remained constant but the fiber network expanded as it did between 2012 and 2019, the researchers estimated a 2.2% increase in real income for the median province. Gains were distributed unequally, with smaller and more remote provinces benefiting more through reduced information frictions. When isolating the effects of each channel, the study found that reallocation of sourcing due to lower communication costs resulted in a median gain of 1%, while supplier diversification due to lower search costs led to a 1.03% gain. These findings held firm across multiple empirical specifications and robustness checks, including instrumental variable analysis using distances to the BOTAS network as an exogenous factor.

The implications are powerful and far-reaching. Unlike traditional infrastructure like roads or railways, digital infrastructure affects not just the movement of goods but the very architecture of economic interaction. Firms that are digitally connected can access more markets, build more resilient supplier networks, and adapt more quickly to disruptions. For policymakers in emerging economies, the message is clear: investing in high-speed internet is not merely a matter of convenience; it is an investment in economic growth, efficiency, and inclusion.

The report shows that fiber-optic cables are not just conduits for data; they are conduits for economic transformation. By lowering the costs of communication and information, they enable firms to navigate complex supply chains more effectively and unlock new sources of productivity. As the world increasingly moves toward digital-first economies, Turkey’s experience provides a compelling blueprint for how targeted infrastructure investments can reshape the economic landscape.