U.S. firms that use cloud-computing services are more likely to export their products and services, according to a new study by researchers at Penn State and the U.S. National Science Foundation (NSF). The team said the findings were stronger for firms located outside of large cities and demonstrate the need for expanded availability of the high-speed internet required for cloud computing to support economic development.

The study, which also found that cloud-using firms exported goods and services even more than exporting firms that do not use cloud-based services, is available online now and will be published in the September issue of Telecommunications Policy.

Cloud-based services provide access to computing resources through online platforms such as web browsers or smartphone apps, allowing businesses to store data, access software applications and more. As a result, businesses can often replace in-house information technology infrastructure with solutions that are generally more scalable, flexible and cost-effective.

"Cloud computing is driving a digital transformation across industries, but little is known about how it affects the performance of the firms that use it, especially in terms of their ability to compete in the global marketplace," said Luyi Han, a postdoctoral researcher at the Northeast Regional Center for Rural Development (NERCRD), which is based in Penn State's College of Agricultural Sciences.

"This study is the first to examine this question using U.S. firm-level data and it finds a significant relationship between adoption of cloud services and export performance."

To conduct their analysis, Han and his colleagues used two data sets through the Penn State Census Research Data Center. The first, the 2018 Annual Business Survey, administered jointly by the National Center for Science and Engineering Statistics and the U.S. Census Bureau, collected detailed firm-level information on several firm characteristics, including the types of cloud-computing services the firm subscribes to, if any.

The second, the Longitudinal Firm Trade Transactions Database contained import–export transaction records that can be linked to individual firms by unique firm identifiers. The researchers merged the two, focusing on trade data from 2017–20 and identifying roughly 30,000 U.S. exporting firms—which, in this study, refers to businesses with employees—and conducted statistical analyses to reveal how these firms differed from the 430,000 non-exporting firms in the dataset.

Specifically, they examined the relationship between a firm's use of cloud-computing services—including billing and accounting, security and firewall, servers, data storage or analysis, collaboration and file synchronization and customer relationship management—and the extent to which it sells goods or services internationally.

The researchers found that firms with any type of cloud-computing subscriptions are more likely to engage in exports than firms that do not use the cloud, and this relationship is more pronounced in firms located outside of large metropolitan areas.

"The data allowed us to examine small and medium-sized firms and those located outside of large metropolitan areas in our analysis, which may be disadvantaged in terms of their international competitiveness," said co-author Timothy Wojan, an Oak Ridge Institute for Science and Education Established Scientist Fellow at the NSF's National Center for Science and Engineering Statistics (NCSES). "Their size and location often limit these firms' access to resources that larger, urban firms enjoy and that can facilitate international transactions."

The findings suggest that accessing cloud services may play a role in leveling the playing field for non-urban firms and may help promote their expansion into international markets, according to Wojan.

"For example, the cloud can provide access to the advanced technologies required for complex international transactions in an on-demand, scalable manner, which otherwise may not be available to rural and small-town businesses," Wojan said.

The findings have implications for the U.S. manufacturing sector at large, according to co-author Stephan Goetz, professor of agricultural and regional economics at Penn State and director of the NERCRD.

"U.S. manufacturing is increasingly concentrating in rural areas, and this corresponds with a decline of manufacturing in urban areas," Goetz said. "Our findings suggest that to remain competitive in the international market amid this changing context, U.S. manufacturing could potentially benefit from more widespread use of cloud-computing services, especially in rural and other non-urban areas."

The U.S. currently imports more than it exports, resulting in what is known as an international trade deficit. According to the researchers, concerns about the U.S. trade deficit have prompted some policymakers to explore ways to boost exports of goods and services. For example, in Pennsylvania, the annual "Bringing the World to Pennsylvania" campaign is aimed at connecting Pennsylvania companies with international trade representatives to explore exporting opportunities.

Goetz emphasized that the study examined the association between cloud computing and exporting and did not establish causality. However, as the U.S. government continues to make large federal investments aimed at bridging the digital divide, it will be possible to conduct longitudinal studies in the future that can more effectively establish whether there is a causal link between cloud computing and exports, Goetz said.

More information: Luyi Han et al, Cloud computing and rural globalization: Evidence for the U.S. nonfarm economy, Telecommunications Policy (2024). DOI: 10.1016/j.telpol.2024.102814