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Abstract
How does the economy adapt to new technologies? While existing literature focuses on the response by established firms, we highlight the response by entrepreneurs and young firms. The context is a natural experiment: the staggered rollout of broadband internet in Norway. We find that the new technology had small effects on the survival, employment and asset growth of established firms, but led to a sustained 25% increase in startup rates. Startup quality did not decline. Our findings support ideas from Schumpeter (1934) and Arrow (1962) that startups play an important role in adapting the economy to new technologies.