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Edward E. Leamer, Michael Storper
NBER Working Paper No. 8450
Issued in July 2001
NBER Program(s): ITI
PR
---- Abstract -----
This paper combines the perspective of an international economist with that of an economic geographer to reflect on how and to what extent the Internet will affect the location of economic activity. Even after the very substantial transportation and communication improvements during the 20th Century, most exchanges of physical goods continue to take place within geographically-limited 'neighborhoods.' Previous rounds of infrastructure improvement always have had a double effect, permitting dispersion of certain routine activities but also increasing the complexity and time-dependence of productive activity, and thus making agglomeration more important. We argue that the Internet will produce more of the same forces for deagglomeration, but offsetting and possibly stronger tendencies toward agglomeration. Increasingly the economy is dependent on the transmission of complex uncodifiable messages, which require understanding and trust that historically have come from .face-to-face contact. This is not likely to be affected by the Internet, which allows long distance 'conversations' but not 'handshakes.'
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