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What has the so-called death of distance meant for the economic prospects of cities and nations?

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PhD Student
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modern history
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LSE

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  1. Introduction
  2. Review
  3. Conclusion

In the 19th and 20th centuries, cities were able to attract people and develop primarily because of the lower cost of transportation for goods, people and knowledge that they provided. Distance is costly; search costs for the market and for suppliers, management costs, shipping costs, and communication costs are all required. However, geographical clusters such as cities offer considerable advantages - convenience, spillovers, specialization - allowing better connecting the factors of production with the marketplace. Despite this, at the start of the communications revolution in the 1990s, many economists predicted that as the cost of transportation began to fall globally due to the development of information and communication technologies (?ICT?), distance would become negligible and cities would lose their comparative advantage relative to more isolated work locations. This is the theory known as the ?Death of Distance'. Empirical evidence has challenged this belief; even though ICT did reduce the cost of distance for some activities, it has not abolished the importance of geographic proximity in making certain business decisions. Most economic activities still rely on the transmission of innovation, a complex form of knowledge that requires geographic proximity. On the contrary, instead of destroying the city, the emergence of ICT has had the effect of increasing its prominence as an engine of economic growth while decreasing the sovereignty of nations.

[...] Audretsch (1998), "Agglomeration and the Location of Innovative Activity", Oxford Review of Economic Policy, (1998), 2, 18-29 E. Glaeser (1998), "Are Cities Dying?", Journal of Economic Perspectives, 12(2), 139-160 A. Venables, "Geography and International Inequalities: the Impact of New Technologies", Journal of Industry, Competition and Trade (2001), 135-160 ----------------------- [1] E. Glaeser (1998), "Are Cities Dying?", Journal of Economic Perspectives, 12(2), 139-160 [2] A. Venables, "Geography and International Inequalities: the Impact of New Technologies", Journal of Industry, Competition and Trade (2001), 135- 160 [3] F. [...]


[...] The so-called ?Death of Distance' has and will continue to have mixed effects on cities and nations. Even though cities have lost their former comparative advantage of reduced transportation costs, this doesn't necessarily mean that they will decline. On the contrary, cities are likely to see their power extend because they are more than ever able to attract innovation, an increasingly key factor for economic growth. Cities are able to attract innovation because the creation of new ideas increasingly relies on tacit and uncertain information that isn't easily transferable. [...]

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