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The "Information Highway" and the Location of Economic Activity

  • Thorsten Wichmann

    ()

    (Berlecon Research)

This paper studies possible consequences from building an "information highway" for the location of firms and households in the context of a two-region, three-good model of economic geography. The advancements in information and communication technology are identified with a decrease in transportation costs for intermediate services on the one hand and with a decrease in the costs of teleworking for households on the other hand. The stability of three situations is investigated: all production in the city; manufacturing in the city and services in the rural region; manufacturing in the rural region and services in the city (service city). While the first situation can constitute a stable equilibrium, the second cannot and the third is only feasible if additional locational externalities exist for services in the city. Even then the service city can become a "virtual city" if costs of teleworking decrease enough to encourage households to move to the rural region and telework.

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File URL: http://www.berlecon.de/tw/infohigh.pdf
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Paper provided by Berlecon Research in its series Berlecon Research Papers with number 0003.

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Date of creation: Nov 1996
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Handle: RePEc:ber:bertw1:0003
Contact details of provider: Web page: http://www.berlecon.de

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  1. Krugman, Paul & Venables, Anthony J, 1994. "Globalization and the Inequality of Nations," CEPR Discussion Papers 1015, C.E.P.R. Discussion Papers.
  2. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
  3. Jess Gaspar & Edward Glaeser, 1996. "Information Technology and the Future of Cities," NBER Working Papers 5562, National Bureau of Economic Research, Inc.
  4. Paul Krugman, 1990. "Increasing Returns and Economic Geography," NBER Working Papers 3275, National Bureau of Economic Research, Inc.
  5. Aghion, P. & Howitt, P., 1989. "A Model Of Growth Through Creative Destruction," UWO Department of Economics Working Papers 8904, University of Western Ontario, Department of Economics.
  6. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth Through Creative Destruction," Scholarly Articles 12490578, Harvard University Department of Economics.
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