Department of Economics

Not So Footloose after All: Locational Behavior of Information Technology Establishments

Department of Economics

University of Delaware

Working Paper #2005-15

Not So Footloose after All: Locational Behavior of Information Technology Establishments

in the United States, 1989-1998

William R. Latham

ABSTRACT

                   Among the benefits that technology can provide is greater connectivity among economic agents.  Commerce now occurs across great geographic distances at nominal transaction costs.  Technology, therefore, seems to have the potential to unshackle economic agents from their suppliers and customers, enabling them to seek out alternative locations without being at a comparative disadvantage to other businesses.  This possibility has spawned the “death of distance” notion that distance no longer matters, that technology has made all locations equal.  Such thinking has been encouraged by phenomena such as the widespread “outsourcing” of many back-office and service functions by U.S. firms and/or the location of many of these functions inIndia and other foreign countries.

In this paper we address the following question, “Is there convincing evidence to support the thesis that, for firms in the information technology industry, distance is dead and they truly are footloose in choosing their locations?” Using a data set that only recently became available and which contains establishment births by county, this paper presents evidence that firms in the information technology industry respond positively to the economies found in metropolitan areas.  This implies that the characteristics of such areas relative to those of non-metropolitan areas (population size, educational attainment of the labor force, and various kinds of agglomeration economies) make them attractive locations for information technology establishments.  Therefore we find that, at least for the information technology industry, distance is not dead.

 

JEL CODES: R30, O33

KEY WORDS: industrial location, distance, footloose, information technology, establishments births, agglomeration economies

 

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