Can I Get Some Service Here? Information Technology, Service Industries, and the Future of Cities

Abstract

Service industries now dominate the economies of large cities. But recent advances in information technology have made electronic delivery of some services possible, reducing the importance for these industries of face-to-face interaction. The future location of service industries, and therefore the future of cities, depends on whether services are attracted to cities even if the cost of delivering service output declines. This paper finds that the need to be near suppliers and customers accounts for much of the relationship between business service employment and county density. Industry-level information technology usage is associated with a reduction in the tendency of services to locate near suppliers and customers, but an increase in the tendency to locate near types of workers that the industry demands. On balance, information technology usage is associated with faster service employment growth in cities, especially medium-size and large cities with population up to 2.5 million.

Keywords: agglomeration, economic geography, services, technology, internet, firm location, transport costs

JEL Classification: L8, O33, O18, R12, R30, L96