The agglomeration economies associated with information technology activities: an empirical study of the US economy

Abstract

This paper deals with the effects of the geographic concentration of economic activity on productivity through agglomeration economies. We split economic activity into information technology (IT)-related activity and all other activities. The main contribution of this paper is to measure and compare the agglomeration economies associated with the geographic concentration of these two types of economic activities. We set out three empirical models of productivity equations (concentration model, localization model, density model) and give estimates based on US data at the state and county levels for the year 1990. We show that the geographic concentration of IT employment has a greater positive effect on labor productivity than the geographic concentration of all other activities. This confirms stronger agglomeration economies in the geographic areas where IT activity is more concentrated. This analysis suggests that the so-called 'death of distance' argument is not relevant for IT activity. Copyright 2005, Oxford University Press.