Death of Distance and Agglomeration Forces of Firms

PN187MvGnew Abstract The present study addresses the relevance of geographic proximity for companies in our age of advanced ICT. Many visions of, and speculations on, an increased footlooseness of companies and a concomitant dispersal of urban economic activity have been published in recent years. To identify whether urban agglomeration economies (in particular, knowledge spillovers) are still a key force in preventing such dispersal, we investigate the degree of footlooseness of young, innovative companies. First, we briefly review the traditional theory of agglomeration economies, in particular knowledge spillovers. Next, we connect this theory with more recent resource-dependence views. We then present the results of an empirical analysis of young, innovative companies in various city regions in the Netherlands. The selected innovative sectors are medical biotechnology, ICT services, and mechatronics (optronics), and do not include consumer-oriented activities. The exploratory analysis based on interviews with 21 companies employs an artificial intelligence method, called ‘rough set analysis’, to increase our understanding of the crucial factors that influence the relevance of physical proximity. On the basis of these results, we argue that agglomeration economies still remain important for various categories of young, innovative firms, even those providing ICT services, but that we need to make a distinction between agglomeration economies that work exclusively in the largest city (i.e. Amsterdam) and agglomeration economies that cover a larger metropolitan area. The only fundamental change in proximity needs among these young, innovative companies originates from a small class of ‘network companies’, which are footloose even beyond the larger metropolitan area.