The New Economic Geography of IT Industries: The Impacts of the Internet on their Market Linkages and Agglomeration

We use the new economic geography perspective to explore the impacts of the Internet on the market linkages of two manufacturing and two service IT industries, and the consequential effects on their agglomeration. We study IT industry agglomeration at the county level across the entire United States during 1998-2004. The industries that we study are: computer manufacturing, semiconductors manufacturing, software publishing, and computer systems design and services. We develop a model of industrial agglomeration based on market potential for growth which incorporates Internet adoption. Using nonlinear regression for 3,142 counties, we find evidence that Internet adoption is a significant determinant of the market potential and agglomeration for all four IT industries. We report that the effect of the Internet appears to be less important for firms located in urban counties. In big cities, the overall concentration of IT manufacturing industries is declining, while that of IT service industries is increasing.