Geographic location and the diffusion of Internet technology

This study examines the sources of geographic variance in commercial Internet use. Until now, two opposing views have been argued on the relationship between Internet technology and economic agglomeration. One view, which we term global village theory, asserts that Internet technology helps lower communication costs and break down geographic boundaries between firms. The other view, labeled urban density theory, argues that the Internet follows a traditional pattern of diffusion - diffusing first through urban areas with complementary technical and knowledge resources that lower the costs of investing in new frontier technology. We provide a third view, industry composition theory, that asserts that demand for the Internet is increasing in location size because of the concentration of information-intensive firms in urban areas. We offer hard evidence on factors influencing the dispersion of Internet technology to businesses. We find no evidence for urban density theory in the diffusion of basic access and participation in the Internet network. We do find some evidence supporting global village theory for diffusion along this dimension. We also find that the pattern of adoption of frontier Internet technologies supports urban density theory not global village theory. Last, we show that business use of the Internet is significantly shaped by the prior geographic distribution of industry.