The Effect of Technology Advances on Urban Structure and Economic Activity

Admin — Sat, 02 Jan 2010 17:36:18 +0000

Cities exist to make our communication and economic exchange easier. The dense concentration of people and firms within cities lowers the cost of trading, as the market is easily accessible to the firm and vice versa, firms have access to an extensive labour market and workers can find employment. People and firms locate in cities because it reduces their transport costs either to take goods to market or to travel in order to buy goods (Ioannides et al. 2007). Cities that have been easier to transport goods to have often been the most successful, for example, many of the major cities in Europe are ports. This concentration of factors necessary for trade can also be seen to occur within cities. The monocentric model shows that cities tend to radiate out from a central point dominated by commerce, this is because the centre of the city is where access to the market is easiest and transport costs are lowest. This can be shown using simple bid rent curves. We assume that firms will bid more to locate in or close to the CBD than households. This means that firms will occupy the centre while other uses such as housing are located further from the centre. The monocentric model assumes that if transport costs are lower then firms will locate further from the centre, therefore employment will not be as intensely concentrated in urban centres. There has been rapid technological development in Information and Communication Technology (ICT) over the last twenty years which has impacted on many areas of modern life (Castells, 2002). Comin and Hobijin (2004) illustrate this development using data on changes in personal computer and cell phone ownership, the EU went from less than 5 million PCs in the early 1980s to 100 million in the late 1990s and nearly no cell phones to more than 150 million. How has this technological development, dramatically reducing communication and transportation costs as well as leading to the development of new industries, affected employment location in cities? Taking the monocentric model’s assumptions to their logical conclusions it could be argued that computer technology spells the end of cities as the spatial scope of knowledge spillovers is expanded so that less one on one interaction is needed. Employment will be spread over a larger distance as firms locate more evenly in space to take advantage of lower rents and congestion costs (Ioannides et al. 2007) Ioannides et al. write that “Such changes could lead us to predict the death of distance. That is, to suggest that location will no longer matter and that economic activity will, in the near future, be evenly distributed across space” (2007, pp. 2). This argument was refuted by Gasper and Glaeser (1996) who argued that although technology will replace the need for some personal interactions, the main effect of ICT will be to increase the demand for personal as well as virtual interactions and that far from leading to dispersal the new technology industries were creating their own clusters in areas such as Silicon valley. Audirac (2005) identifies two main strands of thought on the effects of ICT on urban form: the urban deconcentration and regional restructuring research traditions. The urban deconcentration perspective argues that residential preferences for low density living, along with rising affluence and ICT advances, mean that cities will experience decentralization which disperses employment and population to the metropolitan edge as well as to places further down the urban hierarchy. This would be equivalent to a flattening of the bid rent curves for firms and households as the importance of transportation costs and direct communication is reduced. Alternatively, the regional restructuring perspective puts the emphasis on firms’ decisions rather than worker’ residential preferences, it emphasises the importance of businesses following outsourcing strategies. Firms selectively relocate employment to the urban periphery, cities further down the urban periphery or internationally. The increase in demand for interaction and faster mobility, new business practices such as Just In Time ordering and the casualization of work, through increasingly contract based and part time employment, enabled by the development of computer technology have led to increased traffic through commuting, travel and freight (Audirac, 2005). This has meant that many major cities have experienced traffic and congestion problems causing firms situated within the city to re-locate to urban peripheries in order to benefit from improved connectivity. So why do agglomerations of firms and employment occur on the periphery? Castells (2002) believes that firms locate in areas in which they have the best access to other businesses and cities in international networks, this means they have to locate near to motorways and airports which are often located in urban peripheries. It is also necessary for firms to attract highly educated employees, they do this by locating in attractive areas, often outside of cities, but close enough that their employees can access the benefits of the city or in gentrified suburbs. On the other hand, Storper (1997) believes that firms have “untraded interdependencies” such as tacit knowledge. This is particularly important in the computer technology industry and other young industries as firms get distinct benefits from working in an environment where they can share knowledge to solve problems. The emergence of new factors which mean that some firms are more attracted to peripheries of cities means that the appearance of the firms bid rent curve will change. Firms which have not been as affected by computer technology advances are likely to retain bid rent curves favouring centres but firms attracted to the periphery will have bid rent curves that have firms clustering at the centre as well as on the periphery. References and Suggested Readings Ioannides, Y. , Overman, H. , Esteban, R. and Schmidheiny, K. (May 30, 2007) The Effect of Information and Communication Technologies on Urban Structure, Preliminary version of a paper prepared for the 46th Panel Meeting of Economic Policy in Lisbon, October 2007 Castells, M. (2002) An Introduction to the Information Age in The Blackwell City Reader, ed. Bridge, G. and Watson, S. Blackwell, Oxford, pp. 125-134 Comin, D. and Hobijin, B. (2004) Cross Country Technological Adoption: Making the Theories Face the Facts. Journal of Monetary Economics, Gasper, J. and Glaeser, E. (1996) Information technology and the future of cities. Wroking paper 5562. Cambridge. MA: National Bureau of Economic Research Audirac, I. (2005) Information Technology and Urban Form: Challenges to Smart Growth. International Regional Science Review, 28, 2, pp. 119-145 Storper, M. (1997) The Regional World: Territorial Development in a World Economy. New York: Guilford

Communication Technology » Rapid Technological Development

The Effect of Technology Advances on Urban Structure and Economic Activity