Transportation, Industrial Location and the New Economy: How will the knowledge economy affect industrial location and the demand for transportation?

There are important connections between transportation and industrial location. Falling transportation costs increase the feasible scale of production and promote trade, centralization. But as cheap transportation makes many physical inputs effectively ubiquitous, other factors, particularly the availability of specially skilled workers, proportionately more important. Increasing returns and the positive feedback associated with initial industry concentrations tend to lock industries into certain locations. These concentrations persist in the face of later technological change. In addition, there are major indirect or “second-order” effects of technological change—changes in behavior induced by changes in technology—such as changes in the number and organization of business, the number and kinds of products produced. These second order effects have major impacts on industry location and transportation. While E-commerce represents an important technology, it faces real limits. Transportation costs still limit what can be sold through the Internet, and while transactions are moved easily to the Internet, the complex and often ambiguous relationships between buyers and sellers still require face-to-face interaction. E-commerce may trigger important indirect effects, such as encouraging larger and more distant retail stores. New businesses associated with E-commerce have grown disproportionately in areas with strong existing industrial concentrations, evidence of the importance of increasing returns, and access to skilled workers.