How easier long-distance communication erodes local knowledge spillovers
Cities are often thought to be innovating generating machines, partly because it is easier for innovators to learn from each other when they are in close physical proximity. Yet, measured in a variety of ways, the strength of these local knowledge spillovers appears to be waning: it’s no longer so important to be close to other knowledge workers to be a productive knowledge worker. One reason for this seems to be cheaper travel. Another seems to be the internet.
Forman and Zeebroeck (2012) and Forman and Zeebroeck (2019) both look at how internet access changes the collaboration patterns of firms with geographically dispersed establishments. To measure the impact of internet access, the papers have to reach back a long way, to the 1992-1998 era, when internet access was first beginning to roll across America. Their 2012 paper shows that after two establishments are connected to the internet, inventors in the connected establishments are more likely to be jointly listed on patents. In contrast, getting internet access doesn’t seem to have any impact on the number of solo-inventor or geographically clustered inventor team patents, which suggests the internet’s main advantage was in facilitating collaboration, not merely in increasing access to knowledge.
But it does that too. Studying the same era, Forman and Zeebroeck’s 2019 paper shows that when two establishments are connected to the internet, patents by inventors from one establishment are more likely to cite patents by inventors from the other.
What’s the upshot? Forman, Goldfarb, and Greenstein (2014) show the internet helps reduce the trend towards geographic concentration of innovative activity. They compare the growth of regional patenting over 2000-2005 to patent levels over 1990-1995. Overall, they see a significant increase in the concentration of inventive activity: the counties with the most patents over 1990-1995 also had the fastest growth of patents over 2000-2005. What is novel, however, is that they show this effect is reduced by greater internet access.
For example, consider two counties with low internet connectivity in the 1990s. Specifically, among all US counties, suppose they are at the 25th percentile for internet adoption. If one of these counties was also in the 90th percentile of 1990s patents, it experienced annual patent growth in the 2000s that was 5.4% faster than a comparable county in the 25th percentile for 1990s patents. An extra 5.4% per year compounds to a big difference!
Now consider two counties with high internet connectivity in the 1990s (the 90th percentile for internet adoption). If one of these counties was in the 90th percentile of 1990s patents, it experienced annual patent growth in the 2000s that was just 0.4% faster than a county in the 25th percentile. The innovation gap between counties grew much more quickly for counties without much internet access.
What’s more, the difference between high-internet adopting and low-internet adopting counties is largest when we restrict attention to patents featuring distant collaboration among inventors. Now; we know from elsewhere that collaboration is increasingly important for innovation. One interpretation of these results therefore is that people living in innovative counties in the 1990s didn’t really need the internet to find potential collaborators, so it’s presence or absence didn’t matter that much. But people living in less innovative regions benefited a lot from internet access, because it allowed them to find good collaborators and participate in the innovation economy.
This isn’t the first time we’ve seen something like the dynamics brought about by the internet. Hanlon et al. (2022) travel even further back in time to 1840 in Great Britain to study what happens to science and invention when the price of the mail drops. Prior to 1840, the cost of posting a letter in Great Britain varied substantially based on the distance the letter needed to travel, as can be seen in the figure below. But in 1840, a greatly simplified pricing system was introduced: posting a domestic letter, of any distance, cost 1 penny.
As with the preceding papers, Hanlon and coauthors want to know how this drop in the price of long-distance communication affected collaboration (in science this time) and invention. Though it may seem a bit niche to contemporary readers based outside the UK, as a natural experiment in the effects of communication, this setting has several virtues.
In this era, pretty much the only way to communicate with people at a distance was by personal travel or via the postal system (telegrams at this time were primarily used by the railroads, not the general public). So if long-distance communication is important, this price change should matter.
Because prices prior to reform were based on distance, we actually have a lot of variation to work with. Distant towns experienced a big price cut in the costs of communication and nearby towns experienced only a small price cut. We can look to see if the effects of the reform varied across those contexts.
The price changes were substantial enough, by the standards of the day, to matter. The price of mailing a one-page letter from London to Edinbourgh fell from 10-20% of a professor’s daily salary to 0.5-1%! Also suggesting the price cuts were material, there was a very large increase in mail posted following the reforms.
To track the impacts, Hanlon and coauthors do two analyses.
The first is based on the citations made by articles published in the premier scientific journal of the day, the Philosophical Transactions of the Royal Society of London. For the ten years before and after the postal pricing reform, they locate where the scientists publishing in the Royal Transactions live and where the scientists they cite live. This gives them 1,251 citations between scientists in different parts of Great Britain. Analogously to Forman and Zeebroek (2019), they show the postal price cut increased citations between towns, and that this effect was larger for towns where correspondence was previously more expensive. Specifically, the price cuts reduced the “distance” penalty, wherein towns that are farther apart cite each other less, by 70%.
Hanlon and coauthor’s second analysis tries to assess the impact of the reform on new patents. For this, they have to take a different approach, because even if a patent is drawing on distant knowledge (obtained through mail correspondence), this isn’t really visible in the patent document. Patent citations in this era was not a big thing, nor was collaboration at a distance.
After locating where each inventor resides, Hanlon and coauthors try to estimate, for every town, how much did the postal reform affect that specific town’s access to ideas from the rest of Great Britain. By this measure, a town that is very remote from all others would experience a big increase in its access to distant ideas, since prior to the pricing reform it would have been quite expensive to correspond with most of the people in Great Britain. In contrast, a town that lies within a geographical cluster of several large population centers may have experienced a much smaller increase in its access to distant ideas. There are some other complicating details, but again they find the same flavor of result as earlier papers: patents increased by a larger amount in more remote towns, following the introduction of uniform postal pricing.
So in two quite different settings we observe the same general phenomenon: when communication at a distance becomes easier, access to distant ideas is improved and this has a disproportionate benefit to places that are otherwise far from where the inventive action is.
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Forman, Chris, Nicolas van Zeebroek. 2012. From Wires to Partners: How the Internet Has Fostered R&D Collaborations Within Firms. Management Science 58(8): iv-1592. https://doi.org/10.1287/mnsc.1110.1505
Forman, Chris, Nicolas van Zeebroek. 2019. Digital technology adoption and knowledge flows within firms: Can the Internet overcome geographic and technological distance? Research Policy 48(8): 103697. https://doi.org/10.1016/j.respol.2018.10.021
Forman, Chris, Avi Goldfarb, and Shane Greenstein. 2014. Information Technology and the Distribution of Inventive Activity. NBER Working Paper 20036. https://doi.org/10.3386/w20036
Hanlon, W. Walker, Stephan Heblich, Ferdinando Monte, and Martin B. Schmitz. A Penny for your Thoughts. NBER Working Paper 30076. https://doi.org/10.3386/w30076