GaWC Research Bulletin 67

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ICT Infrastructure and Externalities Affecting Spatial Structures

C. Heinrich*


Information and communication technologies (for short: ICT) are said to profoundly influence economy and society. These techniques maintain transport and usage of information (Stickel / Groffmann / Rau (eds.) 1997, p. 351) therefore constituting the infrastructure of the knowledge-based economy (Foray / Lundvall 1996, p. 13f.; Nefiodow 1991). This current phase is manifested by an increasing importance of human capital in value adding expressed by a steadily growing share of qualified work of total employment (Motohashi 1997, p. 33ff.). The economic ICT impacts are discussed to extend the general dimensions of technological progress, consisting in skill-biases and growing capital intensity of production (Fitzenberger 1997, p. 643). Characteristics of an information-based economy are the enforced codification of knowledge (Foray / Lundvall 1996, p. 22; Lundvall 1998, p. 33) overcoming experience knowledge by formal routines (Baukrowitz / Boes 1996, p. 134). Information flows seem to rather dominate production processes instead of just documenting them (op. cit., p. 137), and the contents of professions and jobs have to be revisited due to systemic rationalisation (op. cit., p. 145-156).

In addition to qualification shifts in value adding, ICT might foster flexible and virtual business transactions and labour contracts (e.g. Bleicher 1996; Bühl 1997; Frigo-Mosca / Brütsch / Tetamenti 1996; Picot / Reichwald 1994; Reiss 1999; Sauer / Döhl 1997) causing deep structural changes in the economic space. Based on interdepences between transport systems, transport costs and land use (e.g., Maier / Tödtling 1992, p. 68f., 133ff.) it is sometimes argued, distances and transport and communication costs could be neglected concerning location decisions and organisation of production (critique by Glaeser 1998, p. 139). Competitive advantages of locations, and therefore also differences between core and periphery (Krugman 1991, p. 97; Venables 1997, p. 34) would necessarily collapse, allowing globalised production and consumption (Papaconstantinou 1995, p. 101; Straubhaar / Wolter 1997, p. 101). The virtual enterprise would be the ideal type of firms operating in nowadays irrelevant space.

A totally different point of view on ICT and their impacts on spatial structures is provided, if on the one hand information (that means: codified knowledge) and tacit knowledge are distinguished, and on the other hand unplanned or unintended interactions in information exchange are concerned. Contact forms differ in purposes, requirements of physical presence, frequency and degrees of formalisation (Cappellin 1989, p. 645 [270]). Physical proximity in urban regions provides the suitable platform for more subtle and unintended communication contacts encouraging a remarkable flow of ideas. Physical proximity and the costs of transporting persons do matter, therefore traditional economies of agglomeration hinder the obsolence of space and special structures (Glaeser 1998, p. 146ff.).

To have a look from another point of view: virtualisation and ubiquity of information might create overflow demanding structures themselves. Precisely the large volume of available information necessitates mechanisms and competences of filtering and organisation, mainly based on tacit knowledge (Lundvall 1998, p. 43) and networking (Capello 2000, p. 1825). Obviously borderless market areas may not only be regarded as created by lowered transport and communication costs diminishing distances and widening areas of potential activity (Heinrich 2001b, p. 43ff.). Indeed, the global mobility and ubiquity of commodities and production factors itself might stimulate the organisation of global commodity, information and factor flows at specific localities in space, in so-called 'world cities' (Douglass 2000, p. 2315). Although the emergence of globally important metropolitan centres can be interpreted as the result of ICT based restructuring and globalisation of economy, these nodes in global networks are not only in need of ICT facilities. Additionally transport systems, but also conference and meeting facilities enable face-to-face contacts and therefore support information exchange and decision-making (Douglass 2000, p. 2324f.; Shin / Timberlake 2000, p. 2261). Nevertheless, decentralising forces of ICT may appear in an increased suburbanisation of existing cities, tending to urban growth across space and evolution of specialised subcentres adding to the Central Business District (Anas / Arnott / Smith 1998, p. 1426f., 1444ff.).

However the intensity, self-determination, and accuracy of ICT impacts on the organisation of value adding and the spatial structure are appreciated, these techniques are to be regarded as a basic infrastructure of contemporary economy. Infrastructure networks themselves are often focused by economic science and politics, because they possess characteristics of public goods: nonrivalry in use until the system is overcrowded (see Capello 1995, p. 210; Kaul / Grunberg / Stern 1999, p. 5). Even separated network need not be competitors since their integration may foster their both efficiency (Nijkamp / Perrels / Schippers 1995, p. 2321). The provision of effective ICT networks might therefore be an important public purpose, and it is indeed an objective of European Unions regional policy (Dijkstra 2001).

In addition to efficiency-related aspects the supply of infrastructure networks is frequently discussed in reference to economic distribution and development. In comparison to improved transport and transaction systems as causes of industrialisation and economic growth in the 18-19th century (Andersson 1995, p. 313; List 1837), ICT networks are discussed as the basic technical infrastructure leading to the current rise of service economy (Barras 1985, p. 15 [83]; Reske 1990, p. 37; Sauvant 1993, p. 313). Services become tradable goods (Aharoni 1993, p. 205; Rubalcaba-Bermejo 1999, p. 119ff.; Sauvant 1993, p. 300f.), and their traditional resistance against technological progress and productivity growth (Görgens 1975, p. 67; Häußermann / Siebel 1995, p. 16) gets totally obsolete (Görgens 1975, p. 68f.; Rubalcaba-Bermejo 1999, p. 119ff.).

Fundamental technological progress as it coincides with ICT encourages profound shifts in economic structure and in society not in all cases controllable be the touched individual. The frameworks of individuals' strategies and decisions accelerate, these tendencies might be interpreted as external effects and underlie the interest of policy. These aspects of exogenous determination are especially focused on in studies of teleworking and ICT effects on labour contracts (e.g., Caspar / Heinrich / Köck / Krömelbein / Schmid 2000; Geideck / Hammel 1997; Krömmelbein 2000; Rösner 1997, p. 77f.).

The diffusion of ICT might not only affect individualistic opportunities, strategies and behaviours, but the overall impacts of ICT can be influenced by external effects, namely: indirect results due to an unequal distribution of market powers, interactive behaviour (for instance in decisions for agglomerated locations), but also traditionally discussed externalities in use of the public good ICT network. In addition, the question of ICT and transport networks as substitutes or rather complements (Douglass 2000, p. 2324f.; Glaeser 1998, p. 139f., 149; Reske 1990, p. 39; Shin / Timberlake 2000, p. 2261), relevant to economies of agglomeration, will also concern the demand for transport infrastructure, their costs of supply, and last but not least traffic impacts on the natural environment.

Although externalities and therefore questions of efficiency might be risen due to ICT diffusion, the effects of these techniques on production systems and spatial structure have been merely discussed in a generalised perspective, without systematic distinction between individualistic calculations on the one hand and external effects on the other side. But attention on externalities is to be drawn to beware of potential regulation needs due to total efficiency. Focusing on ICT impacts of spatial structures especially, it is intended here to identify external effects. Taking empirical data on the Rhine-Main-Region as an example it shall be analysed if symptoms of interactive, externality-related location decisions can be detected. Potentially external effects of ICT on societal frameworks, costs of transport infrastructure or environmental pollution shortly mentioned here cannot be analysed further.


External effects referring to ICT might be discussed in terms of nonrivalrous consumption: Apart from quality and relative prices of varying communication systems, a potential consumer profits of a high number of other participants using the same system. This kind of network externalities is usually discussed as a market failure relevant to regulation, because the emergence of monopolising a system of comparatively low qualities and high prices is probable. Competing communication systems might be confronted with high market entry barriers consisting mainly of their relatively small custom - competitiveness is therefore self-enforcing and cannot easily be tackled by market mechanism. The spatial boundaries of such network externalities to be discussed in this paper are difficult to predict, however. You can assume customers choose one concrete communication system regarding to the decisions of their already known communication partners in geographical proximity. However, pronouncing this reference, complementarity between different modes and media of communication is already presumed. Network externalities in ICT networks would allow for a spatially clustered demand for specific communication systems.

But spatial complementarity of ICT networks and other communication media (e.g., face-to-face contacts, telephone calls, conventional mail) is to be questioned since ICT especially are discussed to promote globalisation of production and markets (e.g., Baldwin / Martin 1999, p. 4; Hatzichronoglou 1996, p. 7; Papaconstantinou 1995, p. 181; Sell 1999, p. 71f.). Decentralising forces of ICT are also discussed in reference to the role of agglomerations and cities in modern economy, and the potential decentralising growth of agglomerations into the surrounding areas (Anas / Arnott / Small 1998; Glaeser 1998). The total decentralisation, virtualisation and deterritorialisation is argued against by traditional economies of agglomeration (Glaeser 1998; Quigley 1998), but also by advantageous embedding into local or regional networks (Humbert 1998, p. 104; Malecki / Tödtling 1995, p. 288f.; Mela 1995, p. 83f.; Storper 1997, p. 20; Swyngedouw 1997, p. 152). The latters might be enforced by ICT too, if electronic communication supports or adds to face-to-face contacts.

The discussion of decentralising and centralising forces of ICT usually does not systematically distinguish between individualistic, independent calculations and interdependent actions resulting in spatial surfaces. ICT impacts restructuring space without externalities can be described by location theories presuming firms' decisions in perfectly competitive markets whereas the existence of transport and communication costs is regarded as the only market failure. Based on Thünen and Alfonso-like models it can be argued ICT would lower the communication costs and reduce therefore the effective economic distances. In result, households and firms are allowed to settle in greater distances from each other, and agglomerations and urban regions would cover a larger area. Externalities are introduced only if interactions between an altered intensity of using communication and transport networks and other systems appear that are not fully internalised by the price mechanism. These impacts might for example relate to ecological effects.

To detect potential externalities in ICT impacts on spatial structures this field of individualistic calculations has to be left. Subject to newly given ICT, individual decisions for locations might be interdependent, affecting a variation of circumstances and actions of other economic actor not foreseen by the first actor to take advantage of ICT. ICT based decentralisation, but also spatial concentration discussed above, which are itself characterised by externalities in term of agglomeration economies or regional networking, might be the result of external effects. In comparison to individualistic calculations in the Thünen-Alonso world, should be investigated for interdepences creating self-enforcing processes.

Territorial Boundaries of Networks

Contemporary economy is discussed to rely on ICT Networks, globalisation of value adding and multilocal embedding into regional systems. ICT based production systems tend to evolve flexible, cooperative organisations (e.g., Hatzichronoglou 1996, p. 13; Oman 1998, p. 226ff.; Picot / Reichwald 1994; Porter / Fuller 1989; Porter 1992, p. 416ff.; Sauer / Döhl 1997; Storper 1997, p. 25, 30; Swyngedouw 1997, p. 152). On the one hand regional networks counteract a total deterritorialisation and virtualisation of the economy (Storper 1997, p. 25, 30; Swyngedouw 1997, p. 152), on the other hand global production networks are described (Henzler 1992, p. 85; Krugman 1995, p. 333; Sauvant 1993, p. 302). However, networks are constituted by interdependent relations, pronounced as external effects in economic terms. Therefore the mechanism of networking, its relation to ICT based communication and the effects on spatial structure are to be drawn in the next paragraphs.

Networks are an alternative coordination modus if a functioning market and price mechanism is not provided. Transaction costs exist (Cezanne / Mayer 1998, p. 1347ff.; Coase 1937, p. 390ff. [40ff.]) and encourage a formal integration of value adding phases into a common firm or at least into an organised market, an industrial complex (Gordon / McCann 2000, p. 518). On the other hand, due to ICT sharply reducing marginal transaction costs, economic actors may also be confronted by an overflow of information (Lundvall 1998, p. 43) demanding for selection, organisation and coordination of markets with a similar result.

Networks in the sense of well-known innovative milieus or regional innovation systems add the restriction of complexity by synergies resulting from interdependent relations. These interactions can be described in the sense of positive external effects, that means the advantages of one transaction are not fully internalised by the negotiated market price. Network coordination is based on moral norms (Yaffey 1998), sophisticated systems of reputation, incentives and motivation ensuring common quality standards (Aharoni 1993, p. 220ff.). The network as a whole structure is attractive for outsiders, because innovativeness, decreased transaction and production costs, and high quality standards can be the basis for competitiveness. The advantages of being a network insider are to 'soft', to difficult to address to concrete actors and actions, and therefore a total consideration in market transactions will not be possible. However, existing networks seem to develop functioning mechanisms of interdependently balancing these positive external effects within their structures.

Nevertheless, successful networks cannot be reproduced easily. Within the same industry in regions of geographical proximity, in one case worthy networking might take place whereas the other site fails (Schwarz 1999). Even if networking took place, the advantage might be counteracted by lock-ins destroying innovativeness and competitiveness (Malecki / Tödtling 1995, p. 288). The fragility of the described innovative networks can be interpreted as a symptom of positive external effects sometimes internalised in multilateral cooperations, whereas at a rule an undersupply of innovativeness can be estimated.

In general, networking can take place in local, regional or even transnational boundaries (Camagni 1994, p. 76; Humbert 1998, p. 96; Lundvall 1998, p. 49; Malecki / Tödtling 2995, p. 288; Mela 1995, p. 84). Often networks emerge in regional contexts, because not all interactions can be performed based on ICT communications without losses in quality at least (Brake 1996, p. 112; Douglass 2000, p. 2324ff.; Glaeser 1998, p. 149). In addition, a common socialisation to develop the shared norms and rules is necessary (Porter 1990, p. 153; Yaffey 1998). Although ICT networks support and enlighten interactions across great distances (Illeris 1989, p. 271 [144]), physical proximity seems to act as a catalyst in networking processes.

Referring to ICT impacts on external effects restructuring unique causalities and general territorial affectedness could not be detected. However, a few theses worth further investigation are to be summarized:

  • Decreasing communication costs due to ICT may increase the complexity of actors' environments, founding structures to organise transactions. This need results in structured space and a highly differentiated division of labour between regions.
  • Networking as a strategy against information overflows internalises positive external effects. Since networks are fragile and difficult to copy there might emerge a deficit of networking regarding efficiency of the whole economy.
  • However, to support networking means reducing competition. Achieving a suitable balance is a question not easily to handle.
  • Externalities in networks are to sophisticated to be influenced by ICT based communication. If electronic communication in a network takes place, it will rather encourage or add to interactions, and regional boundaries would remain.
  • However, since the access to functioning regional networks is profitable, ICT might be used to enable the contact to the regional network, and to substitute or reorganise interactions of less importance.

Economies of Agglomeration and ICT

Although regional networks are often subsumed within economies of agglomeration, not all described agglomeration and urbanisation economies can be explained by externalities due to networking (Gordon / McCann 2000; p. 516ff., 522f.). Traditional economies of agglomeration consist of pooled or thick markets in addition, or the efficient provision of regional public goods due to a great amount of potential consumers. In comparison to networks creating 'economies of interaction', agglomeration economies of the more general type could be described as 'economies of neighbourhood' without need for interaction between the actors settled at one location.

General economies of agglomeration are described as effective forces structuring space. They consist mainly of a common labour market (Glaeser 1998, p. 148; Krugman 1991, p. 36f.; Malecki / Tödtling 1995, p. 281; Marshall 1920, p. 271ff.) and a high density of demand and supply (Robinson 1934, p. 246 [24]). These pooled markets supply a kind of insurance effect in case of failed transactions (Glaeser 1998, p. 146). A high density and a therefore greater effective market size delivers the necessary critical mass (Capello 2000, p. 1926) to develop an intensive division of labour allowing for a higher productivity (Glaeser 1998, p. 145). Economies of urbanisation arise from pooled activities of a great diversity, increasing the utility level of consumers and encouraging innovation by providing a wide range of possible input good combinations (Quigley 19998, p. 130ff.). Proximity of firms within an agglomeration provides information on effectiveness of innovations (Karlsson 1995, p. 190) in addition. In effect, the existence of transaction costs to be interpreted as a market failure is balanced in agglomeration by positive external effects of neighbourhood.

If agglomerations provide positive external effects, firms' choices of location can be characterised as interdependently. Each actor profits of an equivalent decision of other firms and households in the neighbourhood. Economies of agglomeration are discussed as a main barrier of total economic deterritorialisation, they seem to be quite resistant towards the usage of ICT. Besides the discussion of complementarity or substitutability of ICT communication and face-to-face contacts relevant to networks too (Glaeser 1998, p. 149), economies of agglomeration are resistant due to their lack of specification, their potentiality in character and the difficulties of their identifiability. Externalities of this sort are less feasible to dissolve by ICT then external effects within networks.

Externalities Self-enforcing Restructuring of Space

The mainstream of discussion summarized above describes ICT as diminishing distances and causing decentralisation, whereas positive external effects in agglomerations or regional networks more or less reliably counteract the total virtualisation of the economy. Externalities as described in this sense are atypical because they balance different market failures and create an equity of spatial structure. Regulation as the purpose of investigating externalities in welfare economies would match the needs of the situation. However, networks and agglomeration economies as well describe choices for location as interdependent decisions, and the question arises if externalities might re-enforce developments initiated by ICT usage in a direction less profitable for the whole economy. To tackle this question in detail it shell be discussed in the next paragraphs how decisions for location might indirectly affect other economic actors.

Practical examples of such side effects can be given for illustration: If production processes can be decentralised by teleworking encouraging households to settle in more peripheral locations, consumer oriented services might replicate this decision to hold the necessarily closed contact to their costumers (Häußermann / Siebel 1995, p. 96). Producer oriented services can be observed as followers of their demand too: Globalisation of service firms is due to a foregoing internationalisation of their main customers (Aharoni 1993, p. 217ff.; Dunning 1993, p. 43; Rubalcaba-Bermejo 1999, p. 427). Even the radii of market areas of service supplier and customer correlate (Daniels / van Dinteren / Monnoyer 1992, p. 1745 [333f.]). So-called 'soft' location factors also implicitly refer to interdependent decisions for locations if a satisfying portion of publicly and privately offered goods and services is mentioned (e.g., Dézert 1996a, p. 13; Dézert 1996b, p. 103; Warnecke 1987, p. 173).

Interdependent location decisions reinforcing spatial decentralisation or in contrast agglomeration and polarization will certainly be influenced by a variety of interaction modes in production and transactions. To source their input goods, to transfer intermediate good within the value adding chain, and to serve their demand firms will be confronted by differing interaction types concerning the frequency, strategic importance, relative costs and cost sharings, and the media: e.g., face-to-face contact, technically supported communication, physical transport of goods and persons (Aharoni 1993, p. 231f.; Beaudry / Breschi 2000, p. 2; Brake 1996, p. 112; Bryson 1997, p. 99f. [382f.]; Capellin 1989, p. 645f. [270f.]; Kerst 1996, p. 144; O'Farrel / Moffat 1991, p. 207ff. [282ff.]).

If decisions for locations are interdependent, and external effects appear, their internalisation is to questioned in order to discover potential demand for regulation. Since a large part of such interdependences is rather hidden, only a few hints can be drawn on these subjects. If spatial decentralisation is necessary to follow the costumer, supplier or cooperation partner, obviously specific costs emerge. Usually these costs will not be covered by the individual actor initiating the chain of moves, because business contacts are seldom bilateral and causalities are difficult to identify, therefore. As a result the potential decentralisation costs due to a changing environment will be regarded as belonging to the entrepreneurs general risks. They reduce profits, and according to tax laws the taxation will be reduced to a certain degree. This last resort means the public sector might bear a portion of the mentioned relocation costs. Since in a dynamic environment exists a natural degree of firm fluctuation, these decentralisation costs might be covered by costs of market entry and exit costs. If decentralisation follows another actors decision to globalise or just to choose a more profitable location, potential growth and/or production cost reduction evolve for all interacting partners, and initial costs of decentralisation get balanced.

In comparison to these considerations it is less clear if interdependent location decisions create non-internalised external effects debiting the public. This question concerns for instance the need for transport system capacities, which may be indirectly affected by ICT induced but interdependently performed spatial decentralisation. Infrastructures have to be adapted to the changed situation creating costs borne frequently by the public sector. Besides physical infrastructures the natural environment may be touched by an altered employment of transport systems. In addition, developments like an increased (decreased) land use due to spatial decentralisation (centralisation) are to be taken into account. On the other hand, the growth of agglomerations possibly enforced by interdependent relocations is discussed as promoting noise and other pollutions (Quigley 1998, p. 134). Small and medium-sized cities and urban regions seem to balance mobility, environmental pollution and positive effects of social capital creation effectively (Capello 2000, p. 1926). If ICT usage founds external effects on indirectly tangled actors and determines the spatial structures towards disadvantageous solutions at last, it has to be asked for internalisation regulations to provide a spatial structure efficient in means of the whole economic, social and ecological system (Anas / Arnott / Small 1998, p. 1456f.).


In the foregoing sections ICT impacts on spatial structures have been discussed especially considering the emergence of external effects. To provide at least first insights into the relevance of questions risen here, the correlation of ICT usage and spatial decentralisation of firm departments shall be empirically analysed. Taking Rhine-Main region as an example provides a site of special interest to questions of decentralisation and polarisation, because Rhine-Main as an urban agglomeration specialised in financial services, trade and producer oriented services is considerably influenced by communication costs touched by ICT. To which extent and in which directions ICT networks influence the decentralisation and regionalisation behaviour of firms is already discussed in a few related studies (Caspar / Heinrich / Köck / Krömmelbein / Schmid 2000; Heinrich 2000; Heinrich 2001a; Krömmelbein 2000). However, in these studies the individualistic calculation of firms and households confronted by a communication media is stressed, and less attention was paid on externalities. Therefore the data shall be revisited focusing on the items discussed here in hope for additional explanation of the empirical facts.

Nevertheless, investigation of externalities contributing to spatial structures will remain at a rather rudimentary and estimating level. In general calculating external effects is a complex device, because externalities have no reliable market price by definition. Referring to the data used here, the evaluation did not explicitly care for interdependent location decisions. Nevertheless, a few cautious interpretations shall be dared investigation correlations between ICT usage and decentralisation decisions.

Data was evaluated in purpose of a research project on 'Globalisation and Regional Labour Markets' at J.W. Goethe University Frankfurt/M. in 1998. The questionnaire focused on firm plants' usage of ICT networks of varying territorial coverage, on outsourcing and spatial decentralisation of firm departments within and outside the Rhine-Main region, and on employment development during the recent years. Questionnaires were sent and had to be filled for single firm plants located at the Rhine-Main region only, whereas the investigated region was defined according to literature (Bade 1994, p. 149). The interviewed sample consisted of 15.000 firm plants representative to the regions profile of industries and plant sizes. Out of this sample a return of 1.855 answered questionnaires could be gained. To achieve a representative data base referring to plant sizes and industrial structure the data has been accordingly weighted for purposes of descriptive tables. Since the weighting procedure increased the number of data sets up to fictive 13.206 items causing serious significance problems in correlations and regressions, these methods were preferred to performed based on the original weighted data whereas size and industry effects were considered by selective estimations within subgroups, or by including plant size and industry into regression models.

Based on the theoretical frameworks of individualistic choices for locations, ICT should increase the radius of potential activity and encourage firm decentralisations towards the periphery or other locations now calculated as more profitable. The ideal type of this logic is globalisation an basis of ICT diffusion discussed earlier. However, ICT cannot be the only cause for globalisation. Liberalization of commodity and factor markets us a necessary institutional setting to globalise transactions and production (Krugman 1995, p. 328). Another factor ensuring globalisation is the evidence of a transport system of suitable capacity and quality (Krugman 1995, p. 334; Nijkamp / Perrels / Schippers 1995, p. 231). Besides, whereas ICT does not explain the whole matter of globalisation, globalisation is not the only purpose of ICT usage. As discussed in foregoing sections, ICT based communication might complementarily add to regional interactions of other media and therefore enforce regional embeddedness.

However the causality runs, it shall be summarized if ICT usage and spatial decentralisation of departments emerge in the same spatial radius, and if ICT seems to support globalisation or regional networking rather. Referring to the investigated Rhine-Main region only a small share of 12% of all firm plants did relocate departments, but rather 20% are engaged in quite stable interplant and interfirm ICT networks, and 40% use at least common internet services like e-mail communication or the WWW. Both electronic networking and decentralisation are more common in plants of a larger size (Caspar / Heinrich / Köck / Krömmelbein / Schmid 2000). Comparing the territorial coverage of both activities, especially spatial decentralisation tends to be highly regional in context (see Table 1) whereas ICT based communication takes place in a European framework mainly (see Table 2). Relying on individualistic models of choices for location, ICT could be regarded as a forerunner of following relocations, or communication might be performed in market transactions mainly. However, distances matter, and there is much more stability in space than prophecies of a virtual economy suggest.

Investigating the shares of communication partners and spatial decentralisations within several geographic boundaries, a large percentage of intraregional communication and decentralisation is obvious. Economies of agglomeration or positive effects of regional networking seem to remain significant for regional firm plants although ICT networks would allow for decentralisation towards more peripheral locations of certainly cheaper costs of land use and labour. Nevertheless German regions outside Rhine-Main are quite frequently named as sites for decentralisations and locations of communication partners. These figures might be interpreted as a spillover of regional growth into the surrounding, but also as a more intensive interaction of locations within the nation state. Nevertheless, a global virtualisation of the economy is not gained, although the technical potential exists.

Referring to actual interdependences between ICT usage and spatial decentralisation of departments, indeed positive correlations at the micro-level can be discovered (see Table 3). The data suggests ICT networking within a specific geographical area accompanies the decentralisation of departments across the same distance, as it is proposed by the individualistic location theories. Nonetheless, correlations of approximately 0,2 only, and a decreased strength of correlation by increasing distance, cannot explain the whole story of ICT restructuring space. It seems to exist a remarkable number of firms globally communicating without decentralisations, but perhaps carrying out market transactions. On the other hand, a relevant share of decentralisation takes place without ICT, although the opportunity of electronic communication exists. A purely individualistic theoretical framework referring to ICT reducing distances and widening areas of activity up to the technically enabled level simplifies decisions for locations to much. Interdependent actions and external effects of decisions like the examples described in the foregoing sections might matter, and it is to question if all indirect effects on spatial structures, environment and actors' budgets are balanced.


Although the industrial specialisation of Rhine-Main region (finances, services, trade) should be very likely to be reorganised by ICT inducing deep shifts in market areas, division of labour, economies of scale and decentralisation patterns (Wieland 1993, p. 671, 675f.), the statistical correlation between department decentralisations and ICT is rather weak. Nevertheless Rhine-Main is indeed more globalised than the average of Germany (see Heinrich 2001a).

Weak correlations of ICT usage and spatial decentralisations on the one hand, but also the greater shares of spatial decentralisations and ICT based communication within geographical proximity propose that current globalisation cannot be explained by a mono-causality between individual use of ICT and individualistic decisions to accordingly cross wider distances. External effects emerging in agglomerations, and regional networks seem to create boundaries against a total economic deterritorialisation not seriously to be dissolved by ICT. Since intraregional as well as international decentralisations take place without ICT networking, other motives than ICT diminishing communication costs are to be taken into consideration, and interdependent globalisation might be one.

A great part of globalisation and regionalisation cannot be explained by individual decisions based on ICT potentials. Interregional and international electronic communication takes place remaining at the domestic location, and the statistic correlation between ICT and spatial decentralisations even declines with increasing distances. Besides technical equipment the coordination of globally acting firms necessitates for mobility and intrafirm socialisation of parts of the employees, for instance (see Schneidewind 1992; Straubhaar / Wolter 1997, p. 105; Thrift 1994, p. 366f.). In addition, globalised firms profit of embedding into regional markets of specific preferences, regional institutional systems and innovation networks (e.g., Henzler 1992, p. 85, 92; Humbert 1998, p. 104; Thrift 1994, p. 366f.). In other words: Globalisation is coordinated and influenced by regional systems partly based on external effects. Sophisticated interdependences, synergies and externalities emerge within globally dispersed enterprises, but also within regions not to be substituted by electronic communication.

Besides the foregoing arguments spatial decentralisation within and outside the region of origin takes place without usage of ICT. A share of these decisions could result of reacting choices for location due to a changed environment. Especially in service industries heavily stressing on the interaction of customer and supplier (Hirsch 1993, p. 76) firms might follow the decentralisations of their demand. Interdependences and externalities might be relevant in this subject, but a lack of data currently hinders further analysis of this question.


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* Caroline Heinrich, IRS Institute for Regional Development and Structural Planning, Erkner, Germany. Working Paper prepared for the Conference on Location of Economic Activity, Regional Development and the Global Economy, 26-27 Sept. 2001, Le Havre (F).

Table 1: Spatial distribution of department decentralisations (out of Rhine-Main region)
Number of decentralizations towards region (i) relative to all pronounced decentralisations (multiple answers)

Ratio of decentralizing firm plants to all plants

(corrected by multiple answers)

Employees of decentralising firm plants relative to regional employment
Legal Outsourcing
Other Germany
Rest of Europe 5,2% 0,1% 0,2%
North America 0,3% 0,0% 0,0%
Asia 0,0% 0,0% 0,0%
Other regions 0,3% 0,0% 0,0%
Foreign regions 7,5% 0,2% 0,4%
100,0% 2,0% 15,3%
  (347) (264) (43072)
Rhine-Main 58,7% 4,4% 14,6%
Other Germany 28,6% 2,2% 8,7%
EU 6,9% 0,6% 4,6%
Rest of Europe 0,3% 0,0% 4,3%
North America 0,7% 0,1% 3,9%
Asia 4,9% 0,4% 2,8%
Other regions 0,0% 0,0% 0,0%
Foreign regions 12,8% 1,1% 15,6%
100,0% 7,7% 38,8%
  (1173) (1021) (109597)
Physical relocation  
Rhine-Main 75,5% 4,2% 11,1%
Other Germany 15,8% 1,1% 7,5%
EU 3,0% 0,2% 3,4%
Rest of Europe 1,6% 0,1% 0,6%
North America 1,3% 0,1% 0,7%
Asia 2,9% 0,2% 2,3%
Other regions 0,0% 0,0% 0,0%
Foreign regions 8,7% 0,6% 6,9%
100,0% 5,9% 25,5%
  (943) (780) (71858)

N (weighted) = 13206 data sets (firm plants), of 282104 employees

Source: Frankfurt Research Project 'Globalisation and regional labour market'


Table 2: Locations of communication partners (regularly ICT based communication)

Share of all communication partners

(multiple answers)

Share of firm plants calling at least one communication partner within that region

(correction of multiple answers)

Percentage of employees of communicating firm plants relative to regional employment
Other Germany
Rest of Europe 5,0% 4,1% 15,4%
North America 6,0% 3,6% 17,8%
Asia 3,9% 5,1% 9,9%
Other regions 2,8% 3,2% 7,7%
Foreign regions 28,6% 24,6% 75,9%
100,0% 75,5% 100,0%
  (17024) (9965) (282104)

N (weighted) = 13206 data sets (firm plants), of 282104 employees

Source: Frankfurt Research Project 'Globalisation and regional labour market'


Table 3: Correlation between ICT based communication and spatial decentralisation

Decentralisation towards

Communication to


Other Germany

Rest of Europe
North America
Other regions
0,241 *
Other Germany
0,235 *
    0,215 *        
Rest of Europe       0,125 *      
North America         0,177 *    
Asia           0,088*  
Other regions             -0,005

* ... significance at level of 95%s

N (non-weighted) = 1855

Source: Frankfurt Research Project 'Globalisation and regional labour market'


Edited and posted on the web on 12th November 2001