How did location affect adoption of the commercial Internet? Global village vs. urban leadership

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. In this paper, we offer hard evidence on factors influencing the dispersion of Internet technology to businesses. On the one hand, 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. On the other hand, we find that the pattern of adoption of frontier Internet technologies supports urban density theory. Our results reject the concept of an urban-rural digital divide in participation in the Internet network. Even for frontier technologies, the pre-existing distribution of industries determines most of the differences between locations. Consequently, policy aimed at increasing adoption in laggard areas may be misguided.