Working Paper
Silicon Mountains, Silicon Molehills

This paper investigates the effect of information technology on industrial patterns of concentration and convergence. Information-technology intensive industries exhibit slower employment convergence than other industries. The regression estimates suggest that the highest-IT industries exhibit employment convergence at only half the average rate for all industries. However, it is not the information-technology usage per se that is associated with slower convergence. Higher-IT industries hire more educated workers and are rapidly growing, and both of these characteristics have been argued in the literature to affect the rate of convergence. Controlling for these other characteristics reveals that the direct effect of information technology is to speed convergence. Thus, high-IT clusters persist not because they are technology-intensive per se, but because they tend to rely on high-skilled labour. Since convergence reduces the long-run efficacy of place-based economic policies, public policies that attract low-skill support functions for high-IT industries confer only short-term benefits in exchange for potentially large upfront costs.