Does Location Still Matter?

What does the future hold for CBDs and Malls?


In an age of instant, effortless, effective communication at almost zero cost, does location still matter? The internet has reduced our need to cluster around markets, services and infrastructure to maximise economic efficiency, instead it is more efficient to maximise accessibility to 5G networks. As we continue to plan our future as an extension of the past and celebrate more high-rise buildings and sophisticate malls, this item provides thought provoking insights to an alternative scenario.

Economic agglomeration

The theory of economic agglomeration, which explains the concentration of economic activities and firms in specific geographic areas, is based on a range of factors such as access to markets, labour pools, infrastructure, and knowledge spill overs. While the rise of business-to-business (B2B) interactions and the Fourth Industrial Revolution (4IR) introduce new dynamics to the economy, it is worth considering how these developments may impact that theory. The theory of economic agglomeration has roots in the field of regional economics and industrial organization. While it is difficult to attribute the theory to specific founders, several economists have made significant contributions to its development.


Here are some notable figures associated with the theory of economic agglomeration. Alfred Marshall, a British economist, laid the foundation for the theory of agglomeration in his seminal work “Principles of Economics” published in 1890. He discussed the concept of industrial districts and highlighted the benefits of spatial clustering, emphasizing the importance of knowledge spill overs, specialized labour markets, and input-output linkages. Johann Heinrich von Thünen, a German economist, proposed the “Isolated State” model in his work “The Isolated State in Relation to Agriculture and Political Economy” published in 1826. While his focus was primarily on agriculture, his model explored the spatial concentration of economic activities based on transportation costs and land rent. Walter Isard, an American economist, contributed to the field of regional economics and made significant advancements in the study of industrial agglomeration. His book “Location and Space-Economy: A General Theory Relating to Industrial Location, Market Areas, Land Use, Trade and Urban Structure” published in 1956, presented a comprehensive analysis of agglomeration economies and the role of space in economic activities. Paul Krugman, another American economist and Nobel laureate, made notable contributions to the theory of economic geography. His work, including the paper “Increasing Returns and Economic Geography” published in 1991, introduced the concept of increasing returns to scale and helped explain the concentration of economic activities in specific regions. It is important to note that the theory of economic agglomeration is an evolving field, and many other economists, researchers, and scholars have contributed to its development over time. The contributions of these figures, among others, have shaped our understanding of the factors and mechanisms driving agglomeration economies.

Physical location

The big question now is whether physical location is important in contemporary society given the development of the internet? The importance of physical location in contemporary society is a nuanced topic influenced by various factors and contexts. While the development of the internet and digital technologies has expanded possibilities for remote communication, remote work, and virtual interactions, physical location continues to hold significance in several aspects. Despite advancements in virtual communication, certain activities still benefit from face-to-face interactions. Collaborative problem-solving, creative brainstorming, negotiations, and building trust often thrive in physical proximity. Being in the same location can facilitate spontaneous discussions, serendipitous encounters, and a deeper sense of connection. Physical location remains important for local economies and regional development. Geographic clusters and agglomerations provide opportunities for knowledge spill overs, specialized labour markets, and synergies between firms. Certain industries, such as manufacturing, construction, and hospitality, rely on the physical presence of resources, infrastructure, and customers tied to specific locations. Physical location plays a role in shaping individual and collective identities. People often have attachments to their local communities, cultures, and environments. Places provide a sense of belonging, history, and unique characteristics that contribute to social cohesion and a sense of rootedness. Physical location can determine access to natural resources, transportation networks, healthcare facilities, educational institutions, and other essential services. Not all regions have equal access to infrastructure and resources, which can create disparities and affect quality of life. Futhermore, different regions and jurisdictions have varying regulatory frameworks, legal systems, and governance structures. These can influence business environments, investment opportunities, and overall socioeconomic conditions. Physical location can also determine access to public services, policies, and social support systems.

Evolving physical location

However, it is important to note that the significance of physical location is evolving with the increasing capabilities of virtual connectivity. The internet has enabled remote work, e-commerce, online education, and virtual collaboration, reducing some of the constraints of geographical proximity. The COVID-19 pandemic further accelerated the adoption of remote work and highlighted the potential of digital connectivity to overcome spatial barriers. B2B Interactions, facilitated by digital platforms and e-commerce, has the potential to reshape economic agglomeration patterns. Companies can now engage in virtual collaborations, supply chains, and knowledge sharing without being physically located in the same geographic area. This opens up opportunities for firms to be geographically dispersed while still benefiting from synergies and economies of scale through B2B networks. It challenges the traditional notion that proximity is the primary driver of agglomeration. The 4IR has enabled remote work and increased connectivity, which could reduce the significance of geographic concentration. As more jobs can be performed remotely, it may lead to a decentralization of economic activities and a redistribution of employment opportunities across regions. This could weaken the need for physical agglomeration in certain sectors and shift the focus towards virtual agglomeration based on digital connectivity. The 4IR introduces new avenues for knowledge creation and dissemination. Digital platforms and collaboration tools facilitate knowledge sharing and innovation beyond geographic boundaries. While physical proximity still facilitates face-to-face interactions and knowledge spill overs, the rise of virtual collaboration may diminish the need for concentrated clusters and encourage more dispersed innovation ecosystems.

B2B and the 4IR

It is important to consider the digital infrastructure and the digital divide when discussing the impact of B2B and the 4IR on economic agglomeration. Unequal access to digital technologies and high-speed internet can hinder the ability of regions and firms to fully participate in virtual agglomeration. The existence of a robust digital infrastructure is a prerequisite for benefiting from the potential decentralization of economic activities. In summary, the rise of B2B interactions and the 4IR introduces new dynamics that may warrant a revaluation of the theory of economic agglomeration. While proximity and physical agglomeration continue to have advantages, virtual collaboration, remote work, and digital connectivity offer alternative avenues for economic synergies and knowledge sharing. The significance of these factors may vary across industries and regions, and further research is needed to understand their full implications on economic agglomeration patterns. So should governments continue to support CBD development, malls, mass transit and other forms of urban concentration or de-concentration and decentralization. The answer is probably not. In the long term, society will be functioning very differently than today, the expediency will not be economic but environmental, not growth but health and not efficiency but well-being.  Happiness will be the driver of wealth, not consumerism. Instead governments need to reinforce a return to a well-connected and serviced rural life and prepare for de-urbanisation.