Does the Internet Complement or Substitute for Cities? Evaluating the Effect of Internet Use on Urban Agglomeration

Abstract

Is the Internet a complement or a substitute for cities? Using the distribution of historical telephone lines as a source of exogenous variation, this paper investigates the effects of Internet use, measured by Google search frequencies, on state urbanization rates from 2006-2015. I find that the Internet complements urban agglomeration. A 10% increase in Internet use is associated with a 2% increase in urbanization rates. This complementary relationship is consistent across all of the Internet’s functionalities aside from those pertaining to online communities, such as social networking platforms and chat providers.