The role of digitalisation in the spatial distribution of the economy

In order to analyse the effects of digital transformation on spatial economy, the research team focused on cities and their fundamental role in socio-economic interactions and the provision of consumer services. The project included two lines of research and several subprojects. The first line of research used mobility data to study the changes in face-to-face encounters as well as the substitution of offline by online interactions using several mobility shocks – including the COVID-19 pandemic restrictions – as shifters of social interactions' locations from the physical to the digital space. The second studied online consumption behaviour.

This project was motivated by the limited understanding of how digital transformation affects the spatial dimensions of the economy. While evidence suggests that retail spaces in some city centres are becoming less profitable and that jobs may become increasingly clustered in urban centres, there is a notable lack of systematic empirical evidence and theoretical frameworks to explain these phenomena. This gap exists because traditional data sources such as census data do not provide the detail required to comprehensively analyse these changes.

The project had several objectives: It used mobile phone data from Singapore to develop a method for inferring social interactions/encounters based on digital traces. This approach helped to analyse how digital transformation impacts these interactions. Additionally, the team sought to estimate the substitution rate between physical encounters and online interactions.

The second part focused on Switzerland and examined individual-level consumption data using spatial economic models. The objectives were twofold: The project first aimed to understand physical shopping behaviour and analyse the role of distance costs and accessibility in shaping physical shopping activities. The second goal was to explore how digitalisation, in particular the rise of e-commerce, is changing consumption behaviour. This helped identify which groups and regions are most likely to adopt e-commerce and to understand how this trend is affecting the physical shopping sphere.

This research's findings provide an important basis for urban planning and policy recommendations to address the expected decline in the spatial connectivity of cities due to digitalisation. All the results have been presented at numerous workshops and conferences, including the most important European and American conferences on urban and regional economics, several faculty seminars including at MIT, the University of Barcelona and the European University Institute. These projects led to several interactions with practitioners, including presentations at Migros and discussions with representatives of public administrations who are interested in understanding the impact of digitalisation on the development of cities and regions.

Three main messages

1. Mobility is fundamental to social interactions in urban environments. City networks are highly sensitive to changes in mobility. Individuals who play central roles within these networks experience greater disruptions when mobility costs increase compared to the average individual.
2. While consumption market access in Switzerland is generally high, notable regional disparities exist, and these differences are more pronounced than variations in nominal income. E- commerce helps mitigate these disparities by reducing distance costs and search costs as well as by increasing the variety of products available in local markets.
3. The mobility restrictions during the COVID-19 pandemic led to a significant rise in online spending. This shift to e-commerce was not uniform: Younger and larger households, as well as those with limited access to local stores, were particularly responsive to adopting e-commerce alternatives.

The Hidden Consequences of Digitalization for the Spatial Economy