THE NEW ECONOMICS OF DISTANCE: LONG-TERM TRENDS IN INDEXES OF SPATIAL FRICTION

Distance-related costs have changed at different rates across categories of resource flows and across modes and media between 1960 and 1998. The cost of moving knowledge/information has dropped much faster than the costs of moving people or materials. The costs of processing and moving information have dropped by 98% and 92% respectively, in real terms since 1960. In addition, there are big differences in the rates of change within the real costs of moving people using different travel modes--just as big differences exist within the real costs of moving materials using different modes. For example, the real costs of moving materials by domestic rail and inland waterway have decreased by 58% and 42% in real terms, respectively, while inter-city trucking costs have not changed significantly in real terms since 1960. Thus, this paper suggests that the 'new economics of distance' is not about the disappearance of distance nor the demise of borders as factors in economics. Rather, 'the new economics of distance' is about the increasing role played by logistics management and the adjustment processes that are occurring as firms creatively seek to substitute between types of resources and between the modes and media for moving those resources.