Equalization or polarization? The effect of the Internet on National Urban Hierarchies across the World, 2000-2018

As Internet adoption and diffusion continues worldwide, little is known about its effects on the restructuring of national urban hierarchies across the world. We create a panel data of city population with uniform definitions within each of the 133 countries from 2000 to 2018, using the Pareto index as an indicator to study the effect of the Internet on national urban hierarchies and to examine the channels through which the effects take place. The results show that the Internet led to the equalization of urban hierarchies in the early stage and then the polarization in the latter period. Initially, the Internet helped reduce communication costs, partially replaced transportation, and weakened the agglomeration of enterprises and individuals in large cities, thereby flattening national urban hierarchies. Later, the Internet mainly enhanced the efficiency of production and accelerated the shift from manufacturing to services in large cities, thus increasing the attractiveness of large cities and ultimately polarizing the urban hierarchy. Our finding demonstrates that national urban hierarchies are not static and their evolution reflects not only the trade-off between economies of scale and congestion, but increasingly by the Internet-a powerful tool of communication. If the trend persists, larger cities will grow at a faster pace than smaller cities and potentially increase regional inequality in countries that have extensively adopted the Internet.