The world is not yet flat: Transport costs matter!

We provide evidence for the effects of changes in transport costs, international trade exposure, and input-output linkages on the geographical concentration of Canadian manufacturing industries. Increasing transport costs, stronger import competition, and the spreading out of upstream suppliers and downstream customers are all strongly associated with declining geographical concentration of industries. The effects are large: changes in trucking rates, in import exposure, and in access to intermediate inputs explain between 20% and 60% of the observed decline in spatial concentration over the 1992–2008 period.