Is it a "flat world" or are agglomeration economies more powerful than modern electronic communications? The next time you fly, see how many people do not fondle a communications device before take-off or after landing. But, then, these are the people who are physically going to or from someplace.
To get back to the question at hand, agglomeration economies win (over space as well as over time, as in path-dependence). The case is well made by Enrico Moretti in The New Geography of Jobs. The author cites plenty of facts (for the U.S.) and relevant theory.
Yet, in my view, Moretti stumbles twice. Too much time is spent on the "decline" of U.S. manufacturing. It is a jobs decline, but an improvement in productivity. We went through all this with agriculture. There is also too much in the way of "market failures" to be fixed by wise policy makers. Although, to be fair, towards the end of the book a more ambivalent tone is achieved with respect to the track record of U.S. industrial policy.
I did very much like Moretti's discussion of the three types of agglomeration. 1. Size (of metro area) matters; 2. Local "ecosystems" of venture capitalists physically near the inventors and tinkerers is important. ("An increasingly important part of the job involves active monitoring, nurturing and mentoring of new businesses." p. 157); and 3. Knowledge spillovers matter; important connections happen in the elevator, in the office, or anywhere within a zero to 25-mile radius.
"Death of distance" indeed.