Local manufacturing productivity markers: an empirical study of the Italian counties

We analyse productivity differentials across about 63,000 manufacturing firms located in 103 Italian counties, in order to shed light on the relation between the business environment and firm performance. We find that a limited set of local variables related to institutional quality, local credit development, market access and innovation environment significantly contribute to explaining manufacturing productivity differentials in Italy. Our empirical findings confirm that firm competitiveness reacts to the local business environment on a multidimensional scale. This suggests that better targeted regional policies at the national and EU level, including measures for fostering convergence or decentralizing wage negotiations, should take into account the interdependence between productivity and the economic environment.     

Location, agglomeration and infrastructure

Abstract. In this article we discuss the relationships between transportation infrastructure, firm location, agglomeration and regional development. We will argue that the spatial transaction costs faced by modern firms have changed over recent decades, and that this has changed the ways in which transportation infrastructure contributes to form location behaviour and regional economic development. Therefore, in order to analyse these issues, it is necessary to consider the spatial transaction costs faced by modern firms and to investigate the conditions under which reductions in these costs due to infrastructure improvements will allow firms to move. These complex relationships are seen to be mediated via different geography-firm-organisation structures and consideration of these is essential for any realistic evaluation of the role of transportation infrastructure.     

Trade infrastructure and firm location under Cournot competition

In a two-country four-region setting, this paper analyzes the impact of trade infrastructure on firm locations when they interact weakly in Cournot competition, and capital is perfectly footloose. Trade infrastructure costs are additive in firm production and countries differ in their quality of domestic infrastructure. We show that there is a magnified impact of initial infrastructure difference on firm location choices whenever the market is more integrated internationally or within each country. Trade liberalization promotes regional dispersion in the country with better infrastructure. For the country with poor infrastructure, given the presence of a magnified infrastructure disadvantage, unilateral domestic market integration does not necessarily result in an inflow of firms.     

Infrastructure and regional growth,growth dynamics and policy relevance for India

The role of infrastructure in economic growth has been the subject of considerable research in the fields of public policy, economics, and planning. In this paper, I examine the contribution of publicly supplied infrastructure to sub national regional growth in India. I first develop and numerically examine a regionally disaggregated model of economic growth to understand the dynamics of private capital and public infrastructure. For the empirical analysis, I use a pooled data set for Indian states to examine if publicly supplied infrastructure is a significant determinant of regional growth and whether there are spatial variations in the productivity effects of infrastructure. The main findings are that transport and communications infrastructure expenditures are significant determinants of regional growth, and the positive benefits accruing from these expenditures come not only from investments made by individual states, but there are positive externalities from network expenditures made by neighboring states. Finally, the out of sample simulated regional growth predictions show divergence in private capital formation between lagging and leading states. The findings, interpretations, and conclusions are entirely those of the authors, and do not necessarily represent the views of the World Bank, its executive directors, or the countries they represent.     

Innovation in High-Technology SMMEs: The Case of the New Media Sector in Cape Town

Creative industries are increasingly attracting the interest of academics and policymakers around the world. Policy enthusiasm is also directed in many countries towards developing knowledge-intensive or high-technology sectors. The new media sector is considered an innovative growth sector which holds potential for emerging countries. This case study examines innovation in new media firms situated in Cape Town. Theoretically, creative industries are linked to post-industrial and knowledge-based economies and the growth of services, and innovation in high-technology small and medium enterprises is also considered. This paper provides micro data regarding the innovation activities of new media firms based on purposive interviews. The study found that these firms are dynamic in terms of technological innovation. However, their innovation activities tend to be incremental and localised. Furthermore, various barriers limit their innovation enhancement and growth prospects. Public policy can support new media firms in terms of access to new business development funding and programmes supporting small enterprise innovation, improved design education and network opportunities.     

Human capital in firms and regions: Impact on firm productivity

This paper analyses the importance of human capital for firm productivity and makes a clear distinction between the role of human capital inside and outside of the firm. A multilevel model is used for the business service sector in Sweden controlling for heterogeneity across the industry and municipal level. Human capital in firms in terms of education, experience, and cognitive skills and the firm's overall access to human capital has a positive impact on firm productivity. In addition, firm attributes explain the largest proportion of firm productivity variance.     

An intra-industry trade model in a vertical differentiation framework

We developed a partial equilibrium model in which intra-industry trade arises as a result of utility maximization of consumers and profit maximization of firms. The driving force for intra-industry trade is non-homothetic preferences of consumers. We utilized a vertical differentiation framework, in which consumers have the same tastes for quality but different income levels determining their non-homogeneous choices. All firms in all countries have access to the same production technology, and there are no differences in factor endowments. Intra-industry trade arises as a result of each firm specializing on a certain segment of the market in all countries. We solved the model numerically for a two-country two-firm setup. In this setup, firms choose their product quality level and their price by maximizing their profits in a two-stage optimization problem. They also decide whether to export to the foreign market or to concentrate only on the domestic market in a standard two-by-two game. With introduction of non-zero transportation costs, trade volumes in both directions decrease. Transportation costs are shared between consumers and firms according to the marginal demand in the domestic versus in the foreign country. This model supports Krugman’s home market effect: In case of non-zero transportation costs, firms want to locate their production site in the country where there is higher marginal demand for their product.     

Location,agglomeration and infrastructure

In this article we discuss the relationships between transportation infrastructure, firm location, agglomeration and regional development. We will argue that the spatial transaction costs faced by modern firms have changed over recent decades, and that this has changed the ways in which transportation infrastructure contributes to form location behaviour and regional economic development. Therefore, in order to analyse these issues, it is necessary to consider the spatial transaction costs faced by modern firms and to investigate the conditions under which reductions in these costs due to infrastructure improvements will allow firms to move. These complex relationships are seen to be mediated via different geography-firm-organisation structures and consideration of these is essential for any realistic evaluation of the role of transportation infrastructure.JEL Classification: D21, D23, L1, R12, R3     

Cross-border transport infrastructure and aid policies

We investigate resource allocation concerning the provision of cross- border transport infrastructure, which is used for trade of goods between two neighboring countries. Since the level of infrastructure is sub-optimal under the circumstances that two governments choose the levels of infrastructure independently, we focus on the role of foreign aid to improve the efficiency of infrastructure provision. In this paper, we examine the welfare effects of aid policies, and show that aid can make both countries better off, i.e., Pareto improvement. Furthermore, Pareto improvement is more likely if the stage of development in recipient country is very low or sufficiently high.     

Regional effects or none? Firms' profitability during the Great Recession in Finland

We analyse the effects of the Great Recession (GR) on the profitability of firms located in the main cities versus in the rest of Finland. Based on earlier literature, various regional factors could affect firms' profitability in urban areas in comparison to periphery during a major export demand shock, such as what the GR was in Finland. Yet, there are both negative and positive location specific factors in play. We use micro‐data from 2005 to 2010, and employ different profitability indicators and fixed effects panel regressions. Our results indicate that firm and sector level factors affected the profitability changes the most. Regional differences seem to stem mainly from a composition of firm and sector level factors.     

Entrepreneurship and spatial externalities: Theory and measurement

The paper presents an empirical analysis on the role played by urbanisation and localisation economies on factor productivity of firms. A vast literature exists on this issue, conceptually presenting reasons supporting either industry size or city size as sources of external advantages. In general, the empirical analyses are based on the estimates of aggregate city or industry production functions; the limited hypotheses characterising these studies have suggested to test another methodology, based on the estimate of a production function at the firm level, and calculate how factor productivity changes according to different degrees of urbanisation and localisation economies. The methodology is applied to firms chosen in the high-tech sector, which demonstrates a high spatial concentration in particular areas of the Metropolitan Area of Milan. The result is that factor productivity is influenced by both urbanisation and localisation economies, but the latter show an increasing positive effect on factor productivity. Moreover, the size of firms plays an important role in defining the impact of urbanisation and localisation economies on firms' outcome.     

Understanding social system drivers of green building innovation adoption in emerging market countries: The role of foreign direct investment

There has been a growing academic focus on the economic, environmental, and social implications of sustainable innovation adoption. This work has largely focused on the developed world, yet the majority of people and future economic growth lies in the developing world. Further, most research examines micro data on consumers or firms, limiting what is known regarding the role of macro factors on diffusion, such as social systems. Addressing these limitations, this research provides the first high-level insights into how green building adoption is occurring in developing countries. Utilizing a hand-collected dataset of all green building certification activity in 97 emerging market countries over fifteen years, we examine the relationship between economic development and green building adoption. We find the use of international certification programs is far more common than domestic programs, and that domestic programs have only been originated in advanced emerging economies. Additionally, we observe a relationship between foreign direct investment into emerging markets countries and the proliferation of green building, and that in most cases, domestic certification programs only originate after international certification activity has been introduced to the local economy. Our findings carry economic and policy implications, worthy of consideration by both those interested in offering and attracting foreign investment in emerging market countries.     

Spatial agglomeration and productivity in Italy: A panel smooth transition regression approach

The paper analyses the nonlinearities in the impact of localization, diversity, urbanization and competition on firm‐level total factor productivity (TFP), using a large sample of Italian firms from 1999 to 2007. We adopt a panel smooth transition regression model, so that the TFP elasticities are free to vary smoothly across two or more extreme values. Results show that localization economies and Jacobian externalities materialize only for values of, respectively, intra‐industry agglomeration and extra‐sectoral diversity above a certain threshold. Local competition exerts a positive effect on productivity, even though the marginal impact shrinks at high levels of competition. We find instead no evidence of diseconomies of agglomeration.     

Firm heterogeneity and the localization of economic activities

This paper examines how market‐access strategies, via exports and FDI, respond to changes in the level of integration. Empirical evidence shows that both firm exports and multinational activity are affected by trade liberalization episodes. We account for the strong positive correlation between exports and FDI by developing a general‐equilibrium model featuring firm heterogeneity, trade and FDI with final and intermediate products. Different geographical spaces are considered to quantify the effect of a preferential trade agreement (PTA) on supply‐mode decisions, for both partner and excluded countries. The model sheds new light on the mechanisms through which geography reshapes the concentration of economic activities both inside and outside the PTA area.     

A micro-simulation model of firms: Applications of concepts of the demography of the firm

Recently, there is an increasing demand in spatial planning for models based on the demographic concepts of birth and death of firms. This article describes the structure of a spatial demographic simulation model of firms, and its application within The Netherlands. The model structure is essentially of the familiar demographic cohort component type, where an initial cohort of firms ages in a number of discrete steps, and where in each step additions and subtractions to and from the population are modelled using birth, death and migration components. Apart from the central processes of birth, death and migration, the type of economic activity and firm size are highly important for understanding firm behaviour over time. The article describes the transition functions for each of the demographic components and for firm growth. In addition, some empirical results are presented of a number of model simulations in The Netherlands. The results were partly validated using observed economic demographic data. It is concluded that a substantial amount of work remains to be done in this new field. The model presented here has direct implications for the research agenda of the study of the demography of the firm. Received 28 April 1999 / Accepted 6 December 1999     

Agglomeration and firm‐level productivity: A Bayesian spatial approach

This paper estimates the impact of industrial agglomeration on firm‐level productivity in Chinese manufacturing sectors. To account for spatial autocorrelation across regions, we formulate a hierarchical spatial model and use a Bayesian instrumental‐variable approach. We find that agglomeration of the same industry (i.e., localization) has a productivity‐boosting effect, but agglomeration of urban population (i.e., urbanization) has no such effect. In addition, the localization effect increases with the educational levels of employees and the share of intermediate inputs in gross output. These results may suggest that agglomeration externalities occur through knowledge spillovers and input sharing among firms producing similar manufactures.     

Worker and firm heterogeneity,agglomeration, and wages in Brazil

This paper analyses the influence of agglomeration and spatial sorting on wages in Brazilian cities. The empirical strategy is based on a two-step estimation. The first step estimates a wage equation with the observed characteristics of workers and firms and location effects. The second step decomposes the location effects into employment density and fixed effects of firm and worker. We estimate an urban wage premium for a developing country with the simultaneous inclusion of worker and firm fixed effects, instrumental variables, and nighttime lights. We find agglomeration effects of 4.3–5.7%, which are larger than those obtained for developed countries.     

Do high-quality local institutions shape labour productivity in Western European manufacturing firms?

We investigate the extent to which regional institutional quality shapes firm labour productivity in Western Europe, using a sample of manufacturing firms from Austria, Belgium, France, Germany, Italy, Portugal and Spain, observed over the period 2009–2014. The results indicate that regional institutional quality positively affects firms' labour productivity and that government effectiveness is the most important institutional determinant of productivity levels. However, how institutions shape labour productivity depends on the type of firm considered. Smaller, less capital endowed and high-tech sectors are three of the types of firms whose productivity is most favourably affected by good and effective institutions at the regional level.     

‘One for all and all for one’: Cluster,employment, and the global economic crisis. Evidence from the German mechanical engineering industry

How regional clusters – and the firms constituting it – respond to major economic shocks has only recently become the centre of attention in regional research. Taking the concept of ‘adaptive resilience’ as a point of departure, and using a mixed methods approach (firm survey, multivariate analysis, expert interviews), this study explores the response of cluster and non‐cluster firms of the German mechanical engineering sector during the initial phase of the crisis (2008–2009). Findings show a significantly more positive employment trend in cluster firms than in non‐cluster firms. Further analyses of the mechanisms that allow cluster firms to exhibit more resilience than other firms suggest that solidarity and altruism among regional actors were of particular importance in the beginning of the crisis.