Externalities and Local Economic Growth in Manufacturing Industries

Abstract

The growing interest on the economic geography issues has provided new vigour to the research efforts aiming at explaining economic phenomena without neglecting space. In particular several studies have focused on the role of spatially bounded externalities on firms agglomeration processes at the local industry level. This paper has a twofold objective. Firstly, we outline a general eclectic model of local economic growth to provide the theoretical background to guide the econometric analysis. The model includes a general taxonomy of different factors which may explain economic growth in a specific industry and location. Secondly, we assess the role of a large set of potential determinants of the process of local agglomeration of economic activity and we address the issue of spatial association of the local growth processes. We apply our model to the case of Italy making use of a very ample database on socio-economic indicators for 784 Local Labour Systems and 97 manufacturing sectors over the period 1991-96. Our econometric results show that local growth in Italy is not a homogeneous process. On the contrary, it is characterized by significant differences across macro regions with respect to the relevance of the explanatory factors. Among the most important determinants of local industry growth, it is worth mentioning the positive role of the diversity externalities. We also find robust evidence of the negative influence of specialisation externalities on labour dynamics at the local industry level. Moreover, we have assessed the effects of other determinants of local growth like: human capital, social environment and public infrastructures. The analysis of spatial dynamics, carried out for the North-East and Centre-North, shows that at the local industry level there are polarisation phenomena at work and that employment dynamics are self-contained within the boundaries of local labour systems once we have controlled for a large set of local determinants.JEL: R11, R12, L60, O52

Agglomeration economies, spatial dependence and local industry growth

“…The first important result is the absence of positive specialisation externalities: the coefficient of SE is negative and significant in all panel estimations and in all service sectors. This outcome confirms previous studies for the US (Glaeser et al, 1992), France (Combes, 2000b) and Italy (Cunat andPeri, 2001, Forni andPaba, 2000;Usai and Paci, 2003). One possible explanation for the negative effect of specialisation in services is the fact that probably these sectors are becoming more and more diffused across space closer to consumers.…”

“…For example in the case of Italy, Usai and Paci (2003) find a positive effect on growth played by diversity and a negative one by specialization at the local labour system level. In the Netherlands, Van Soest et al (2006) find similar results at the city level.…”

“…The present contribution builds upon our previous work on this topic (Usai and Paci, 2003;Paci and Usai, 2005), since it considers the entire market economy over a longer time period while including some important additional factors among the set of explanatory variables.…”

What drives firm profitability? A multilevel approach to the Spanish agri-food sector

“…It can be expected that firms located in regions with easy access to high levels of human capital are more productive and competitive (Usai & Paci, 2003). We find that higher education is related to higher profitability of industry firms in Navarre.…”

Who's right, Marshall or Jacobs? The localization versus urbanization debate

“…Other variations frequently encountered are the innovation diversity index based on patent data (Beaudry and Beschi, 2003) or the industry diversity index based on industry value added data (Batisse, 2002). This Hirschman-Herfindahl index is also presented in modified forms, as inversed Hirschman-Herfindahl index (Monseny, 2005;Usai and Paci, 2003) or 1 minus the Hirschman-Herfindahl index (Kameyama, 2003;Mano and Otsuka, 2000). The main drawback of this index is that diversity is measured symmetrically, implying that it does not consider how different or complementary the industrial sectors are, but assumes them to be equally close to one another.…”