On the spatial determinants of firm growth : a microlevel analysis of the Italian SMEs

In this chapter, we propose a novel methodology that aims at establishing what is the role of "location" in shaping firm growth. Along with the traditional determinants (like, e.g., age, size, financial constraints and others), geographical location is alleged to drive firm growth. The current literature typically relies on location variables that suffer from a lack of empirical robustness (Duranton and Overman, Testing for Localisation Using Micro-geographic Data, The Review of Economic Studies, 72: 1077–1106, 2005; Arbia et al., Clusters of Firms in an Inhomogeneous Space: The High-Tech Industries in Milan. Economic Modelling, 29(1): 3–11, 2012). Indeed, the use of administrative partitions to test such hypotheses (such as provinces, regions and municipalities) introduces a statistical bias arising from the arbitrariness of their definition. To disentangle these shortcomings, we make use of a locational measure based on the Getis' local K-function (Getis, Interaction Modelling Using Second-Order Analysis. Environment and Planning A, 16: 173–183, 1984). This measure allows us to distinguish between Marshallian and Jacobs spatial externalities which exert their effects at different distances. Our empirical analysis focuses on a database which includes 8300 Italian limited liabilities manufacturing companies observed in the period from 1996 to 2004. Our empirical results show that the relationship between firm growth and spatial factors is complex and it depends on the structural characteristics of firm as well as from the spatial scale of geographical analysis.