Spatial Agglomeration, Technology and Outsourcing of Knowledge Intensive Business Services Empirical Insights from Italy

Aim of this paper is to explore the main drivers of outsourcing of knowledge intensive business services by Italian manufacturing firms. While anecdotal and empirical evidence has emphasized labour cost and scale economies as behind firms’ choices to outsource production or service activities, here we focus on spatial agglomeration and technology as important factors. Using microeconomic data on a repeated cross-section of Italian manufacturing firms for the period 1998-2003, we develop a two-stage model in order to avoid selection bias: first, we estimate the determinants of the firm's decision to outsource business-related services; second, we estimate the main factors underlying the intensity and complexity of KIBS outsourcing, expressed by the number of service activities that are externalized. Our results show that labour cost-savings are not relevant in driving the decision to outsource KIBS, but ICT, R&D and location within a dense and technologically developed industrial district have very positive effects.KIBS, Service Outsourcing, R&D, ICT, Spatial Agglomeration

International linkages, local externalities, innovation and productivity. A structural model of Italian manufacturing firms

Using a large sample of Italian manufacturing firms, in this paper we estimate a structural model of research, innovation, productivity and export performance augmented to take account for the role played by local externalities. This model, which is an "enlarged" version of Crepon, Duguet and Mairesse (1998) model, comprises four main equations. The first identifies the factors underlying the intensity of Research and Development (R&D) investments; the second links R&D capital to innovation output; the third focuses on Total Factor Productivity (TFP) as determined by innovation; the fourth relates export performance to TFP. Our estimates show the significant role played by local externalities in these processes. In particular, related variety and urbanization positively affect the creation of new ideas through R&D, while specialization impacts on TFP to complement innovation output. Finally, urbanization economies support TFP in driving firms' export performance.export, innovation, productivity, R&D, spatial agglomeration

Do agglomeration and technology affect vertical integration? Evidence from Italian business groups

The aim of this paper is to analyse the role of technology and spatial agglomeration in decisions about vertical integration. It starts from the hypotheses that the business group, defined as a set of firms under common ownership and control, is the appropriate unit to delimit the firm’s boundary. We use information drawn from input-output tables to detect the presence of positive inter-industry exchanges and whether or not activities in a group are vertically related. Accounting for endogeneity problems, we estimate Probit and Linear Probability models to empirically investigate the role of technology and spatial agglomeration on vertical integration decisions. Consistent with property rights theory, our results show that the technology intensity of acquirers matters for backward integration choices and moreover, that agglomeration plays a role in vertical integration only when it operates jointly with technology.Business groups, spatial agglomeration, technology, vertical integration

Agglomeration, related variety and vertical integration

Several recent studies investigate the relation between geographic concentration of production and vertical integration, based on the hypothesis that spatial agglomeration of firms in the same industry facilitates input procurement thereby reducing the degree of vertical integration. The present paper contributes to this debate by also considering the effects of industry variety at the local level. Specifically, we consider two forms of variety: unrelated variety and vertically related variety. The latter index is constructed using information drawn from input-output tables and captures the opportunities for outsourcing within the local system. We consider inter-industry vertical integration by taking account of the ownership of activities with input-output linkages. Using a dataset of 24,663 Italian business groups in 2001, we estimate Tobit models to investigate the influence of vertically related variety and other agglomeration forces on the degree of vertical integration of groups. Our evidence confirms that vertical integration is influenced by industry specialization at the local level. We also find that the higher the vertically related variety, the lower the need for firms to integrate activities since they have more opportunities to acquire intermediate goods and services within the local system.vertical integration, agglomeration, related-variety, business group

Business groups and the boundaries of the firm

This paper aims to show that the business group – i.e. the set of firms under common ownership and control – is the most appropriate unit to study the behavior and organization of firms and define their boundaries. Particular emphasis is given to notions such as unitary direction – i.e. the influence over strategic decisions – and administrative co-ordination which allow owners to exercise supervision and authority over the controlled companies.business group; boundary of the firm; unitary direction

The Role of Agglomeration and Technology in Shaping Firm Strategy and Organization

Over the last few years a growing number of contributions have shown that the presence of business groups, i.e. sets of firms legally distinct but belonging to the same owner(s), is significant. From a theoretical point of view, this presence poses the question of whether the group or the single legal unit should be considered as the elementary unit in economic analysis: i.e., what is generally meant in microeconomic theory by ‘firm’. In this paper we consider the group as the appropriate unit to delimit the firm’s boundary, i.e. as the ‘observed’ organizational form adopted by firms when they grow in size. Starting from this hypothesis, the main aim of this paper is to analyse the role of structural variables, such as spatial agglomeration and technology, in determining some features of business groups’ strategy and organization. Specifically, the analysis concerns the presence and organizational specificity of business groups based on their membership of industrial districts (as a proxy for spatial agglomeration) and to the role of spatial agglomeration and technology in vertical integration strategies. To conduct the analysis, we take advantage of a new and large data-set at firm and business group level, recently developed by ISTAT (the Italian National Statistical Institute). The data-set, referring to 2001, covers all manufacturing firms organized as joint-stock companies.Business Groups, Agglomeration, Technology, Organisation and Strategy

Innovation, productivity and export Evidence from Italy

Recent developments in the new international trade theory stressed the relationship between firm heterogeneity and internationalization performance. The key prediction of these models is that firms with different levels of productivity - the main source of firm heterogeneity - will generally engage in different modes of internationalization depending on the level of sunk costs incurred in acquiring information on foreign markets, establishing distribution channels, and so on. However, in these theoretical models the sources of productivity are generally unexplained, considering firm heterogeneity as exogenous. A few papers try to open the 'black box' of firm heterogeneity and to show that internationalized firms are generally more innovative, use more knowledge-intensive workers, and are characterized by superior organizational and managerial practices. Using a large sample of over 3000 Italian manufacturing firms for the period 2001-2003, we contribute to this debate employing, and extending the basic Crépon, Duguet and Mairesse (CDM) model. We estimate a five-equation model which identifies the links (correlations) between innovation investment, innovation output, firm productivity and export performance.innovation, R&D, productivity, export, CDM-model

The Relationship Between Environmental Efficiency and Manufacturing Firm’s Growth

This paper investigates the empirical link between emission intensity and economic growth, using a very large data set of 61,219 Italian manufacturing firms over the period 2000-2004. As a measure of lagged environmental performance (efficiency) at firm level we exploit NAMEA sector for CO2, NOx, SOx data over 1990-1999. The paper tests the extent to which (past) environmental efficiency/intensity, which is driven by structural features and firm strategic actions, including responses to policies, influences firms growth. Our results show, first, a typical trade off generally appearing for the three core environmental emissions we analyse: lower environmentally efficiency in the recent past allows higher degrees of freedom to firms and relax the constraints for growth, at least in this short/medium term scenario. Nevertheless, the size of the estimated coefficients is not large. Trade off are significant for two emission indicators out of two, but quite negligible in terms of impacts, besides the case of CO2. For example, growth is reduced by far less than 0.1% in association to a 1% increase of environmental efficiency. Environmental efficiency does not seem a primary cost factor and constraint to growth if compared to other factors affecting firm targets and firm competitiveness. In addition, non-linearity seems to characterise the economic growth-environmental performance relationship. Signals of inverted U shape appears: this may be a signal that both firm strategies and recent policy efforts are affecting the dynamic relationship between environmental efficiency and economic productivity, turning it from an usual trade off to a possible joint complementary/co-dynamics, where bad environmental performances hamper firm growth and investments in greener technologies may be associated to positive economic performances of firms and sectors.Firm growth, Manufacturing, Emission intensity, Economic performance, Environmental performance

Social Capital, R&D and Industrial Districts

The main idea behind this paper is that social capital is not, as generally suggested by the socio-economic literature, an individual attitude towards something which does not imply privately appropriable economic benefits. Actually, SC might and should be interpreted as a public component of an investment which implies private and public benefits entangled with each other. In order to put forward this idea, a dynamic theoretical model that assumes social capital as the public component of the impure public good R&D is developed. It shows that the ‘civic culture’ of the district area in which the firm works is not sufficient as an incentive to increase its investment in social capital, because this investment strictly depends on the economic convenience of investing in the impure public good. Social capital /networking dynamics might positively and complementarily evolve only if the opportunity cost of investing in innovation is sufficiently low. We consequently focus our attention on a specialized industrial district located in the Emilia Romagna region – the biomedical district of Mirandola (Modena) – characterised by a strong pattern of innovative activity. Using a proxy for innovative activity as dependant variable, we observe that R&D and networking/social capital arise as complementary driving forces for innovation outputs. When empirical evidence confirms that this complementarity plays a key role, and consequently strong links exist between market and non-market dynamics relating to firms, the role for policy actions targeted to social capital is larger. The policy effort should be targeted toward both market and non-market characteristics taken together, rather than solely to the production of (local) public goods (social capital) or innovation inputs as independent elements of firm processes. The input of SC alone is not sufficient to ensure innovation and growth: economic incentives matter. On the other hand, whenever SC dynamics are crucial for R&D private investments, the effect of economic incentives depends on the presence and degree of their complementarity.Social capital, R&D, Technological innovation, Industrial districts

Brown Sunsets and Green Dawns in the Industrial Sector: Environmental Innovations, Firm Behavior and the European Emission Trading

We study the driving forces behind the adoption of environmental innovations (EI) in the Italian industry over 2006-2008 through analyses of the new wave of Community Innovation Survey (CIS) data that covered for the first time environmental innovation adoptions. We investigate whether the first phase of EU ETS has exerted some effects on environmental innovations by using a very large sample of italian manufcturing firms. Estimates show that external forces and complementarity with other management practices are particularly relevant to increase the adoption of relatively new and radical technologies: relationships with other firms and institutions, local public funding, group membership are the key factors. The role of ETS on EI seems instead to be weak: it drives innovation if we compare ETS and non ETS firms, but the stringency itself does not matter, due to sector idiosyncratic factors and to the fact that stability of policy also matters.Environmental Innovation, Industrial Sectors, ETS, Innovation Drivers, CIS Data