The firm-specific determinants of agglomeration: a comparison

Abstract

This paper deals with the agglomeration of economic activities in Italy. By using the Guimaraes et al. [2004] version of the Ellison & Glaeser [1994] index, we test the hypothesis that the determinants of agglomeration differ in significance, intensity and sign between multinational and national firms. The data concerning the agglomeration of 112 manufacturing and mining industries, computed over the 686 Italian Local Labor Systems (SLL) in the year 2001, show that some agglomeration forces are industry-specific while some others are firm-specific. Indeed, on the one hand the industrial concentration and the inter-industry externalities seem to act as centripetal forces for all types of enterprises, on the other hand the intra-industry spillovers appear to favor the agglomeration of only multinational firms, while acting as centrifugal force both for the clustering of national firms and for the co-agglomeration between foreign and domestic enterprises. This result suggests that the possibility of knowledge transmission between firms belonging to the same industry may discourage the most advanced enterprises to co-locate with the less innovative firms. The main policy implication is that a high Intellectual Property Regime (IPR) is preferred to a low protection of intellectual property, since in the latter case the co-agglomeration does not occur and multinational and national firms do no interact and do not exchange knowledge, while in the former scenario domestic and foreign enterprises co-locate, and even if the high IPR limit the transfer of knowledge, other mechanisms, such as the labor turnover, may occur and promote knowledge spillovers between firms.