Reassessing the spatial determinants of the growth of Italian SMEs

The paper proposes a novel methodology to assess the role of “location” in shaping firm growth. Along with traditional determinants (e.g., age, size and financial constraints), geographical location is alleged to drive firm growth. The current literature typically relies on location variables that suffer from a lack of empirical robustness (Combes et al., 2008; Duranton and Overman, 2005; Arbia et al., 2012; Giuliani et al., 2012): indeed arbitrary definitions of the spatial observational units (such as provinces, regions or municipalities) introduce a statistical bias arising from the discretionally chosen definition of space. To address these shortcomings, we use the Getis’ local K-function (Getis, 1984) at the firm level. This measure allows us to distinguish between Marshallian and Jacobs externalities. The analysis exploits a new database comprising single-unit Italian firms operating in the manufacturing sector. Empirical results show that firms exhibit a differential ability to grow due to different kinds of externalities: small firms benefit more from Marshallian externalities, while medium-large firms exploit also Jacobian externalities.