Innovation Clustering and Firms’ Productivity in Italy

In this paper we explore how firms’ productivity is affected by agglomeration of firms, clustering of innovation and localisation of FDI in Italy. The analysis aims to provide a measure of spillovers on productivity from geographical and sectorial clustering of firms and from their innovation. Firm’s absorptive capacity is also taken into account by interacting the variables of agglomeration and innovation at region-sector level with size and technology. Design/methodology/approach:Spatial unit of analysis are provinces. Our sample is stratified by size, sectors and region and representative of the Italian firm population. Panel estimates for output by GMM system methodology are used to address simultaneity and endogeneity on inputs and reverse causality between agglomeration and productivity. We build specific indexes of agglomeration and innovation activity at territorial level. Wealso use indicators of innovation performed by domestic and by foreign multinationals at the spatial level of analysis adopted. Findings: The estimation results support significant productivity enhancing agglomeration effects stemming from firms operating in the same sector and region, from innovation clustering at local level, and from higher output of foreign firms located in the same region. However, spatial spillovers are specific to technologically more sophisticated firms. Research/practical implications:In policy terms there is evidence on the outcome that firms in the same industry benefit more from each other as they are more technologically similar,and the sector closeness matters as this may facilitate the flow and absorption of knowledge among firms. However, technology play a critical role and policies should pay specific effort to enhance the absorptive capacity of less technology sophisticated firms. Originality/value: The specific additional insights are given by the adoption of a multidimensional approach, both at spatial and firm level, in the effort to catch at the same time regional characteristics of the economic systems and firm heterogeneity.