Agglomeration economies in Italy: impact on heterogeneous firms’ exit in a multilevel framework

The purpose of this contribution is to shed light on the role of agglomeration economies as drivers of firm exit in Italy over the period 2002–2010. The analysis is based on a firm level dataset that merges firm characteristics with administrative data, allowing us to consider variables related to the geographical context at the province level. We attempt to address a missing link in agglomeration studies: the analysis of the relationship between agglomeration economies and individual firm performance. To take the multidimensional structure of the data into account, in addition to multivariate logit discrete models, we apply a Multilevel Analysis, which allows us to simultaneously model spatial and firm heterogeneity. Our results for the overall sample show that higher specialization (non-linearly) and diversification economies (within industries) play an important role in lowering firm exit risk, while district specialization increases the probability of firm failure. In order to further explore firm heterogeneity, we also compare the exit behaviour of multinational and national firms to check whether they have different agglomeration premia. The multilevel analysis suggests that national firms benefit from specialization and diversification economies but are more at risk of exit in urban areas and industrial districts. By contrast, foreign multinationals have higher agglomeration premia than Italian firms in urban and in district areas but do not benefit from specialization economies. In addition to this, the region and province variance explain only up to 4 % of the total variance in the exit rates, leaving most of the explanatory power to unobserved firm heterogeneity. This confirms the importance of carrying out a firm level analysis of exit performances and geographical factors. Copyright Associazione Amici di Economia e Politica Industriale 2015