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Information Spillover and Factor Adjustment

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  • Guiso, Luigi
  • Schivardi, Fabiano

Abstract

We investigate the role of information spillovers (IS) in determining firms' labour adjustments. We test the proposition that information on relevant state variables spills over through one firm's decision to affect those of other firms. Our test is based on the assumption that spillovers matter only among firms that are both similar and geographically close. Using a large panel of manufacturing firms, we identify those that are located in a given industrial district and produce the same goods as satisfying both criteria. We propose a solution to the identification problem typical of the empirical analysis of social effects. Our results show that firms' decisions are indeed affected by those of similar, neighbouring firms, while the actions of firms not satisfying either of the criteria have no impact. We test other implications of the theory and find further supporting evidence of the relevance of IS. First, measures of extreme adjustments exert a stronger influence than mean adjustments; second, smaller firms seem to rely more on external sources of information; third, the effects depend on a number of the reference group's characteristics, such as its size and the presence of large firms. Finally, given that firms exposed to IS tend to adjust simultaneously, we find that spillovers amplify the effect of aggregate shocks and constitute a powerful mechanism of amplification of the business cycle.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2289.

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Date of creation: Nov 1999
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Handle: RePEc:cpr:ceprdp:2289

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Keywords: Business Cycle; Factor Adjustment; Information Spillovers; Social Learning;

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Citations

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Cited by:
  1. Giulio Bottazzi & Giovanni Dosi & Giorgio Fagiolo, 2001. "On the Ubiquitous Nature of the Agglomeration Economies and their Diverse Determinants: Some Notes," LEM Papers Series 2001/10, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
  2. Federico Cingano & Fabiano Schivardi, 2003. "Identifying the Sources of Local Productivity Growth," Temi di discussione (Economic working papers) 474, Bank of Italy, Economic Research and International Relations Area.
  3. Fabiano Schivardi, 1998. "Reallocation and Learning over the Business Cycle," Temi di discussione (Economic working papers) 345, Bank of Italy, Economic Research and International Relations Area.
  4. Matteo Bugamelli & Luigi Infante, 2003. "Sunk Costs of Exports," Temi di discussione (Economic working papers) 469, Bank of Italy, Economic Research and International Relations Area.
  5. Patrizio Pagano & Fabiano Schivardi, 2003. "Firm Size Distribution and Growth," Scandinavian Journal of Economics, Wiley Blackwell, vol. 105(2), pages 255-274, 06.
  6. Luigi Guiso & Luigi Pistaferri & Fabiano Schivardi, 2006. "Disentangling employment and wage rigidity," 2006 Meeting Papers 536, Society for Economic Dynamics.
  7. Domenico J. Marchetti & francesco Nucci, 2001. "Unobserved Factor Utilization, Technology Shocks and Business Cycles," Temi di discussione (Economic working papers) 392, Bank of Italy, Economic Research and International Relations Area.
  8. Guiso, Luigi & Schivardi, Fabiano, 2005. "Learning to be an Entrepreneur," CEPR Discussion Papers 5290, C.E.P.R. Discussion Papers.
  9. Cingano, Federico, 2003. "Returns to specific skills in industrial districts," Labour Economics, Elsevier, vol. 10(2), pages 149-164, April.
  10. Rose Cunningham, 2004. "Investment, Private Information, and Social Learning: A Case Study of the Semiconductor Industry," Working Papers 04-32, Bank of Canada.
  11. Rose Cunningham, 2004. "Investment, Private Information and Social Learning: A Case Study of the Semiconductor Industry," Macroeconomics 0409021, EconWPA.

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