Spatial Externalities and Local Economic Growth

The growing interest on the economic geography issues has provided new vigour to the research efforts aiming at explaining economic phenomena without neglecting space. In particular several studies have focused on the role of spatially bounded externalities on firms agglomeration processes at the local industry level. The main objective of this paper is to assess the role of a large set of potential determinants of the process of local agglomeration of economic activity and also to analyse the issue of spatial association of the local growth process. We focus on the case of Italy making use of a very ample database on socio-economic indicators for 784 Local Labour Systems and 34 sectors over the period 1991-96. Our database cover both the manufacturing and the service sectors so that the whole economic system is considered. Our econometric results show that local growth in Italy is not a homogeneous process. On the contrary, it is characterized by significant differences across macro regions and sectors with respect to the relevance of the explanatory factors. Among the most important determinants of local industry growth, it is worth mentioning the positive role of the diversity externalities. We also find robust evidence of the negative influence of specialisation externalities on labour dynamics at the local industry level. Moreover, we have assessed the effects of other determinants of local growth like human capital, social environment and network externalities. Finally, the spatial analysis shows that in the aggregate economy and also in some sectors there is the presence of spatial autocorrelation and therefore dynamic spatial models have been estimated.