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Non-linear externalities in firm localization

Author

Listed:
  • Giulio Bottazzi

    (Institute of Economics of Sant'Anna [Pisa] - SSSUP - Scuola Universitaria Superiore Sant'Anna [Pisa])

  • Ugo Gragnolati

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

  • Vanni Fabio

    (Institute of Economics of Sant'Anna [Pisa] - SSSUP - Scuola Universitaria Superiore Sant'Anna [Pisa])

Abstract

This paper presents a model of firm localization allowing for non-linear, quadratic externalities. The model disentangles localization externalities from the intrinsic advantages of regions, while the inferential analysis on its parameters verifies whether externalities may have a non-linear shape. Specifically, the introduction of a quadratic term can accommodate both more-than-linear positive feedbacks as well as congestion effects. If the quadratic term is sufficiently negative, one location can reach the point in which the addition of an extra firm decreases the probability for that same location to further attract other firms. In this sense, the present model does not assume a priori that the localization choices of firms are characterized by positive interdependencies. Rather, the methodology allows to estimate whether or not this is actually the case. Our main result is that the quadratic term is virtually never found to be statistically different from zero across Italian sectors observed at the scale of commuting zones, so that localized externalities seem to be well approximated by a linear specification.

Suggested Citation

  • Giulio Bottazzi & Ugo Gragnolati & Vanni Fabio, 2015. "Non-linear externalities in firm localization," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-01297132, HAL.
  • Handle: RePEc:hal:cesptp:hal-01297132
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    More about this item

    Keywords

    Firm localization; Externalities; Non-linearities;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C16 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Econometric and Statistical Methods; Specific Distributions
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General

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