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Geographic concentration and vertical disintegration in KIBS: evidence from the metropolitan area of Milan

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  • Roberto Antonietti
  • Giulio Cainelli

Abstract

A recent strand of the economic literature has emphasised the role of services, and in particular knowledge-intensive business services (KIBS), as a primary source of knowledge creation and diffusion. Since this transferring process often occurs through strong face-to-face interactions, the role of spatial proximity becomes crucial. Theoretical and empirical literature shows that the geographic concentration of industry induces firms to vertically disintegrate their production, due to the lowering of transport and governance costs as well as to the reduction of opportunism in managing transactions. However, the evidence is primarily based on manufacturing firms, whereas little or no attention is given to service firms. In this paper we try to fill this gap by estimating the effects of spatial agglomeration on knowledge intensive business service firms' vertical disintegration with reference to the metropolitan region of Milan. Relying on a rich firm-level dataset of about 12.000 KIBS firms located in the metropolitan area of Milan in 2008, we first geo-referenciate our data by employing a GIS routine. Then, we define a set of rings moving out of increments of 1 kilometre, and we count the number of firms located within each ring. For each firm, we compute, ring by ring, the number of neighbouring firms that are in the same three-digit industry, and the number of firms that are in all the three-digit industries except for the one in which the firm operates. In this way, we estimate the impact of proximity-based specialization Vs diversification economies on KIBS firms' vertical disintegration, exploiting information on the actual distance between each pair offirms in the sample. Our dependent variable is calculated as the share of purchased business services over total production costs. This purchased-inputs variable allows accounting for the fact that "many business services are likely to be exactly the kind of locally produced intermediate input that producers in localized areas will have greater access to than producers in isolated areas" (Holmes 1999, p. 316).

Suggested Citation

  • Roberto Antonietti & Giulio Cainelli, 2011. "Geographic concentration and vertical disintegration in KIBS: evidence from the metropolitan area of Milan," Openloc Working Papers 1105, Public policies and local development.
  • Handle: RePEc:trn:utwpol:1105
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    References listed on IDEAS

    as
    1. Roberto Antonietti & Maria Rosaria Ferrante & Riccardo Leoncini, 2009. "Local spillovers, production technology and the choice to make and/or buy. Empirical evidence from Emilia Romagna," Openloc Working Papers 0902, Public policies and local development.
    2. Helsley, Robert W. & Strange, William C., 2007. "Agglomeration, opportunism, and the organization of production," Journal of Urban Economics, Elsevier, vol. 62(1), pages 55-75, July.
    3. Mohammad Arzaghi & J. Vernon Henderson, 2008. "Networking off Madison Avenue," Review of Economic Studies, Oxford University Press, vol. 75(4), pages 1011-1038.
    4. Marina Doroshenko & Ian Miles & Dmitry Vinogradov, 2014. "Knowledge Intensive Business Services: The Russian Experience," Foresight and STI Governance (Foresight-Russia till No. 3/2015), National Research University Higher School of Economics, vol. 8(4), pages 24-39.
      • Marina Doroshenko & Ian Miles & Dmitry Vinogradov, 2014. "Knowledge Intensive business services: the Russian experience," Foresight-Russia Форсайт, CyberLeninka;Федеральное государственное автономное образовательное учреждение высшего образования «Национальный исследовательский университет «Высшая школа экономики», vol. 8(4 (eng)), pages 24-39.
    5. James H. Love & Stephen Roper, 2001. "articles: Outsourcing in the innovation process: Locational and strategic determinants," Papers in Regional Science, Springer;Regional Science Association International, vol. 80(3), pages 317-336.
    6. Roberto Antonietti & Giulio Cainelli, 2007. "Spatial Agglomeration, Technology and Outsourcing of Knowledge Intensive Business Services Empirical Insights from Italy," Working Papers 2007.79, Fondazione Eni Enrico Mattei.
    7. Ruthrama Rama & Deron Ferguson & Ana Melero, 2003. "Subcontracting Networks in Industrial Districts: The Electronics Industries of Madrid," Regional Studies, Taylor & Francis Journals, vol. 37(1), pages 71-88.
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    9. Li, Ben & Lu, Yi, 2009. "Geographic concentration and vertical disintegration: Evidence from China," Journal of Urban Economics, Elsevier, vol. 65(3), pages 294-304, May.
    10. Muller, Emmanuel & Zenker, Andrea, 2001. "Business services as actors of knowledge transformation: the role of KIBS in regional and national innovation systems," Research Policy, Elsevier, vol. 30(9), pages 1501-1516, December.
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    13. Simone Strambach, 2010. "Knowledge-Intensive Business Services (KIBS)," Chapters,in: Platforms of Innovation, chapter 7 Edward Elgar Publishing.
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    More about this item

    Keywords

    GIS; KIBS; spatial agglomeration; vertical disintegration;

    JEL classification:

    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • L8 - Industrial Organization - - Industry Studies: Services

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