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Urban size and KIBS vertical disintegration: Evidence from Lombardy

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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 show 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 urban agglomeration on knowledge intensive business service firms' vertical disintegration in a longitudinal context, with reference to the Lombardy region in Italy. Data used in this work are drawn from AIDA, a commercial database collected by Bureau Van Dijck gathering information on balance sheets data as well as the geographical position of Italian joint stock companies. Relying on this rich firm-level dataset, we build a sample of almost 17.000 KIBS firms located in Lombardy over the period 2004-2009, and we estimate both a first difference and an instrumental variable GMM model in which, as dependent variable, we use both the share of purchased business services and the share of material inputs, while, as explanatory variables, we include firm size, age and population size at the municipality and local labour system level. In so doing, we estimate the impact that the short-run variations in urban size have on the short-run variations in the degree of vertical disintegration of KIBS, while controlling for potential endogeneity issues due to unobserved heterogeneity and simultaneity, and for the robustness of our measure of urban size to alternative specifications. Our results complement previous cross-sectional evidence and point to a positive and statistically significant effect of urban size on the degree of vertical disintegration. In addition, we find that this effect is particularly strong for professional KIBS and for the purchase of business services rather than for technological KIBS and for the purchase of material inputs. Keywords: agglomeration, KIBS, urban size, vertical disintegration JEL: C33; D22; R12; L24

Suggested Citation

  • Roberto Antonietti & Giulio Cainelli, 2012. "Urban size and KIBS vertical disintegration: Evidence from Lombardy," ERSA conference papers ersa12p666, European Regional Science Association.
  • Handle: RePEc:wiw:wiwrsa:ersa12p666
    as

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    References listed on IDEAS

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    1. Martin, Philippe & Mayer, Thierry & Mayneris, Florian, 2011. "Spatial concentration and plant-level productivity in France," Journal of Urban Economics, Elsevier, vol. 69(2), pages 182-195, March.
    2. 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.
    3. 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.
    4. 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.
    5. Giulio Cainelli & Donato Iacobucci, 2012. "Agglomeration, Related Variety, and Vertical Integration," Economic Geography, Clark University, vol. 88(3), pages 255-277, July.
    6. 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.
    7. Goldstein, G. S. & Gronberg, T. J., 1984. "Economies of scope and economies of agglomeration," Journal of Urban Economics, Elsevier, vol. 16(1), pages 91-104, July.
    8. Mohammad Arzaghi & J. Vernon Henderson, 2008. "Networking off Madison Avenue," Review of Economic Studies, Oxford University Press, vol. 75(4), pages 1011-1038.
    9. repec:spo:wpecon:info:hdl:2441/c8dmi8nm4pdjkuc9g8mc6ihim is not listed on IDEAS
    10. Roberto Antonietti & Maria Rosaria Ferrante & Riccardo Leoncini, 2014. "Spatial Agglomeration, Production Technology and the Choice to Make and/or Buy: Empirical Evidence from the Emilia Romagna Machine Tool Industry," Regional Studies, Taylor & Francis Journals, vol. 48(2), pages 284-300, February.
    11. Simone Strambach, 2010. "Knowledge-Intensive Business Services (KIBS)," Chapters,in: Platforms of Innovation, chapter 7 Edward Elgar Publishing.
    12. 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.
    13. George J. Stigler, 1951. "The Division of Labor is Limited by the Extent of the Market," Journal of Political Economy, University of Chicago Press, vol. 59, pages 185-185.
    14. 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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    More about this item

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures

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