Agglomeration Externalities and the Productivity of Italian Firms

Despite the richness of contributions on the effects of agglomeration on economic activity, the empirical evidence still falls short, especially at the microeconomic level, where they should matter the most. This paper adds to this literature by performing an empirical exploration of the role of Marshallian, Jacobian, and Porterian externalities for the productivity of Italian firms. In particular, a large dataset of small and medium enterprises is first employed to estimate firm-level total factor productivity (TFP). Then dynamic panel and instrumental variables estimation methods are used to assess the effects of agglomeration externalities. The findings seem to suggest that these effects may vary depending whether the level or growth of TFP is considered. While the first is mostly influenced by the extent of Marshallian economies, the latter is higher when Jacobian and Porterian economies are at work.