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Local market size, social capital and outsourcing: evidence from Emilia Romagna

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Abstract

Based on a unique dataset concerning small firms operating in the machinery and equipment industry in Emilia Romagna (Italy), we estimate the separate effects of social capital and local market size on the probability to either fully or partially outsource parts of the production process. We are able to distinguish 29 different phases of the production cycle, from design, to early processing to post-production. Our estimates show that: (1) social capital influences the full outsourcing of core assembly and post-assembly activities, while local market size affects the full outsourcing of early processing activities; (2) neither social capital nor local market size have a statistically significant effect on the probability of partially outsourcing any step of the production process. Robustness tests confirm our results vis-à-vis the endogeneity of the local market size and social capital, and the potential Modifiable Area Unit Problem relating to local market size.

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Notes

  1. For a critical review of the empirics of social capital see Durlauf (2002), Durlauf and Fafchamps (2005), Westlund and Adam (2010). Providing a comprehensive analysis of social capital is well beyond the scope of this paper. As summarized by Westlund and Adam (2010), our measure of social capital is the most often used in the literature on the effect of social capital on economic performance.

  2. This definition is similar to the one proposed by Guiso et al. (2008a) of a set of beliefs and values that facilitate cooperation among the members of a community, and it coincides with the concept of civic capital, defined in Guiso et al. (2011, p. 419) as “persistent and shared values that help a group overcome the free rider problem in the pursuit of socially valuable activities”.

  3. Since the universe of firms exceeding this threshold is only partially represented in the sector studies, we preferred to focus only on firms with less than 50 employees.

  4. The j disappears when the models are specified for the whole set of production phases.

  5. The persistence of social capital might be the result of an inter-temporal transmission of culture and values from parents to children, as modeled by Tabellini (2008).

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Acknowledgments

We thank Alex Coad, Sandro Montresor and Francesca Gambarotto for useful comments on earlier versions of the paper, and Antonella Maggipinto for help with the GIS data. Previous versions of the paper were discussed at the 1st Governance of a Complex World Conference, the 35th DRUID Conference, the 10th ENEF Conference, the 16th Uddevalla Symposium, the 53rd ERSA Conference, the 54th SIE Annual Conference and the 34th AISRE Conference. We thank the participants for their comments and suggestions. The usual disclaimers apply.

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Authors and Affiliations

  1. “Marco Fanno” Department of Economics and Management, University of Padova, Via del Santo 33, 35123, Padua, Italy

    Roberto Antonietti

  2. “Paolo Fortunati” Department of Statistical Sciences, University of Bologna, Via Belle Arti 41, 40126, Bologna, Italy

    Maria Rosaria Ferrante

  3. Department of Economics, University of Bologna, Strada Maggiore 45, 40125, Bologna, Italy

    Riccardo Leoncini

  4. Freiburg Institute for Advanced Studies (FRIAS), University of Freiburg, Albertstr. 19, 79104, Freiburg, Germany

    Riccardo Leoncini

  5. IRCrES-CNR, Via Bassini, 15, 20133, Milan, Italy

    Riccardo Leoncini

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Antonietti, R., Ferrante, M.R. & Leoncini, R. Local market size, social capital and outsourcing: evidence from Emilia Romagna. Small Bus Econ 47, 243–260 (2016). https://doi.org/10.1007/s11187-016-9711-3

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