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Firm growth in the Portuguese footwear industry: the location dilemma

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Abstract

The purpose of this paper is to empirically address the relationship between regional firm density and the growth of firms in the Portuguese footwear industry. Although 80% of the firms belonging to this cluster are mainly geographically concentrated in two poles, we find that location is not significantly correlated with growth. To understand our disparate results on location, we adopted a graphical criterion to separate firms into two groups, taking firms surrounded by 200 firms as a threshold. We fit a separate linear regression for these two subsets of data to find that there exist two different patterns for regional firm density: location is negatively correlated with growth for the group of firms surrounded by less than 200 firms and positively correlated for the group surrounded by more than 200 firms. This allows us to propose a suggestive explanation: firms surrounded by few firms have more access to resources and can grow fast, whereas firms within a cluster are benefited from the location externalities. Our findings are relevant to guide entrepreneurs wishing to start a new business in this industry, and to Portuguese policymakers to draw public policies aimed to affect entrepreneurs’ location decisions in this sector through subsidies and incentives.

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Notes

  1. The literature has also explored other variables in the Portuguese economy, such as size (Oliveira and Fortunato 2006b; Barbosa and Eiriz 2011), age (Nunes et al. 2013), financing constraints (Cabral and Mata 2003), liquidity constraints (Oliveira and Fortunato 2006a), R&D (Oliveira and Fortunato 2005, 2017) and patterns of entry of foreign firms (Mata and Portugal 2004).

  2. The data used in this study are available at: https://sabi.bvdinfo.com.

  3. Following Saunders et al.'s (2009, pp. 581–582) methodology, a sample size of only 364 firms would be representative.

  4. Our result concerning negligible effect of location on the growth is also present if we use in the regression other definitions of location, such as \(L{\text{Cluster}}_{i}\) (the one adopted by Lee 2018; Tarfasa et al. 2016; Geenhuizen and Reyes-Gonzalez 2007) or \(L{\text{Municipality}}_{i}\). See Supplementary Appendix.

  5. In the remaining of the paper, we address location by focusing on the variable \(L{\text{WideCluster}}_{i}\), hence checking Hypothesis 1c, as we found the results more significative.

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  1. Faculty of CC. Economic and Business, University of Vigo, Vigo, Spain

    Rolando Vaz

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Vaz, R. Firm growth in the Portuguese footwear industry: the location dilemma. Ann Reg Sci 70, 407–427 (2023). https://doi.org/10.1007/s00168-022-01152-8

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