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The agglomeration of knowledge-intensive business services firms

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Abstract

We analyse the geographic localization and the productivity of knowledge-intensive business services (KIBS) in Italy, using both census data and balance sheet data at the firm level. We find that KIBS are generally agglomerated in urban areas where they attain significantly higher labour productivity levels. Urban productivity advantages are found to be strongly associated with the local availability of human capital and to standard proxies of Marshall–Arrow–Romer and Jacobs agglomeration economies. Forward demand linkages and some factors impacting on the thickness of the local labour market also appear to be relevant. On the whole, the set of explanatory factors considered could explain the entire urban productivity premium estimated for Italian KIBS firms.

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Notes

  1. The views expressed in this paper are those of the authors alone and do not necessarily represent those of the Bank of Italy. The authors would like to thank Antonio Accetturo, Andrea Lamorgese, Sauro Mocetti and Paolo Sestito (Bank of Italy) for their helpful suggestions.

  2. The empirical analyses that have dealt with the role of agglomeration economies in the service sector (Combes 2000; Acs and Armington 2004; Desmet and Fafchamps 2005; Di Giacinto and Micucci 2009) provide mixed results on the relative importance of specialization versus urbanization economies. Micucci (2003) underlines the significant use of business services by firms located in Italy’s industrial districts.

  3. The explanation based on agglomeration economies is prevalent in the literature, even if more recently, there has been increasing consensus around an alternative explanation based on firm selection, building on works by Melitz (2003) and Melitz and Ottaviano (2008); according to the firm selection theory, larger markets attract more firms and make competition tougher, thus leading less productive firms to exit the market. Empirical analysis by Combes et al. (2012) and Accetturo et al. (2013) suggests that a large share of the territorial distribution of economic activities is explained by agglomeration economies.

  4. Jacobs et al. (2013), for the metropolitan area of Amsterdam in the Netherlands, show that KIBS are co-agglomerated with the presence of multinational enterprises.

  5. See https://ec.europa.eu/eurostat/statistics-explained/index.php/Glossary:Knowledge-intensive_services_%28KIS%29.

  6. The Italian national statistical institute (Istat) defines LLMAs as sub-regional geographical areas where the bulk of the labour force lives and works, and where establishments can find the largest amount of the labour force necessary to occupy the jobs offered. Based on the 2011 Census data on worker commuting flows and using as a key variable the proportion of commuters who cross the LLMA boundary on their way to work, Istat has aggregated Italy’s roughly 8000 municipalities into 611 LLMAs spanning the entire national territory.

  7. A model specification where the interactions between the sector and area dummies and between the former and year dummies are included was also estimated, yielding almost identical results.

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Authors and Affiliations

  1. Bank of Italy – L’Aquila Branch, L’Aquila, Italy

    Valter Di Giacinto & Alessandro Tosoni

  2. Bank of Italy – Ancona Branch, Ancona, Italy

    Giacinto Micucci

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  1. Valter Di Giacinto
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  2. Giacinto Micucci
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  3. Alessandro Tosoni
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Correspondence to Valter Di Giacinto.

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Di Giacinto, V., Micucci, G. & Tosoni, A. The agglomeration of knowledge-intensive business services firms. Ann Reg Sci 65, 557–590 (2020). https://doi.org/10.1007/s00168-020-00995-3

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