Firm Profitability and Agglomeration Economies: An Elusive Relationship
Tijdschrift voor Economische en Sociale Geografie , Volume 107 - Issue 1 p. 66- 80
Recent empirical research has questioned the ability of agglomeration economies to stimulate proﬁtability and healthy ﬁnancial performance in ﬁrms. We devise a cross-sectional sample of approximately 410,000 ﬁrms that were active in all subsectors of the manufacturing industry and that were located across 191 NUTS 2 regions of 15 European Union member states in 2005. For each ﬁrm, we calculate two proﬁtability indicators and a labour efﬁciency indicator. We ﬁnd that the part of the variance of the proﬁtability and labour efﬁciency indicators that is attributed to regions is very small. Furthermore, ﬁtted multilevel models show that the quantitative effect of regional specialisation, despite being statistically signiﬁcant, is very small. The results are robust across more reﬁned geographical scales and subsectors. However, the NUTS 2 level remains the major spatial scale of the design and implementation of European Union regional policy. Our results beneﬁt from the power and safety of a large sample and challenge conventional approaches to agglomeration research and cluster policy.
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Stavropoulos, S, & Skuras, D. (2016). Firm Profitability and Agglomeration Economies: An Elusive Relationship. Tijdschrift voor Economische en Sociale Geografie, 107(1), 66–80. doi:10.1111/tesg.12125