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Are Small Firms More Dependent on the Local Environment than Larger Firms? Evidence from Portuguese Manufacturing Firms

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Entrepreneurship, Human Capital, and Regional Development

Part of the book series: International Studies in Entrepreneurship ((ISEN,volume 31))

Abstract

This paper analyzes the impact on firm-level total factor productivity of both agglomeration economies and regional knowledge base, using an unbalanced panel of Portuguese manufacturing firms covering the period 1996–2004. Controlling for the endogeneity using the difference generalized method of moments estimator, we found that both localization and urbanization economies have a significant and positive effect on firm productivity, with the latter playing the most important role. Sectoral specialization economies are important for small and medium firms, but not for large firms. However, larger firms, therefore those with higher absorptive capacity, profit more from regional knowledge than smaller ones.

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Notes

  1. 1.

    Krugman (1998) identifies as the main centrifugal forces the immobile factors (e.g., certain land and natural resources), the high land rents and the external diseconomies (such as congestion).

  2. 2.

    The sample is representative of the Portuguese sector disaggregation (at three-digit level), both in terms of employment size and sales.

  3. 3.

    We note that firms with less than 20 employees represent about 71 % of Portuguese manufacturing firms, but only 16 % of total employment (average over the period; source: OECD database).

  4. 4.

    We omit subscripts j and r to simplify the notation except when it causes ambiguity.

  5. 5.

    Since we subtract ith firm’s employment, LOC are firm-specific.

  6. 6.

    According to European Monitoring Centre on Change, KIBS comprises the following CAE-rev2.1 divisions: (CAE 72) computer and related activities, (CAE 73) research and experimental development, and (CAE 74) other business activities.

  7. 7.

    The random effects model is rejected in favor of the presence of fixed effects by both Hausman and robust Hausman tests at the 1 % significance level (see Wooldrige 2002).

  8. 8.

    Regressions were performed using the Stata, xtabond2 procedure (Roodman 2009). The results presented in the paper are robust to fixed-effects (Olley and Pakes 1996; Levinsohn and Petri 2003) and GMM-System methods. These results are available from the authors upon request.

  9. 9.

    In the Portuguese case, larger markets and denser areas are highly correlated.

  10. 10.

    See NUTS3 regions in Fig. 13.2.

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Authors and Affiliations

  1. Faculdade de Economia/GEMF, Universidade de Coimbra, Coimbra, Portugal

    Carlos Carreira & Luís Lopes

Authors
  1. Carlos Carreira
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  2. Luís Lopes
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Correspondence to Luís Lopes .

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Editors and Affiliations

  1. International Entrepreneurship, CEG-IST, Universidade de Lisboa, Portugal, and Brunel Business School, Brunel University, Uxbridge, Middlesex, United Kingdom

    Rui Baptista

  2. Department of Management and Economics, School of Social and Human Sciences and The Centre for Management Studies of Instituto Superior Técnico (CEG-IST), University of Beira Interior and University of Lisbon, Covilhã, Portugal

    João Leitão

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Carreira, C., Lopes, L. (2015). Are Small Firms More Dependent on the Local Environment than Larger Firms? Evidence from Portuguese Manufacturing Firms. In: Baptista, R., Leitão, J. (eds) Entrepreneurship, Human Capital, and Regional Development. International Studies in Entrepreneurship, vol 31. Springer, Cham. https://doi.org/10.1007/978-3-319-12871-9_13

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