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Grupo de Estudos Monetários e Financeiros

Estudos do GEMF, N.º 21 de 2012


Are Small Firms More Dependent on the Local Environment than Larger Firms?

Evidence from Portuguese Manufacturing Firms

Carlos Carreira
Faculdade de Economia/GEMF, Universidade de Coimbra

Luís Peres Lopes

Faculdade de Economia/GEMF, Universidade de Coimbra

This paper analyses the impact on firm-level total factor productivity of both agglomeration economies and regional knowledge, using an unbalanced panel of Portuguese manufacturing firms covering the period 1996–2004. Controlling for the endogeneity problem using the Arellano and Bond (1991) difference GMM estimator, we found that both localization and urbanization economies have a significant and positive effect on firms’ TFP, 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 profit more from regional knowledge than smaller ones.

JEL Classification: R11, R12, R15, O47.

Agglomeration Economies, Regional Knowledge, Total Factor Productivity, Small Firms.

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