Are Italian firms performances influenced by innovation of domestic and foreign firms nearby in space and sectors?

This paper aims to address three main issues. First, we investigate the relevance of spatial total factor productivity (TFP) spillovers determined by firm closeness in the Italian Local Labour Systems (LLS) of Textile. Secondly, we assess the relevance in these locations of TFP premia deriving from firm innovation, taking into account spatial and sectoral innovation. Then, we question how far spatial productivity spillovers and TFP premia spur from innovation of foreign and domestic multinationals located in the LLSs. To this purpose, we use a panel of Italian manufacturing firms for 2007 and 2010 (AIDA data) and focus on 18 Made in Italy LLS of Textile. We employ a spatial econometric approach (spatial autoregressive and spatial error models) by using the geographical coordinates at firm level. We find strong productivity spillovers at spatial level and a relevant impact of innovation on firm productivity. Evidence is also found of a positive impact of intra-sectoral innovation and from concentration of foreign firms innovation in the LLSs. © 2018, Associazione Amici di Economia e Politica Industriale.