Local agglomeration, entrepreneurship and the 2008 recession: Evidence from Italian industrial districts

Abstract

We investigate whether the impact of recessions on entrepreneurship is affected by the presence of industrial districts, a source of local agglomeration economies. Using Italian Labour Force quarterly data from 2006 to 2011 and a “difference-in-differences” approach, we show that the share of entrepreneurs in local labour markets where industrial districts are present has declined more than in comparable areas after the beginning of the 2008 recession. The estimated negative differential effect ranges between 4.8 and 7.9% in absolute value. We examine alternative explanations — including differences in industrial specialisation and composition, access to credit propensity, exports, population density and the composition of talents — and conclude that our result is consistent with the intense social interactions typical of industrial districts, acting as a multiplier that amplifies the response to shocks.