INDUSTRIAL AGGLOMERATION AND ITS EFFECT ON GROWTH RATE OF BRAZILIAN FIRMS

Abstract

Taking the form of local productive arrangements, industrial districts or even clusters, following Michael Porter, firm agglomeration in specific locations has been considered a relevant phenomenon that can positively affect firm and region competitiveness. Theoretical support for this effect can be found in economic geography or in theories derived from the positive externalities as indicated by Marshall since the XIX century. However, broader empirical support and an assessment of the magnitude of this effect is still a challenge. This paper contributes to this effort using the following research question: what is the effect of agglomeration (firms of the same industry in a certain region) in firm’s growing rates? The research examined more than 16,000 Brazilian manufacturing establishments, covering a 10 year period (from 1996 to 2005), accessing micro-data of Industrial Annual Research (Pesquisa Industrial Anual -PIA) of Brazilian Official Statistics Institute (IBGE) and measured the effect of agglomeration on firm growth rate. Analysis used a cross-classified multilevel model that also allowed variance decomposition of firm growth rates. A positive, small, but statistically significant effect was found. Results also suggest that this relationship has an inverted U shape, indicating the possibility of limits to the positive effect of agglomeration on firms’ growth.