The role of spatial agglomeration in a model of innovation, productivity and export: evidence from Italy

Using a large sample of Italian manufacturing firms, in this paper we estimate a structural model of research, innovation, productivity and export performance augmented to take account for the role played by spatial agglomeration externalities. This model, which is an ‘augmented’ version of Crepon, Duguet and Mairesse (1998) model, comprises four main equations. The first identifies the factors underlying the intensity of Research and Development (R&D) investments; the second links R&D capital to innovation output; the third focuses on Total Factor Productivity (TFP) as determined by innovation; the fourth relates TFP to export performance. Our estimates show the significant role played by local externalities in these processes. In particular, related variety and urbanization positively affect the creation of new ideas through R&D, while specialization impacts on TFP to complement innovation output. Finally, urbanization economies support TFP in driving firms’ export performance.