Spatial agglomeration, production technology and the choice to make and/or buy. Empirical evidence from Emilia Romagna machine tool industry

Using a new firm-level dataset, the decision, and relative intensity, to source either fully or partially production activities by small mechanical firms in the Emilia Romagna region of Italy is analysed. A hurdle negative binomial model is estimated, controlling for endogeneity and composition of the production process. Full outsourcing is positively related to the share of skilled personnel, the presence abroad and the employment density in neighbouring firms. Concurrent sourcing is affected by firm size, age and labour cost. The insensitivity of concurrent outsourcing to the industry's spatial concentration reflects the lower transaction costs compared with full outsourcing.