Spatial Proximity and Firm Performances: How Can Location-Based Economies Help the Transition Process in the Mediterranean Region? Empirical Evidence from Turkey, Italy and Tunisia

In this paper we explore how firms’ productivity is affected by agglomeration of firms, clustering of innovation and localisation of FDI in Turkey, Italy and Tunisia. We also control for the impact of firm characteristics on firm productivity (specifically the role of size, ownership and firm innovation) and of spatial features (the higher output of foreign firms, the distance from the main town, the regional infrastructures and the regional attractiveness). The firm’s absorptive capacity is also taken into account by interacting the main variables of agglomeration and innovation at region sector level with size and technology level of the firm. We use three separate unbalanced panels for different periods based on national data bases. For the three case studies our analysis builds upon similar specifications of panel estimates for output by GMM system methodology to address simultaneity and endogeneity on inputs and also the possible endogeneity between agglomeration and productivity. Overall, the estimation results suggest some common findings for the three case studies: there are significant productivity enhancing agglomeration effects, in particular there are significant spillovers between firms operating in the same sector and region, spillovers from innovation at local level are also strong, and higher output of foreign firms produce positive spillovers on productivity in the province. However, spillovers are specific to technologically more sophisticated firms.