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The aim of this paper is to analyse how and to what extent firms' external relations, such as the belonging to a local cluster or to a business group, affect the probability of firm survival and economic performance after the Great Recession of 2008. Our main hypothesis is that belonging to a business group or to a local cluster will mitigate the selection effects determined by real and financial shocks and that only the more efficient units in 'isolated' firms will survive. This means that firms that are part of a group or are located within a local cluster can be expected to show a lower likelihood of failure, but also lower performance compared to standalone firms. Estimating instrumental variable econometric models and using a large dataset of 155,841 Italian manufacturing joint stock companies, 28,167 of which are part of a group, we test these hypotheses for the period 2005-2012. Our results confirm expectations. Firms located in local clusters or that belong to a business group show higher rates of survival rate during the Great Recession compared to standalone firms. However, the latter show higher levels of performance in terms of growth and profitability.

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