Agglomeration and firm performance: One firm’s medicine is another firm’s poison

Abstract

In this paper, we aim to reduce the ambiguity surrounding the agglomeration-performance relationship. We do so by taking firm-level and agglomeration-level heterogeneity into account simultaneously and focusing on the interactions between these two levels of analysis in explaining the effect of agglomeration on firm performance. Our central argument is that while some firms will benefit from agglomeration, others will be harmed by it. To assess our claims, we estimate multilevel models on firms' productivity with nonlinear interaction effects between the agglomeration-level (urbanization, specialization, and knowledge intensity) and firm-level variables (size, internal knowledge base, and face-to-face contacts) using data from a sample of Dutch firms. Our results show that the effects of different dimensions of agglomeration on firm performance are strongly and nonlinearly moderated by firm characteristics. Moreover, the moderation effect is not uniform across the different agglomeration dimensions.

Reconciling Perspectives on Clusters: An Integrative Review and Research Agenda

“…The former argument predicts that weak firms benefit from capturing geographically bounded knowledge spillovers and suffer little from knowledge leakage. Researchers consider these divergent postulations incompatible, and the disparate evidence contradicting Nilsson 2017, 2019;Hervas-Oliver et al 2018;Knoben et al 2016). Researchers consider these divergent postulations incompatible, and the disparate evidence contradicting Nilsson 2017, 2019;Hervas-Oliver et al 2018;Knoben et al 2016).…”

“…An example of an area of study hindered by a selective consideration of contingencies is the innovation impact of geographic diversity and specialization (Beaudry and Schiffauerova 2009). Findings range from the conclusion that the weakest firms benefit the most from agglomeration, through to those reporting the benefits for moderately strong firms or even the strongest firms Nilsson 2017, 2019;Hervas-Oliver et al 2018;Knoben et al 2016;Rigby and Brown 2015). However, these studies did not include network and institutional conditions.…”

“…Although various studies have proposed new contingencies (e.g. For instance, a new line of research is investigating how firm endowments such as the level of internal knowledge impact the effects of agglomeration economies (Hervas-Oliver et al 2018;Knoben et al 2016). For instance, a new line of research is investigating how firm endowments such as the level of internal knowledge impact the effects of agglomeration economies (Hervas-Oliver et al 2018;Knoben et al 2016).…”

The influence of Science and Technology Park characteristics on firms' innovation results

“…Baum and Haveman ; McCann and Folta ; Alcácer and Chung ) on the one hand and regional studies (e.g. Hervas‐Oliver et al ; Rigby and Brown ; Knoben et al ) on the other hand. In our study we aim at integrating these two streams (in line with what Alcácer and Chung suggest) and gain extra knowledge in both of them.…”

“…firm) heterogeneity for agglomeration economies (e.g. Hervas‐Oliver et al ; Huang et al ; Rigby and Brown ; Knoben et al ; Vásquez‐Urriago et al ), while there is much less evidence on the supply‐side heterogeneity, especially for STPs. In particular, to our knowledge, there have been no attempts to systematically analyse which characteristics of STPs contribute to improving the innovative performance of firms.…”