Agglomeration, networking and the Great Recession

This paper analyzes how and to what extent firms' external relations, such as belonging to a local cluster or a business group, affect the probability of firm survival and economic performance after the 2008 Great Recession. Using a large data set of Italian manufacturing companies for the period 2005-12, it was found that belonging to a business group or a local cluster mitigates the selection effect determined by the real and financial shocks, while in the case of firms not belonging to groups, only the more efficient units survive. This means that firms belonging to a group or local cluster are expected to show a lower likelihood of failure and also lower performance compared with stand-alone firms.