Heterogeneity and geographical location in Italian Business Networks

Business network agreements (BNA) are an innovative policy tool that allow firms to cooperate on common projects by sharing skills and knowledge. BNA can be set up either by firms working in the same geographical area or by firms geographically distant among each other. Focusing on Italian networks, we conduct a cross-section empirical analysis to investigate the relationship between geographical distance and heterogeneity in firms’ business when forming an interfirm network. It emerges that the geographical agglomeration of network firms is significantly related to a lower value of the entropy index, though in this case the network tends to be composed by a small number of firms. In other words, firms can enjoy the positive externalities arising from cooperation when they are located near each other and carry out similar activities; at the same time, the drawbacks of competition are reduced by limiting the number of partners with whom they share their efforts. On the contrary, we observe more dispersed and big networks among heterogeneous firms.