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Cluster Advantage and Firm Performance: A Shift into the Future! Read chapter Read first chapter

2018 | OriginalPaper | Chapter

Natural Disasters and Firm Resilience in Italian Industrial Districts

Authors : Giulio Cainelli, Andrea Fracasso, Giuseppe Vittucci Marzetti

Published in: Agglomeration and Firm Performance

Publisher: Springer International Publishing

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Abstract

We carry out a firm-level empirical analysis to evaluate the economic impact of the sequence of earthquakes that occurred in 2012 in the Italian region of Emilia-Romagna and to address the question of whether the localization of a firm within an industrial district mitigated or exacerbated this impact. We estimate the effect of the earthquake on firms’ performance via two alternative methods: Difference-in-differences and propensity score matching in levels and first-differences. Our findings suggest that the earthquake reduced turnover, production, value added, and return on sales of the surviving firms, at least in the short term. In addition, the debt over sales ratio grew significantly more in the firms located in the areas affected by the earthquake. The empirical evidence also suggests that the negative impact of the earthquake was slightly higher for the firms located in industrial districts, thereby suggesting that, at least in the short term, the usually positive cumulative processes associated with localization within an agglomerated area could have reversed and magnified the negative impact of a disruptive exogenous supply shock.

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previous chapter Endogenous Rerouting and Longevity in Systemic Organisations of Production
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Footnotes
1
See, among others, Skidmore and Toya (2002), Raddatz (2007), Hallegatte and Dumas (2009), Noy (2009), Strobl (2011), Loayza et al. (2012), Ahlerup (2013), Cavallo et al. (2013), Fomby et al. (2013), Belasen and Dai (2014), Cunado and Ferreira (2014), as well as the review of the literature by Cavallo and Noy (2009) and the very recent meta-analysis of the macroeconomic literature by Lazzaroni and van Bergeijk (2014).
 
2
Barone and Mocetti (2014) cross-country analyses present other drawbacks. First, natural disasters tend to be geographically concentrated so that investigations covering extremely large areas may fail capturing very localized effects. Moreover, analyses on aggregated data for the national economy can hardly capture specific channels of shock transmission within and across the nation. As certain countries register a systematically higher number of climatic and geological events (flooding, earthquake, and hurricanes), country-level studies may also suffer for the endogeneity of proactive defensive measures by the authorities and the population. Regional and subregional studies are less likely to suffer from this bias, as the exact localization of certain phenomena (say, the epicenter of an earthquake) is difficult to predict and it is unlikely to find highly localized preventive measures. Other empirical problems with cross-country studies may emerge when different natural disasters are pooled together.
 
3
Leiter et al. (2009) study the impact of floods on European firms, but given the use of regional aggregated data, their investigation does not fall in the group of firm-level analyses.
 
4
The concept of industrial district dates back to Marshall (1920). In the late 1970s, Becattini (1989) and Brusco (1982) “revisited” the original Marshallian concept in an effort to explain the socioeconomic development in the Third Italy. Although there is no universally accepted notion of industrial district (Cainelli 2008a), a definition of the “canonical” Italian industrial district model acceptable to most scholars is a “territorial agglomeration of small firms normally specialized in one product or phase of production, held together by interpersonal relationships, by the common social culture of workers, entrepreneurs and politicians surrounded by an industrial atmosphere which facilitates the diffusion of innovation, generating in this way important flows of external economies that are still internal to the local productive systems” (Bianchi 1994, p. 14).
 
5
The literature provides alternative definitions of resilience. The ecological approach defines regional resilience as the capacity of a region to move from a possible steady-state path to another (Reggiani et al. 2002). The engineering approach defines regional resilience as the capacity of a region of coming back to a persistent steady-state equilibrium after a shock (Rose 2004). Recently, the economic geography literature has put attention on a different concept of resilience, which refers—from an evolutionary perspective—to a region’s capacity of positively reacting to a short-term external shock (Simmie and Martin 2010; Martin 2012). In this paper we follow this perspective.
 
6
Focusing on aggregated data, Noy (2009) finds that countries with a higher literacy rate, better institutions, and higher degree of openness to trade withstand better the disasters, possibly because they succeed in rapidly mobilizing human and financial resources. Drawing a parallel with these findings, one could expect industrial districts to enjoy a vantage position in terms of local ability for mobilizing resources.
 
7
The impact on downstream firms is shown to be at work for the firms linked both directly and indirectly.
 
8
Such hypothesis is consistent with the conclusions by Henriet et al. (2012), who, via a simulation analysis based on input-output tables, show that clusters hit by a shock suffer less when they are not too concentrated and that the resilience of the economic system to natural disasters is higher when supply chains are localized and each cluster is isolated from external disasters.
 
9
As shown for Japan by Uchida et al. (2013), this may not be the case if damaged banks receive external financial support from either the government or other private investors. Hosono et al. (2016) show that the lending capacity of banks located in an area affected by a disaster is reduced and impacts firms’ investment, even when firms are located outside such area.
 
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Metadata
Title
Natural Disasters and Firm Resilience in Italian Industrial Districts
Authors
Giulio Cainelli
Andrea Fracasso
Giuseppe Vittucci Marzetti
Copyright Year
2018
Book
Agglomeration and Firm Performance

Print ISBN: 978-3-319-90574-7

Electronic ISBN: 978-3-319-90575-4

Copyright Year: 2018

DOI
https://doi.org/10.1007/978-3-319-90575-4_13