Agglomeration, Vertical Disintegration and Specialization in the Knowledge Intensive Business Services: empirical evidence on the Italian provinces

This paper accounts for the determinants of sectoral specialization in knowledge intensive business services (KIBS), measured by the KIBs location quotient across the Italian provinces (NUTS3), using ISTAT province level panel data from 2012 to 2017. The aim is to see whether increases in agglomeration of activities measured by urbanisation economies and vertical linkages, controlling for knowledge base and absorptive capacity of provinces, push firms to specialize in Knowledge Intensive Business Services (KIBS). More in detail the impact of agglomeration economies, Hirschman linkages between KIBS and their manufacturing users, and innovation activities will be identified by such variables (i.e. localization and urbanization economies; intermediate demand of KIBs services, a proxy for input-output linkages; information and communication technology, public expenditures in research and development). Spatial models, SAR, but especially an IV- that allow us to take into account the endogeneity problem related to some variables like population density and Intermediate demand –are employed in order to get spatial effects in explaining province specialization in KIBS. The results show evidence that urbanization economies and input-output linkages, positively affect specialization in KIBS between the provinces.