Spatial agglomeration, technology and the outsourcing of knowledge intensive business services: empirical insights from Italy

The aim of this paper is to explore the main drivers of outsourcing of Knowledge-Intensive Business Services (KIBS) by Italian manufacturing firms. While anecdotal and empirical evidence has emphasised labour cost and scale economies as being behind firms' choices to outsource production or service activities, here we focus on spatial agglomeration and technology as important factors. Using microeconomic data on Italian manufacturing firms for the period 1998–2003, we develop a two-stage Heckman model in order to avoid selection bias: first, we estimate the determinants of the firm's decision to outsource business-related services; second, we estimate the main factors underlying the intensity of KIBS outsourcing, expressed by the number of service activities that are externalised. Our results show that labour cost savings do not seem to be relevant in driving the decision to outsource KIBS, but the use of Information and Communication Technology (ICT), Research and Development (R&D) and location within a dense and technologically developed industrial district has very positive effects.