Firm growth in the Portuguese footwear industry: the location dilemma

Abstract

The purpose of this paper is to empirically address the relationship between regional firm density and the growth of firms in the Portuguese footwear industry. Although 80% of the firms belonging to this cluster are mainly geographically concentrated in two poles, we find that location is not significantly correlated with growth. To understand our disparate results on location, we adopted a graphical criterion to separate firms into two groups, taking firms surrounded by 200 firms as a threshold. We fit a separate linear regression for these two subsets of data to find that there exist two different patterns for regional firm density: location is negatively correlated with growth for the group of firms surrounded by less than 200 firms and positively correlated for the group surrounded by more than 200 firms. This allows us to propose a suggestive explanation: firms surrounded by few firms have more access to resources and can grow fast, whereas firms within a cluster are benefited from the location externalities. Our findings are relevant to guide entrepreneurs wishing to start a new business in this industry, and to Portuguese policymakers to draw public policies aimed to affect entrepreneurs’ location decisions in this sector through subsidies and incentives.