Innovative Startups in Italy. Managerial Challenges of Knowledge Spillovers Effects on Employment Generation

This paper investigates the impact of knowledge spillover effects (KSE) on employment levels using a sample of 245 Italian Innovative startup companies created as a result of the legislative changes of Law Decree 179/12 introduced in Italy in 2012. We use a parsimonious model with Employment level as the dependent variable. We test for the impact that our measures of industry competition, specialization and diversity have on the level of employment in the Innovative Startup sector in Italy. Our data uses a sample of 245 firms, across 20 geographical regions in Italy for three economic sectors at the 2-Dig NAICS classification. Our empirical results provide evidence in favor of regional specialization as the main force to create and transfer knowledge resulting for increased employment; while higher levels of competition and a more diverse regional production bases result in lower firm employment levels. Employment levels for these firms are also time dependent and thus mainly determined at the time of firm’s creation. We also found a lack of technological convergence across regions, that is inherent regional differences are not bridged by knowledge spillover effects. This paper is based on a sample of Italian Innovative Startups and consequently further research with a potentially larger sample and perhaps a sample across countries could also shed some light on the issues relating to KSE and their effects on employment generation and firm formation. The main practical implication of the analysis is that technological differences exist among economic regions and that KSE may be limited to within clusters. Thus from a managerial perspective new firm location may be significantly constraint by the existence of similar firms in the same geographical region. In other words, firm development may be highly determined by the region of choice. This research adds to the empirical evidence focusing on the effects of knowledge spillover effects in the Innovative Startup segment of the economy. This research highlights the applicability of knowledge spillover effects accounting for levels of industry competition, specialization and diversity. We also provide a measure of Cluster formation and concentration at the sectorial and regional level. Thus the research provides a better understanding under which conditions knowledge is more likely to have positive or negative effects on employment generation.