Industrial Employment Growth in Spanish Regions - the Role Played by Size, Innovation, and Spatial Aspects



1. Introduction.

The role played by small and medium size firms in job creation and economic growth has
developed an extensive international literature, specially after Birch’ statement that “SMEs
provide the highest share of economic employment”
1. Many studies have tried to test the
relationship between employment growth and firms’ size from very different perspectives.

Probably, one of the most important regional economic analysis of the influence of firms’ size
on employment is Camagni & Capello (1999). Those authors test the assumption that regions
with high share of small firms have a better behaviour than other regions in Italy.
2

At the same time, and focusing on microdata level, one of the usual ways of studying this
size-employment growth relationship is to test if Gibrat’s law of “proportionate growth” is
supported. Gibrat’s hypothesis implies that “the probability of a given proportionate change in
size during a specified period is the same for all firms in a given industry regardless of their
size at the beginning of the period”. Many authors have tested this law for different
countries
3, and interesting surveys on this matter are found in Wagner (1992); Geroski (1995);
Sutton (1997); or Caves(1998).

Parallel to this analysis, size influence has also been emphasized on the innovative process of
firms and regions. Numerous empirical studies have emerged identifying small firms as the
engines of technological change and innovative activity, at least in some industries and
regions
4. Camagni & Capello (1999) have also studied the role played by size on regional
innovation systems, and following this relationship the relevance of innovation on regional
economic development.

1 Birch (1979).

2 They state that “The good performance of regions (Italy) with a high share of small firms contrasted with the
poor and decreasing rate of growth of the traditional large firms of the North-Western part of the country. The so
called “Third Italy” phenomenon... a success which was explained by the high flexibility of small firms with
respect to market volatility, their innovativeness in terms of costumised production, and the existence of district
economies accompanying territorial specialisation” Camagni & Capello (1999).

3 Calvo (2002, 2004) for the Spanish case.

4 Audretsch & Vivarelli (1994); Pavitt et al (1987); Rothwell (1989). Farinas et al. (1992), Calvo (1996, 2000a;
2000b)).



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