Subcontracting in the Italian Industry: Labour Division, Firm Growth and the North-South Divide

Abstract

The aim of this paper is to investigate the impact of subcontracting on Italian manufacturing firms’ growth in the second half of the 1990s. By making use of a 5000 firms database we specifically test: a) whether and how subcontracting may affect the growth dynamics of firms; b) whether growth could be due to stronger incentives to innovate for subcontracting firms keen to move up the value chain, which would be consistent with the predictions of the Global Value Chain approach; and c) the joint influence of subcontracting and location on growth, that is whether the growth dynamics of Southern subcontractors is significantly different from those of North and Centre subcontracting firms. The main results are that i) the propensity to carry out subcontracting activities is relevant for growth, especially when allowing for a nonlinear relationship between growth and subcontracting; ii) more innovative subcontracting firms are also more susceptible to grow and iii) the deep dualism of the Italian industrial structure is once again confirmed, as Southern subcontractors show poorer performances and slower growth.

Keywords: Subcontracting, Growth, Location

JEL Classification: D23, L23