Drivers of territorial servitization: An empirical analysis of manufacturing productivity in local value chains

Abstract

A recent stream of literature has observed the tendency for advanced services, and particularly knowledge-intensive business services (KIBS), to grow near local manufacturing value chains, supporting a trajectory of growth based on territorial servitization (TS). However, it is still unclear what affects the coupling between KIBS and manufacturing. The paper addresses this research gap by analysing how local drivers of TS moderate the effect of KIBS co-location on manufacturing productivity. To test our hypotheses, we use a functional geographic unit characterized by a well-defined local value chain, i.e., Labour Market Areas (LMAs). The empirical examination of 611 Italian LMAs for the period 2014–2018 provides evidence that human capital availability is a key determinant of KIBS' contribution to manufacturing productivity. Importantly, our analysis shows that human capital impacts variously on TS outcomes, depending on the local setting and industry type. On the one hand, high levels of education help unleash the benefits of proximity to KIBS for manufacturers, especially in urban areas typically hosting high concentrations of knowledge-intensive sectors and supporting infrastructures. On the other hand, medium levels of education play a key role in non-urban areas specialized in traditional, low-tech manufacturing sectors. By helping untangle the drivers of positive TS outcomes, our results are informative for scholars and policymakers interested in developing specific policies to promote the renaissance of local manufacturing. The study may also help manufacturing firms gain a deeper understanding of the conditions allowing them to effectively benefit from TS and increase productivity. • TS varies based on the type of local setting and knowledge base of the area. • We employ a panel analysis on Italian LMAs to test our hypotheses. • KIBS affect manufacturing productivity variously depending on contextual factors. • Urban and Made-In-Italy LMAs rely on high and medium education levels respectively. • In Heavy Manufacturing LMAs, firms own internal capabilities to benefit from KIBS.