SME Clustering and factor productivity: A milieu production function model

Abstract The paper focuses attention on the definition of collective learning, which is a distinguishing feature of the dynamics of SME clustering, and provides prima facie evidence that collective learning is a way of increasing factor productivity and of supporting product innovation in clusters of small firms. The empirical analysis investigates the following questions: (a) is it true that capital productivity in firms located in the milieu depends on know‐how accumulated over time in the milieu?; (b) is it true that labour productivity in firms located in the milieu is influenced by the stability of the labour market and by the dynamic synergy effects which take place in the labour market of the milieu? In order to test these as hypotheses, a production function model is built and factor productivity estimated. The empirical analysis is based on three Italian high‐tech milieux.