Should I stay or should I go? Knowledge spillovers, technological level, and new-firm survival

Abstract Knowledge spillovers are abundantly investigated in the literature as important sources of entrepreneurship. However, the absorption mechanisms of knowledge spillovers by firms are complex and, in some cases, heavily constrained by barriers that allow firms to enter the market but then hinder them from remaining and becoming incumbents. This paper aims to evaluate these barriers by estimating the risk of new-firm failure as dependent on local industrial environments. Moreover, the study explores how these relationships are influenced by a firm’s technological level. No robust evidence has been provided to date on this issue, and this paper aims to fill this gap in the literature by focusing on a large sample of Italian manufacturing firms. Specifically, we look at businesses that started their activities in 2017 and estimate the risk of market exit over six years. Our findings reveal that high-tech firms are more vulnerable in terms of failure risk after entering the market. However, intra-industry spillovers (the industrial diversity of the local economy) moderate this risk, while inter-industry spillovers (the industrial specialisation of the local economy) have the opposite impact.