The utilization of cluster externalities and recessionary shocks[Employment growth and entrepreneurial activity in cities]

In this article, we examine the impact of cluster externalities on the economic performance of firms. Specifically, we focus on how the utilization of these externalities by firms is affected by the macroeconomic instability caused by the recessionary shock of 2008/2009 and on how the impact of the crisis affects firms with different combinative capabilities. Using data from more than 16,000 manufacturing and business service firms located in 390 German regions, we employ within-firm regression techniques to estimate the impact of cross-level interactions between firm- and cluster-level determinants on phase-related differences in firm performance between a pre-crisis (2004–2007) and a crisis period (2009–2011). Our empirical results suggest that firms particularly benefit from the interaction of broad combinative capabilities and variety-driven cluster externalities, thereby implying that externalities are effectively utilized by firms. Furthermore, the results indicate that both strength and direction of these cross-level interactions strongly depend on the prevailing macroeconomic cycle: while the utilization of cluster externalities works best within a stable macroeconomic environment (2004–2007), it is seemingly interrupted when being exposed to economic turmoil (2009–2011). Yet, the crisis-induced interruption of the utilization is mainly restricted to the national recession in 2009. As soon as the macroeconomic pressure diminishes (2010–2011), we observe a reversion of the utilization mechanisms to the pre-crisis level.