The impact of formal networking on the performance of SMEs

This paper proposes a large scale empirical investigation on the effects of being part of a formal business network. Taking advantage of the recent introduction in Italy of formal network agreements, we estimate the economic returns for firms after the decision to enter the network. Using a large and representative sample of Italian small and medium enterprises (SMEs), we find that network participation has a positive effect on the value added created per unit of revenues, as well as a positive effects on exports, while no clear effect emerges in term of profits. Additional estimates show that the advantages of being a network member are stronger for smaller SMEs, for firms operating in traditional industries and for firms located in less developed areas. The specific characteristics of the networks, such as the size, the geographical dispersion and diversity are found to influence the economic outcomes, too.