Estimation of Local Employment Growth: Do Sectoral Aggregation and Industry Definition Matter?

Over the last two decades, numerous attempts have been made to explain the determinants of local growth, with as yet little overall consensus. The aim of this paper is to reveal a potential problem of parameter heterogeneity in growth regressions associated with the use of data at different levels of aggregation. Using Italian data and focusing on both manufacturing and service industries, it is shown how different empirical outcomes can be generated from exactly the same spatial units simply by changing the levels of sectoral aggregation. Moreover, the results point to some advantages associated with using more disaggregated data.