The Geography of Failure: Spatial Interactions and Risk Among Moroccan Industrial Firms

ABSTRACT This paper presents a new spatial approach to the field of business failure, addressing the often‐overlooked role of geography and neighbourhood effects in firm vulnerability. We investigate how spatial interdependencies, which arise from local interactions and the diffusion of unobserved regional effects, contribute to the outcomes of firms. Leveraging a unique dataset comprising 91 Moroccan manufacturing firms (51 healthy and 40 failing) from 2019, which are distributed across eight regions, we incorporate financial, spatial, and economic variables to estimate a spatial probit model. The evidence suggests that spatial dynamics have a significant impact on the likelihood of firm failure. In particular, the performance and stability of neighbouring firms act as moderators of risk, highlighting the importance of local context in shaping firm resilience. These results underscore the value of spatial policy tools in industrial and regional development strategies, particularly in emerging economies.