We start with a spatial segmentation of our dataset in two
ways. First, we create pools of firms from a 2-digit ZIP Code area,
and, second, pools of firms within a 50 km radius around the center
of every 5-digit ZIP Code area. The first criterion leads to a nonoverlapping spatial segmentation (small sample size), while the
second criterion leads to an overlapping spatial segmentation
(large sample size). For the latter, we use a relatively small radius
because the business structure in Germany is predominantly local.