Social Capital, Institutions and Growth: Further Lessons from the Italian Regional Divide

Since Putnam's work on social capital, the Italian regional case has been a very rich source of both data and theories about the origins of large and persistent differences in local stocks of social capital, and about the impact of such differences on economic performances. The Italian case is widely interpreted as supporting the idea that persistent regional divides are largely explained by local differences in social capital. In this paper we maintain that this interpretation fails to recognize that the current large regional gap in Italy is significantly linked to two policy decisions taken by the central State at the beginning of the 1970s. In particular, we focus on the possibility that social capital became a binding constraint for the growth of southern Italy’s mainly as a consequence of the deep process of governmental decentralization that began in the1970s. We formalize this hypothesis by using an endogenous growth model with public capital. In this model, the accumulation of public capital is characterized by the presence of iceberg costs that depend on social capital. Decentralization affects these costs because the impact of the local stocks of social capital on public investment increases when the latter is managed locally. To assess the role of decentralization as a trigger of the influence of local social capital on growth, we control for the impact of labor market reforms, a second and almost simultaneous institutional shock that took place in Italy and that made regional labor markets far more rigid than in the previous decades. In the second part of our paper, we use the large empirical literature on the Italian regions to restrict the values of the parameters of our model in order to perform a simple simulation exercise. In this exercise, the model turns out to be able to account for the major swings in the convergence of southern regions towards the center-northern regions since 1861. The general lessons we can draw from this further analysis of the Italian regional case are as follows. First, we show that the strength of social capital as a determinant of long-run growth may depend on some well-defined characteristic of the institutional context. Second, our model suggests that the economic success of decentralization policies -- even when the budget constraint is not 'soft' -- depends on the local endowment of social capital.

Is dualism still a source of convergence in Europe?

This paper aims at assessing whether dualistic mechanisms represent a significant component of the aggregate labour productivity convergence observed across the European regions in the 1980s. The potential of an explanation of convergence based - in part, at least - on the existence of dualism in some of the initially poorer regions has been largely ignored by the literature. We use a dualistic model based on Dixit (1970) and on Mas-Colell and Razin (1973) to obtain hypotheses to be tested in cross-region growth regressions. In particular, we wish to test whether a high initial allocation of labour in agriculture in fact generates -- in each sector as well as at the aggregate level -- the specific impact on productivity growth (and therefore on convergence) implied by the theory of the dual economy. We use the data-base Regio-Eu set up by CRENoS, with aggregate and sectoral data for 109 territorial units from 1980 to 1990. Our cross-section results are consistent with the major predictions of the dualistic model. While part of the influence exerted by dualistic mechanisms is not easily distinguishable from the one exerted by other mechanisms such as technology diffusion, still the former appears to be a significant component of the whole process of convergence. Ignoring such component could lead to misleading interpretations of the relative roles played by each of the forces behind the process, and to inexact assessments of what actions should be taken - if any - by the European regional policy to help the process become more pervasive. Keywords: Dualism, Growth, Convergence, Regions, Europe JEL: O40, O41, O52, R11

Detecting Technological Catch-Up in Economic Convergence

Our aim is to address the problem of measuring how much of the convergence that we observe is due to convergence in technology versus convergence in capital-labour ratios, in the absence of data on the level of technology. To this aim, we first develop a growth model where technology accumulation in lagging economies depends on their propensity to innovate and on technological spillovers, and convergence is due both to capital deepening and to catch-up. We study the transitional dynamics of the model to show how to discriminate empirically among the following three hypotheses: (i) convergence due to capital deepening with technology levels uniform across economies, as in Mankiw, Romer and Weil (1992); (ii) convergence due to capital deepening with stationary differences in individual technologies, as in Islam (1995); (iii) convergence due to both catch-up and capital deepening (non-stationary differences in individual technologies. We show that, in the absence of TFP data, hypotheses (ii) and (iii) may be difficult to distinguish in cross-section or panel data. We suggest that discrimination can be nevertheless obtained by exploiting the fact that if heterogeneity is the source of catch-up, technology growth is not uniform across countries and the initial differences in technology levels may tend to decrease over time. Given this implication, one way to discriminate between (ii) and (iii) would be to test whether estimates of fixed-effects in sub-periods show the pattern implied by either hypothesis

Persistent regional gaps and the role of social capital: hints from the Italian Mezzogiorno's case

In this article I maintain that until the mid Seventies the regions of the Italian Mezzogiorno have followed a well-known path of divergence and convergence – a pattern in common with many other similar cases. The main characteristic of the Mezzogiorno’s case, however, is that the convergence phase has led the area to a remarkably unfavourable steady-state. Further, I suggest that the disappointing results obtained in the area by several and richly financed public policies – and the high persistence of the unfavourable steady-state – are partly due to the lowerquality institutions in the southern regions. In the second part of the article I discuss recent contributions that associate this failure of local institutions to the scarcity of social capital, and that explain the persistence of this scarcity assuming the existence of mechanisms of intergenerational transmission of values and norms that change very slowly in time. Finally, in the final part I discuss briefly the role of economic policy in the presence of mechanisms of this natur

How Fast are the Tourism Countries Growing? The cross-country evidence

Specializing in tourism is an option available to a number of less developed countries and regions. But is it a good option? To answer this question, we have compared the relative growth performance of 14 “tourism countries” within a sample of 143 countries, observed during the period 1980-95. Using standard OLS cross-country growth regressions, we have documented that the tourism countries grow significantly faster than all the other sub-groups considered in our analysis (OECD, Oil, LDC, Small). Moreover, we have shown that the reason why they are growing faster is neither that they are poorer than the average; nor that they have particularly high saving/investment propensities; nor that they are very open to trade. In other words, the positive performance of the tourism countries is not significantly accounted for by the traditional growth factors of the Mankiw, Romer and Weil type of models. Tourism specialization appears to be an independent determinant. A corollary of our findings is that the role played by the tourism sector should not be ignored by the debate about whether smallness is harmful for growth (e.g. Easterly and Kraay (2000), who conclude that there is no growth disadvantage in smallness). Half of the thirty countries classified as microstates in this literature are heavily dependent on tourism. Once this distinction is adopted, it is easy to see that the small tourism countries perform much better than the remaining small countries. In our findings, smallness per se can be bad for growth, while the opposite is true when smallness goes together with a specialization in tourism.Economic growth, Convergence, Tourism specialization, Sustainable development

Growth and sectoral dynamics in the Italian regions

Regional differentials in per capita income and labour productivity in Italy is one of the most notable cases of regional inequality and have attracted attention from economists from all over the world since the 1950s. In this paper we first aim at yielding a comprehensive description of the pattern of regional inequality in Italy on the basis of a new dataset on the main regional variables for the period 1951-94. We use descriptive statistics and panel regression analysis, in order to allow direct comparisons with the impressive evidence available on a large number of national cases. Second, we offer our contribution to the debate about the sources of the persistence of a high degree of regional inequality in Italy. We concentrate on sectoral dynamics in order to assess how much of the initially high potential for convergence due to the dualistic structure of the poorer regions has been exploited, by which regions, under what regional policy regimes. Our analysis remarks that a limited convergence process has occurred over the years 1951-75; afterward the degree of inequality between Northern and Southern regions has increased again. Moreover, the regional distribution of per capita income presents a bimodal polarisation with a rich convergence club which includes most of northern regions, and a poor club made of a small group of non-adriatic southern regions. In the sectoral analysis we find that dual mechanisms play a role in aggregate convergence as long as the outflows of labour from the low productivity agriculture of the poorer regions are a source of expansion of these regions’ industrial sector. Once this migration from agriculture to industry ends in some of these regions, the impact of dualistic mechanisms on convergence weakens significantly. Industrialisation, or its failure, still appears to be the key to understand why some of the lagging regions converge and others do not

How Fast are Small Tourist Countries Growing? The 1980-2003 Evidence

We analyze the empirical relationship between growth, country size and tourism specialization by using a dataset covering the period 1980-2003. We find that tourism countries grow significantly faster than all the other sub-groups considered in our analysis. Tourism appears to be an independent determining factor for growth, and the reason for that is neither because they are poorer than the average, nor because they are very open to trade. Another finding of our paper is that small states are fast-growing only when they are highly specialized in tourism. In contrast with some previous conclusions in the literature, smallness per se is not good for growth.Small States, Growth, Tourism, Cross Country Comparisons

Tourism and Development: A Recent Phenomenon Built on Old (Institutional) Roots?

Is tourism an opportunity for lagging countries in the elusive quest for growth (Easterly, 2002)? Recent empirical evidence suggests that the answer is a cautious yes. Aggregate cross-country data show that tourism specialization is likely to be associated with higher per capita GDP growth rates than those observed in industrialized countries. However, this evidence ignores the importance of institutional quality and results are likely to be biased by omitted variable problems. In this paper we frame our starting question within the general debate about the importance of good/bad institutions as fundamental determinants of economic growth (Acemoglu et al., 2001) and ask whether previous positive results of tourism on growth are in fact driven by the presence of growth enhancing institutions. Our empirical analysis exploits newly available datasets and controls the robustness of previous results on growth and tourism in the presence of several institutional quality variables. By means of descriptive statistics and some simple cross-country regressions we confirm that the quality of institutions is important for growth. Yet our results strongly suggest that the weight of tourism in an economy is an independent and robust predictor of higher-than-average growth.Economic Development, Tourism Specialization, Institutions

A panel technique for the analysis of technology convergence: The case of the Italian regions

Differences in productivity levels represent a major component of the large cross-country differences in per capita income observed in international datasets and even in some regional ones. Nowadays, few economists would dispute neither this finding, nor that differences in productivity reflects – among other things – differences in technology levels. More controversial is the question of whether such differences in technology are stationary or temporary – that is, whether technology convergence is taking place, at what speed, under what conditions. This state of affairs is the result of several different difficulties faced by the empirical analysis on cross-country differences in per capita income growth rates. Recently, things have improved on both the analytical and the empirical side. On the analytical side, simple models in which technology convergence and capital-deepening can be studied within a common framework are now available. In these models the transitional dynamics is simple enough to be useful for empirical analysis [for instance, De la Fuente (1996) and (1997)]. On the empirical side, Islam (1995) has shown that we can test for the presence of technology heterogeneity in cross-country convergence analysis by using an appropriate fixed-effect panel estimator. The contribution of the present paper is on the empirical side. We propose a method designed to test whether part of the observed economic convergence is due to technology convergence. The method is based on the contribution by Islam (1995), but it extends it as follows. Islam’s technique was originally designed – and is currently applied – to measure cross-country differences in technology levels, assuming that such (relative) differences are at their stationary values and therefore that no technology convergence is present. The extension proposed in this paper builds on the a standard implication of models of technology convergence. If such convergence is present, the cross-sectional variance of the logs of our measure of technology should decreases over time approaching its stationary value. Alternatively, if technology convergence is absent, the variance is at its stationary value and no significant time-trend should be detected in its value. We exploit this difference to test for the presence of technology convergence in the data. First, we estimate the convergence equation over several sub-periods and use the values of the individual intercepts to compute the TFP levels. Then, we obtain the cross-section variance of the logs of our measures of TFP for each sub-period, and check whether the observed pattern is consistent either with catching-up hypothesis or with the hypothesis that the current degree of technology heterogeneity is at its stationary value. In this paper we use a panel dataset of the Italian regions, 1960-95. We apply our proposed methodology to the Italian case because it is notoriously characterized by a remarkable degree of regional heterogeneity. In spite of being one of the best known cases of regional divide, no explicit analysis of technology convergence across Italian regions is available yet. We use dynamic panel techniques (LSDV and GMM) to estimates our growth regressions. We split the whole sample period in several sub-periods to check for the presence of technology convergence. Our preliminary results reveal a significant presence of technology convergence, which reached its peak between the first and the second sub-period, and stayed significant but at a slower pace in later sub-periods. The emerging picture points to the simultaneous presence of technology convergence in a context otherwise characterized by weak output per-worker convergence. This is consistent with some recent results based on international datasets (e.g. Dowrick and Rogers [OEP (2002]).