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Local financial development, socio-institutional environment, and firm productivity: Evidence from Italy

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  • Moretti, Luigi

Abstract

This paper uses the case of Italy to investigate the effects of local financial and socio-institutional development on productivity. The analysis employs firm-level productivity data and exploits variations in banking sector development, judicial enforcement, and social capital across Italian provinces. After controlling for potential endogeneity, our empirical results suggest that the real effects of financial development are conditional on the quality of the socio-institutional environment. In particular, we find that the positive effects of greater financial depth on productivity are stronger when the socio-institutional environment is sufficiently developed. Therefore, to exploit potential productivity gains stimulated by financial development, it is necessary to achieve a higher-quality socio-institutional environment, including reducing the duration of civil trials.

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  • Moretti, Luigi, 2014. "Local financial development, socio-institutional environment, and firm productivity: Evidence from Italy," European Journal of Political Economy, Elsevier, vol. 35(C), pages 38-51.
    • Handle: RePEc:eee:poleco:v:35:y:2014:i:c:p:38-51
    DOI: 10.1016/j.ejpoleco.2014.03.006
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    2. Liu, Xiaohan & Liu, Jianmin & Wu, Haitao & Hao, Yu, 2022. "Do tax reductions stimulate firm productivity? A quasi-natural experiment from China," Economic Systems, Elsevier, vol. 46(4).
    3. Rosa Capolupo, 2018. "Finance, Investment and Growth: Evidence for Italy," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 47(1), pages 145-186, February.
    4. Decio Coviello & Luigi Moretti & Giancarlo Spagnolo & Paola Valbonesi, 2018. "Court Efficiency and Procurement Performance," Scandinavian Journal of Economics, Wiley Blackwell, vol. 120(3), pages 826-858, July.
    5. Roberto Ganau & Andrés Rodríguez†Pose, 2018. "Industrial clusters, organized crime, and productivity growth in Italian SMEs," Journal of Regional Science, Wiley Blackwell, vol. 58(2), pages 363-385, March.
    6. Tran, Viet T. & Walle, Yabibal M. & Herwartz, Helmut, 2020. "The impact of local financial development on firm growth in Vietnam: Does the level of corruption matter?," European Journal of Political Economy, Elsevier, vol. 62(C).
    7. Rouven E. Haschka & Helmut Herwartz & Clara Silva Coelho & Yabibal M. Walle, 2023. "The impact of local financial development and corruption control on firm efficiency in Vietnam: evidence from a geoadditive stochastic frontier analysis," Journal of Productivity Analysis, Springer, vol. 60(2), pages 203-226, October.
    8. Jancenelle, Vivien E., 2021. "Tangible−Intangible resource composition and firm success," Technovation, Elsevier, vol. 108(C).
    9. Giuseppe Albanese & Federico Antellini Russo & Roberto Zampino, 2016. "Criminalit? e scelte degli amministratori locali in tema di procedure di acquisto," ECONOMIA PUBBLICA, FrancoAngeli Editore, vol. 2016(2), pages 131-167.
    10. Henri Njangang & Luc Ndeffo Nembot & Joseph Pasky Ngameni, 2020. "Does financial development reduce the size of the informal economy in sub‐Saharan African countries?," African Development Review, African Development Bank, vol. 32(3), pages 375-391, September.
    11. Sorin Gabriel Anton, 2019. "Leverage and firm growth: an empirical investigation of gazelles from emerging Europe," International Entrepreneurship and Management Journal, Springer, vol. 15(1), pages 209-232, March.
    12. Belke, Ansgar & Setzer, Ralph & Haskamp, Ulrich, 2016. "Bank efficiency and regional growth in Europe: new evidence from micro-data," Working Paper Series 1983, European Central Bank.
    13. Paola Rossi & Diego Scalise, 2022. "Financial development and growth in European regions," Journal of Regional Science, Wiley Blackwell, vol. 62(2), pages 389-411, March.
    14. Giuseppe Di Vita, 2018. "Institutional quality and the growth rates of the Italian regions: The costs of regulatory complexity," Papers in Regional Science, Wiley Blackwell, vol. 97(4), pages 1057-1081, November.

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    More about this item

    Keywords

    Finance–growth nexus; Social capital; Judicial enforcement; Firm labor productivity;
    All these keywords.

    JEL classification:

    • D2 - Microeconomics - - Production and Organizations
    • G2 - Financial Economics - - Financial Institutions and Services

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