Human capital and urban growth in Italy, 1981-2001

This paper analyses the contribution of human capital, measured using the share of residents holding a college degree, to urban growth, gauged by the growth in employment, between 1981 and 2001. According to our estimates, starting with a ten per cent higher share of college-educated residents was associated with a higher growth in employment in the 0.5-2.2 per cent range. These results hold when considering both the municipal and the local labour market (LLM) levels, and they are robust to a wide set of urban characteristics. Our findings are confirmed using a measure of education dating back to 1931 as an instrument for human capital. Furthermore, we exploit a spatial localization model with human capital premiums to disentangle the estimated effect into two components related to productivity and life quality respectively. We find that productivity contributed to more than 60 per cent of the effect of human capital on urban growth at municipal level, and to over 90 per cent at the wider LLM level.