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

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  • L. Mauro
  • F. Pigliaru

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Abstract

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.

Suggested Citation

  • L. Mauro & F. Pigliaru, 2011. "Social Capital, Institutions and Growth: Further Lessons from the Italian Regional Divide," Working Paper CRENoS 201103, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
  • Handle: RePEc:cns:cnscwp:201103
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    References listed on IDEAS

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    1. Andrea Boltho & Wendy Carlin & Pasquale Scaramozzino, 1999. "Will East Germany become a new Mezzogiorno?," Chapters,in: Economic Growth and Change, chapter 13 Edward Elgar Publishing.
    2. Daron Acemoglu & Simon Johnson & James A. Robinson, 2001. "The Colonial Origins of Comparative Development: An Empirical Investigation," American Economic Review, American Economic Association, vol. 91(5), pages 1369-1401, December.
    3. R. Paci & A. Saba, 1997. "The empirics of regional Economic growth in italy. 1951-1993," Working Paper CRENoS 199701, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
    4. Emanuele Felice, 2007. "I divari regionali in Italia sulla base degli indicatori sociali (1871-2001)," Rivista di Politica Economica, SIPI Spa, vol. 97(2), pages 359-406, March-Apr.
    5. Wendy Carlin, 2010. "Good Institutions are not enough: Ongoing Challenges of East German Development," CESifo Working Paper Series 3204, CESifo Group Munich.
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    Cited by:

    1. Antonio Bubbico, 2013. "Administrative Continuity: Enhancer or Constraint for Regional Governments' Efficiency?," ERSA conference papers ersa13p493, European Regional Science Association.
    2. Dentinho Tomaz Ponce, 2015. "Facing Mediterranean Challenges with Memories, Realities and Feasible Dreams," SCIENZE REGIONALI, FrancoAngeli Editore, vol. 2015(1), pages 121-127.
    3. Giuseppe Albanese & Guido de Blasio, 2016. "Civic Capital and Development: Italy, 1951-2001," Politica economica, Società editrice il Mulino, issue 1, pages 47-64.
    4. Giovanni Iuzzolino & Guido Pellegrini & Gianfranco Viesti, 2011. "Convergence among Italian Regions, 1861-2011," Quaderni di storia economica (Economic History Working Papers) 22, Bank of Italy, Economic Research and International Relations Area.
    5. Giorgio d'Agostino & Margherita Scarlato, 2015. "Innovation, Socio-institutional Conditions and Economic Growth in the Italian Regions," Regional Studies, Taylor & Francis Journals, vol. 49(9), pages 1514-1534, September.
    6. Andrea Filippetti & Frederick Guy & Simona Iammarino, 2015. "Does training help in times of crisis? Training in employment in Northern and Southern Italy," Working Papers 28, Birkbeck Centre for Innovation Management Research, revised Dec 2015.
    7. Elisabetta Addis & Majlinda Joxhe, 2016. "Gender Gaps in Social Capital: a theoretical interpretation of the Italian evidence," Working Papers 2/16, Sapienza University of Rome, DISS.
    8. Bisin, Alberto & Verdier, Thierry, 2017. "On the Joint Evolution of Culture and Institutions," CEPR Discussion Papers 12000, C.E.P.R. Discussion Papers.
    9. Carmelo Petraglia, 2011. "Il Mezzogiorno nella letteratura economica del 2011," Rivista economica del Mezzogiorno, Società editrice il Mulino, issue 4, pages 1083-1098.
    10. L. Mauro & C. Buiatti & G. Carmeci, 2012. "The Origins of the Sovereign Debt of Italy: a Common Pool Issue?," Working Paper CRENoS 201212, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
    11. Jonathan Barr & Emma Clarence & Francesca Froy & Sergio Destefanis & Chris Warhurst, 2012. "Local Job Creation: How Employment and Training Agencies Can Help - The Labour Agency of the Autonomous Province of Trento, Italy," OECD Local Economic and Employment Development (LEED) Working Papers 2012/17, OECD Publishing.

    More about this item

    Keywords

    growth; decentralization; convergence; social capital;

    JEL classification:

    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • R5 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis

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