Why is credit riskier in the South?

Luca Casolaro (), Marco Gallo () and Iconio Garri' ()
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Luca Casolaro: Bank of Italy
Marco Gallo: Bank of Italy
Iconio Garri': Bank of Italy

No 699, Questioni di Economia e Finanza (Occasional Papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: This paper investigates the determinants of the territorial divides in the riskiness of loans to firms. In the period 2006-19, the South of Italy exhibited consistently worse credit quality than the Centre-North, with a wider gap during the recession that followed the 2011 sovereign debt crisis. Credit demand and supply factors explain only forty percent of this difference, while one third is due to different trends in economic activity in the two areas. The residual gap appears to be attributable to external factors in Southern Italy (organized crime, an inefficient judicial system and a lack of social capital), whose negative externalities are greater in periods of more intense crisis and affect mainly smaller and riskier firms.

Keywords: credit quality; geographical disparities (search for similar items in EconPapers)
JEL-codes: G21 R19 (search for similar items in EconPapers)
Date: 2022-06
New Economics Papers: this item is included in nep-cfn and nep-ure
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:bdi:opques:qef_699_22

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