Agglomeration and the Italian North–South divide

Luigi Buzzacchi, Antonio De Marco and Marcello Pagnini ()

Journal of Economic Geography, 2024, vol. 24, issue 5, 707-728

Abstract: This article offers new evidence on agglomeration economies by examining the link between total factor productivity (TFP) and employment density in Italy. We investigate whether and how the TFP–density nexus contributes to explaining a relevant share of the marked productivity gap between the northern and the southern Italian regions. We estimate TFP for a large sample of manufacturing firms and then aggregate it at the level of local labour market areas. We tackle the endogeneity issues stemming from the presence of omitted covariates and reverse causation with an innovative set of diagnostic tests and an instrumental variable approach that relies on geological and historical data. Our estimate of the TFP elasticity to the spatial concentration of economic activities is about 0.045, a magnitude comparable to those measured for other developed countries. We also show that no significant heterogeneity emerges in the intensity of agglomeration economies across the country and that the positive TFP difference in favour of the firms located in the North is not due to the tougher competition taking place in those areas.

Keywords: agglomeration economies; regional disparities; selection effects; density; total factor productivity (search for similar items in EconPapers)
JEL-codes: R12 R23 (search for similar items in EconPapers)
Date: 2024
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Working Paper: Agglomeration and the Italian North-South divide (2021)
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