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Agglomeration and the Italian North-South divide

Luigi Buzzacchi (), Antonio De Marco () and Marcello Pagnini ()
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Luigi Buzzacchi: Politecnico di Torino
Antonio De Marco: Politecnico di Torino

No 637, Questioni di Economia e Finanza (Occasional Papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: This paper offers novel evidence on agglomeration economies by examining the link between total factor productivity (TFP) and employment density in Italy. TFP is estimated for a large sample of manufacturing firms and then aggregated at the level of Local Labor Market Areas (LLMAs). We tackle the endogeneity issues stemming from the presence of omitted covariates and reverse causation with an instrumental variable (IV) approach that relies on his-torical and geological data. Our estimate of the TFP elasticity with respect to the spatial con-centration of economic activities is about 6%, a magnitude comparable to that measured for other developed countries. We find that the TFP-density nexus contributes to explaining a large share of the substantial productivity gap between the northern and southern regions of Italy. We also show that no significant heterogeneity emerges in the intensity of agglomera-tion economies across the country and that the positive TFP difference in favor of the firms located in the North is not due to the tougher competition taking place in those areas.

Keywords: agglomeration economies; density; total factor productivity; regional disparities; selection effects (search for similar items in EconPapers)
JEL-codes: R12 R23 (search for similar items in EconPapers)
Date: 2021-10
New Economics Papers: this item is included in nep-eff, nep-geo, nep-lma, nep-sbm and nep-ure
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