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The IT Revolution and Southern Europe’s Two Lost Decades

Fabiano Schivardi () and Tom Schmitz

No 1805, EIEF Working Papers Series from Einaudi Institute for Economics and Finance (EIEF)

Abstract: Since the middle of the 1990s, productivity growth in Southern Europe has been substantially lower than in other developed countries. In this paper, we argue that this divergence was partly caused by inefficient management practices, which limited Southern Europe’s gains from the IT Revolution. To quantify this effect, we build a multi-country general equilibrium model with heterogeneous firms and workers. In our model, the IT Revolution generates divergence for three reasons. First, inefficient management limits Southern firms’ productivity gains from IT adoption. Second, IT increases the aggregate importance of management, making its inefficiencies more salient. Third, IT-driven wage increases in other countries stimulate Southern high-skill emigration. We calibrate our model using firm-level evidence, and show that it can account for 28% of Italy’s, 39% of Spain’s and 67% of Portugal’s productivity divergence with respect to Germany between 1995 to 2008.

Pages: 66 pages
Date: 2018, Revised 2018-03
New Economics Papers: this item is included in nep-eff
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Working Paper: The IT Revolution and Southern Europe's Two Lost Decades (2018) Downloads
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