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Place-based policies in the Italian case, part 1: A lot of money for little or no growth

Despite multiple policies to promote regional development in the post-war period, there remains a significant divide between Northern and Southern regions of Italy. In 2020, GDP per capita in the South (the ‘Mezzogiorno’) was only 55% of that in Northern Italy. This first in a two-column series argues that placed-based policies to promote local growth in Italy have largely been ineffective, regardless of the specific programme that has been implemented. Policy success is often hampered by problems with the quality of local institutions and organised crime’s grip on the economy.

Anyone who has been interested in the issues of regional inequality and place-based policies (PBPs) has probably come across the Italian case. The economic distance between the South of the country (the ‘Mezzogiorno’) and the Central-Northern areas (‘the North’, henceforth) has been a defining feature of the country. The gap was likely in place at the time of Italy’s unification (Felice 2014). In 1951, the GDP per capita of the Mezzogiorno was 70% of that of the North (Figure 1); by the early 1990s that share had already dropped to 60%, while in more recent years it has fallen to only 55%. This is a major divide, taking into account the fact that one third of the Italian population lives in the Southern regions. More importantly, the gap has widened despite the fact that the Mezzogiorno has received substantial transfers during the same period. For example, according to Petraglia and Scalera (2019), during the 2007-15 period Southern regions received net fiscal flows greater than 15% of local GDP annually.

Figure 1 GDP per capita of the South as a percentage of that of the North (2015 euros)

Figure 1 GDP per capita of the South as a percentage of that of the North

Note: Authors' elaborations on data from De Philippis et al. (2022).

What do we know?

The Italian case is interesting because policies with the explicit purpose of promoting the development of lagging areas have been in place since the post-war period. Over the years, the types of interventions have varied widely, partly in an attempt to replicate the guidelines that the World Bank suggested for developing economies. Thus, there has been a shift from infrastructure support to direct promotion of industrial investment; and from top-down development plans to bottom-up initiatives that included the involvement of local stakeholders as early as the design phase of interventions. Luckily, over the past 20 years, with the availability of granular data and the development of methodologies for impact evaluation, place-based policies have come under close scrutiny.

We now have a pretty good idea, for example, about the contribution to Southern growth made by the Cassa per il Mezzogiorno, which from 1950 to 1992 transferred significant resources for infrastructure and business subsidies (slightly less than 1% of Italy’s GDP, on average each year over the four decades) (Albanese et al. 2021a). We also know what happened with the programmes of the 1990s that tried to revive development in the South by switching to the use of location subsidies for large companies (Andini and de Blasio 2016), by focusing on areas in industrial decline (Accetturo et al. 2020), or by funding locally coordinated development plans (Accetturo and de Blasio 2012). We also have insight into the role of European Structural Funds (Barone et al. 2016, Ciani and de Blasio 2015, Giua 2017). Finally, we know something about some more recent initiatives, such as those related to smart specialisation strategy (Crescenzi et al. 2018) or urban regeneration initiatives (Albanese et al. 2021b).

The results of these rigorous evaluation analyses provide very little empirical evidence in favour of the hypothesis that regional policies promote growth in the areas they target. In some cases, the impacts of the interventions are simply zero. In others, positive impacts occur but are limited to the short term. For example, investment subsidies cause an increase in capital accumulation in the years the programme is in place (Cerqua and Pellegrini 2013), which however is then offset by a decrease in subsequent years (Bronzini and de Blasio 2006). In the case of EU Cohesion Funds, while some positive effect is detected (Giua 2017), it is not long-lasting. For example, when Abruzzi exited the Objective 1 programme (because it had breached the 75% eligibility threshold), its growth rate weakened relative to a set of control regions that continued being financed (Barone et al. 2016). As to other programmes, the effects are confined to micro areas within the lagging regions, but these are offset by negative impacts in neighbouring areas – so-called spatial displacement (Andini and de Blasio 2016).

What went wrong?

Although the policies implemented have varied widely in terms of design, the actors involved, the mode of implementation and the source (national or EU), and the amount of funding, it is consistently difficult to find positive effects on the economies of the subsidised territories. This suggests that regional policies face obstacles of a general nature.

An important aspect refers to the role of local institutions. Based on government quality indicators (Charron et al. 2014), institutional quality is lower in Italy than in other EU15 countries (except Greece). Regional heterogeneity is very high: the distance between the most efficient and the least efficient regions in Italy is the widest in Europe (and is even double that of countries such as France and Portugal, which also have non-negligible internal heterogeneities). Needless to say, Southern regions are at the bottom of the internal ranking. Since local governments manage a large share of cohesion interventions, the quality of local government institutions is crucial. To illustrate this, with reference to European regions, Becker et al. (2013) show that it is a driver of the effectiveness of structural funds. Barone and Mocetti (2014) focus on post-earthquake transfers in two different areas affected by earthquakes of similar intensity in 1976 and 1980, respectively: Friuli in the North, with high-quality local institutions, and Irpinia in the South, with low-quality institutions. The long-term outcomes could not have been more different: 20 years after the earthquake, Friuli had per capita GDP 23% higher than the counterfactual and Irpinia 12% lower. More importantly, Irpinia’s administrative efficiency, already low in 1980, has further deteriorated in subsequent years, suggesting that money itself does not buy institutional quality.

Moreover, organised crime can go hand-in-hand with low-quality institutions. A large part of Southern Italy has historically featured the presence of very well-rooted organised crime. Organised crime might have some comparative advantage in two activities related to the manipulation of public funding: the creation of fictitious firms with the sole purpose of applying for subsidies, and combining local power with threats in order to influence bureaucrats that allocate funds. Barone and Narciso (2015) focus on the funds granted through Law 488/92 (at that time, the main policy instrument used to reduce territorial disparities in Italy by offering a subsidy to businesses willing to invest in poorer regions) to Sicilian municipalities in the 2004–2009 period. They find that the Mafia plays a significant role in explaining the spatial distribution of funds, suggesting the diversion of public transfers to firms. Thomas et al. (2021) reach the same conclusion using data on the EU structural funds.

In the second column in this series, we discuss how Italian place-based policies have not only been ineffective but have also entailed some unpleasant side effects. We then draw some policy implications from the whole body of research on these policies in Italy.

Authors’ note: The views expressed in this column should be attributed to the authors alone and not to the institutions with which they are affiliated.


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