Decentralization, Social Capital and Regional Convergence
31 Pages Posted: 22 Jun 2013
Date Written: May 20, 2013
By studying the interaction between social capital and decentralization, we show that political decentralization can be a source of divergence across heterogeneous regions. In particular, we claim that since the local endowments of social capital display their effect on the economy mainly through the functioning of local institutions, decentralization enhances (hampers) growth wherever social capital is high (low). We define our hypothesis within a growth model with public capital, and use the North-South divide in Italy to assess the quantitative plausibility of our model. A calibration exercise shows that it accounts for the major swings in the Italian regional divide since 1861.
Keywords: Social Capital, Convergence, Economic Growth
JEL Classification: O4, N9, R5
Suggested Citation: Suggested Citation