The IT Revolution and Southern Europe's Two Lost Decades

66 Pages Posted: 29 Mar 2018

See all articles by Fabiano Schivardi

Fabiano Schivardi

Luiss Guido Carli - Department of Economics and Finance; Einaudi Institute for Economics and Finance (EIEF); Centre for Economic Policy Research (CEPR)

Tom Schmitz

Bocconi University - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: March 23, 2018

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.

Keywords: TFP, Southern Europe, Divergence, IT, Technology Adoption, Management

JEL Classification: L23, O33

Suggested Citation

Schivardi, Fabiano and Schmitz, Tom, The IT Revolution and Southern Europe's Two Lost Decades (March 23, 2018). Available at SSRN: https://ssrn.com/abstract=3152239 or http://dx.doi.org/10.2139/ssrn.3152239

Fabiano Schivardi (Contact Author)

Luiss Guido Carli - Department of Economics and Finance ( email )

Viale Romania 32
Rome, Rome 00187
Italy

Einaudi Institute for Economics and Finance (EIEF) ( email )

Via Due Macelli, 73
Rome, 00187
Italy

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Tom Schmitz

Bocconi University - Department of Economics ( email )

Via Gobbi 5
Milan, 20136
Italy

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