Structural Change and Firm Dynamics in the South of Italy

Abstract

In this paper, we study the structural change in the Centre-North and the South of Italy, focusing on its implications for productivity dynamics and its microeconomic determinants. We document three main results. First, between 2001 and 2018 the deindustrialization process involved both parts of Italy, but in the South it started after the financial crisis and was more pronounced. In the southern regions, the employment shares in low knowledge-intensive services increased more than in the Centre-North, whereas those in the high knowledge-intensive services increased less. Second, structural changes slowed down productivity growth in the Centre-North, but had no role in the fall of productivity registered in the South. Finally, in the Centre-North employment growth has been driven by the net creation of jobs among incumbents and larger firms. In contrast, employment dynamics in the southern regions largely reflected the process of firms entering and exiting the market, in particular in less knowledge-intensive service sectors, and in young and smaller enterprises.

Keywords: structural change, firm dynamics, North-South gap, productivity growth, shift-share analysis

JEL Classification: R00, R11, L16, O41, O47