Post-war Italy provides an interesting case to test for recent contributions on economic growth which play down the relevance of physical capital per se and stress its complementarity with infrastructure and less tangible factors such as finance and human capital. In truth, behind the remarkable aggregate performance, substantial public intervention did not heal the relative underdevelopment of the Southern regions.
On the contrary, with less generous public transfers, the North Eastern and Central regions (NEC) achieved fast growth thanks to a thick network of small export-oriented light manufacturing firms. Given initial per capita income, we show that growth was higher in provinces with a better initial endowment of "structural" variables proxying for human capital (e.g. education), infrastructure capital and financial structure (e.g. per capita bank branches and the presence of co-operative banks).
We also show that a proxy for light manufacturing specialisation in the provinces in 1970 is a good predictor of subsequent growth. Our findings suggest that the initial endowments of these "structural" variables can help explain how the unsatisfactory performance of the Southern economy proceeds hand in hand with very high growth in the NEC.
