Local financial development,socio-institutional environment,and firm productivity: Evidence from Italy |
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| Institution: | 1. Ifo Institute — Leibniz-Institute for Economic Research at the University of Munich, Poschingerstr. 5, D-81679 Munich. Germany;2. University of Erlangen-Nuremberg, Department of Economics, Lange Gasse 20, 90403 Nuremberg, Germany;1. University of Bern, Department of Economics, World Trade Institute, Hallerstrasse 6, 3012 Bern, Switzerland;2. Murphy Institute of Political Economy, Tulane University, New Orleans, LA 70118, USA;1. University of Lucerne, Frohburgstrasse 3, 6200 Lucerne, Switzerland;2. University of St. Gallen, Varnbüelstrasse 19, St. Gallen, Switzerland |
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| Abstract: | This paper uses the case of Italy to investigate the effects of local financial and socio-institutional development on productivity. The analysis employs firm-level productivity data and exploits variations in banking sector development, judicial enforcement, and social capital across Italian provinces. After controlling for potential endogeneity, our empirical results suggest that the real effects of financial development are conditional on the quality of the socio-institutional environment. In particular, we find that the positive effects of greater financial depth on productivity are stronger when the socio-institutional environment is sufficiently developed. Therefore, to exploit potential productivity gains stimulated by financial development, it is necessary to achieve a higher-quality socio-institutional environment, including reducing the duration of civil trials. |
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