FEEM working papers "Note di lavoro" series
2013 .057

Decentralization, Social Capital and Regional Convergence

Authors: Luciano Mauro, Francesco Pigliaru
Series: Economy and Society
Editor: Giuseppe Sammarco
Keywords: Social Capital, Convergence, Economic Growth
JEL n.: O4, N9, R5


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. 

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