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NATIONAL BUREAU OF ECONOMIC RESEARCH
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Diagnosing the Italian Disease

Bruno Pellegrino, Luigi Zingales

NBER Working Paper No. 23964
Issued in October 2017, Revised in August 2018
NBER Program(s):Economic Fluctuations and Growth, Productivity, Innovation, and Entrepreneurship

We investigate why Italy’s labor productivity stopped growing in the mid-1990s. We find no evidence that this slowdown is due to competition from China, Italy’s protective labor regulations or increasingly inefficient institutions. By contrast, the data suggest that Italy’s slowdown was more likely caused by the failure of its firms to take full advantage of the ICT revolution. While many institutional features can account for this failure, a prominent one is the lack of meritocracy in the selection and rewarding of managers. Italian firms lag in the adoption of meritocratic management, leading to lower ICT usage. We conclude that familism and cronyism are the ultimate causes of the Italian disease.

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Document Object Identifier (DOI): 10.3386/w23964

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