NATIONAL BUREAU OF ECONOMIC RESEARCH
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 May 2019
NBER Program(s):Economic Fluctuations and Growth, Productivity, Innovation, and Entrepreneurship

Italy’s aggregate productivity abruptly stopped growing in the mid-1990s. This stop represents a puzzle, as it occurred at a time of stable macroeconomic conditions. In this paper, we investigate the possible causes of this “disease” by using sector and firm-level data. We find that Italy’s productivity disease was most likely caused by the inability of Italian 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. Unfortunately, we also find that the prevalence of loyalty-based management in Italy is not simply the result of a failure to adjust, but an optimal response to the Italian institutional environment. Italy’s case suggests that familism and cronyism can be serious impediments to economic development even for a highly industrialized nation.

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Document Object Identifier (DOI): 10.3386/w23964

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