Convergence and Regional Productivity Divide in Italy: Evidence from Panel Data

Abstract: Using a panel data model to control for differences in regional technological levels and to take into account endogeneity, we find two key results for the growth of Italian regions. Firstly, we show that the rate of conditional convergence of each region is much higher (from 12% to 18% according to specifications) than that estimated in standard cross-section regressions (2%). Secondly, a large part of productivity gaps across regions cannot be imputed to differences in physical or human capital but it is rather related to relevant differences in Total Factor Productivity (TFP).