Since Putnam's work on social capital, the Italian regional case has been a very
rich source of both data and theories about the origins of large and persistent
differences in local stocks of social capital, and about the impact of such differences
on economic performances. The Italian case is widely interpreted as supporting the
idea that persistent regional divides are largely explained by local differences in social
capital. In this paper we maintain that this interpretation fails to recognize that the
current large regional gap in Italy is significantly linked to two policy decisions taken
by the central State at the beginning of the 1970s.
In particular, we focus on the possibility that social capital became a binding
constraint for the growth of southern Italy’s mainly as a consequence of the deep
process of governmental decentralization that began in the1970s. We formalize this
hypothesis by using an endogenous growth model with public capital. In this model,
the accumulation of public capital is characterized by the presence of iceberg costs
that depend on social capital. Decentralization affects these costs because the impact
of the local stocks of social capital on public investment increases when the latter is
managed locally.
To assess the role of decentralization as a trigger of the influence of local social
capital on growth, we control for the impact of labor market reforms, a second and
almost simultaneous institutional shock that took place in Italy and that made
regional labor markets far more rigid than in the previous decades.
In the second part of our paper, we use the large empirical literature on the
Italian regions to restrict the values of the parameters of our model in order to
perform a simple simulation exercise. In this exercise, the model turns out to be able
to account for the major swings in the convergence of southern regions towards the
center-northern regions since 1861.
The general lessons we can draw from this further analysis of the Italian regional
case are as follows. First, we show that the strength of social capital as a determinant
of long-run growth may depend on some well-defined characteristic of the
institutional context. Second, our model suggests that the economic success of
decentralization policies -- even when the budget constraint is not "soft" -- depends
on the local endowment of social capital.
