Working Paper: CEPR ID: DP1256
Authors: Andrea Boltho; Wendy Carlin; Pasquale Scaramozzino
Abstract: Despite massive regional policy efforts, GDP per capita in Southern Italy has only briefly converged on Northern Italian levels (during the 1960s). Failure since then is associated with a policy switch from investment towards income maintenance, with reduced wage sensitivity to regional labour market conditions and with increases in rent-seeking opportunities and corruption. East Germany?s early experience of rapid wage and income, but not productivity, convergence raised fears that a Mezzogiorno scenario could be repeated. Since then, however, investment has been successfully encouraged, wage setting has become more flexible and productivity growth has risen. Given a more favourable non-economic environment as well, the prospects for East German convergence are now more promising.
Keywords: convergence; regional development; regional economic policy
JEL Codes: O57; R12; R58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increased investment (E22) | positive economic conditions in East Germany (P27) |
| wage flexibility (J31) | positive economic conditions in East Germany (P27) |
| increased investment (E22) | closing productivity gap with West Germany (O49) |
| lack of investment in Southern Italy (N93) | persistent economic stagnation (E65) |
| high capital formation in East Germany (O52) | pronounced productivity growth (O49) |
| historical tradition of industry and entrepreneurship in East Germany (N83) | economic recovery (E65) |
| focus on income maintenance in Southern Italy (J68) | economic stagnation (P27) |