Working Paper: NBER ID: w23964
Authors: Bruno Pellegrino; Luigi Zingales
Abstract: 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.
Keywords: Productivity; Management Practices; ICT Revolution; Meritocracy; Italy
JEL Codes: D24; E22; M14; M15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| loyalty-based management practices (M51) | lack of meritocracy in firms (D73) |
| meritocracy in firms (M51) | TFP growth (O49) |
| inability of Italian firms to capitalize on the ICT revolution (L86) | decline in total factor productivity (TFP) (O49) |
| lack of meritocratic management practices (D73) | inability of Italian firms to capitalize on the ICT revolution (L86) |
| interaction of ICT and meritocracy (L86) | TFP growth (O49) |
| judicial inefficiency (K41) | country meritocracy (I24) |