2017/10/01 by Bruno Pellegrino, Luigi Zingales · 1 citation
Economics, Econometrics and Finance · #Italy: Economic History and Contemporary Issues #Economic Policies and Impacts
paper · pdf · doi:10.3386/w23964
openalex publication_date 2017/10/01 · openalex created_date 2025/10/10 · openalex updated_date 2026/08/04
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.