Festivals and economic growth (Italy)

In this paper we show how the investment in cultural events may encourage the building of social capital and foster the development of local communities. We rely on a case study we conducted on the socio-economic impact of “La Notte della Taranta” Festival, one of the most important European festivals dedicated to traditional music (about 170,000 participants per year), on the sub-region of southern Italy where it is held. Our evidence is based on a large survey, consisting of nearly 10,000 interviews to Festival attendees over a span of five editions (2007–2011). A primary result is that the initial economic investment in the Festival has brought a short-term return in terms of touristic attraction worth more than two times as much. More importantly, our results indicate that a cultural festival, despite being a mass gathering, is able to create strong bonds among its participants and between them and the area where the event takes place. Although these bonds are “instantaneous”, i.e. temporally restricted to the duration of the event, they are positively correlated with the economic impact of the event on the territory.

The abstract from this paper in the Journal of Socioeconomics (December 2013). The paper is by Giuseppe Attanasi, Fortuna Casoria, Samuele Centorrino, & Giulia Urso. And the title is "Cultural investment, local development and instantaneous social capital: A case study of a gathering festival in the South of Italy."

A draft is here. 

The Behavioral Foundations of the Italian North-South Divide

From an interesting paper by Maria Bigoni, Stefania Bortolotti, Marco Casari, Diego Gambetta and Francesca Panocha. 2013. 

Abstract

Socio-economic performance differs not only across countries but within countries too and can persist even after religion, language, and formal institutions are long shared. One interpretation of these disparities is that successful regions are characterized by higher levels of trust, and, more generally, of cooperation. Here we study a classic case of within-country disparities, the Italian North-South divide, to find out whether people exhibit geographically distinct abilities to cooperate independently of many other factors and whence these differences emerge. Through an experiment in four Italian cities, we study the behavior of a sample of the general population toward trust and contributions to the common good. We find that trust and contributions vary in unison, and diminish moving from North to South.

From the conclusions 

We collected a millennium-long time span dataset, which suggests that the most plausible conjecture in terms of historical experiences is related to the frequency of violent conflicts against external enemies Bowles (2009); Tilly (1992). The need to react to external threats may positively select norms of conditional cooperation in a society, and lay the bases for a more cooperative future.  

The title of the paper is "Cooperation Hidden Frontiers: The Behavioral Foundations of the Italian North-South Divide." EUI Working Paper ECO 2013/04. European University Press.
The graphs and tables are very interesting.
HT: Matthew Baker

Italy's Growth, 1861-2011

The graphs are from this paper by Emanuele Felice & Giovanni Vecchi.

Self-government and Long Term Persistence of Institutions (Italy)

From a paper by Luigi Guiso, Paola Sapienza, & Luigi Zingales. 

We show that cities that experienced self-government in the Middle Ages have more civic capital today [from the abstract]. 

Our reading of medieval history (among others, Reynolds, 1997; Milani, 2005; Jones, 1997; Tabacco, 1987; Pirenne, 1956) suggests that bishops played a key role in coordinating local citizens in their struggle against the Emperor for independence. Therefore, we use the presence of a bishop before the year 1000 as one predictor of eventual free city-state status [p. 4]. 

Another natural factor is strategic military position. Cities on hilltops or surrounded by waters were easier to defend militarily and hence more likely to succeed in rebelling against the Emperor and becoming independent. As a proxy for strategic position we use foundation by the Etruscans. The Etruscans (ninth century BCE), who populated an area stretching from Mantua in the North to Salerno in the South, were the first Italian civilization to be organized in the form of city-states. Since they had “first mover” advantage, they tended to locate their cities in positions that were easy to defend, so that Etruscan origin is a good proxy for strategic location, as the picture of their capital Orvieto (Figure 1 in the Appendix) suggests [p. 4].

HT: Fabio Sabatini

Economic History: Plague in seventeenth-century Europe and the decline of Italy

This article compares the impact of plague across Europe during the seventeenth century. It shows that the disease affected southern Europe much more severely than the north. Italy was by far the area worst struck. Using a new database, the article introduces an epidemiological variable that has not been considered in the literature: territorial pervasiveness of the contagion. This variable is much more relevant than local mortality rates in accounting for the different regional impact of plague. Epidemics, and not economic hardship, generated a severe demographic crisis in Italy during the seventeenth century. Plague caused a shock to the economy of the Italian peninsula that might have been key in starting its relative decline compared with the emerging northern European countries.

That is from the paper "Plague in seventeenth-century Europe and the decline of Italy: an epidemiological hypothesis" by Guido Alfani (European Review of Economic Hisotry, June 2013). A draft is here. 

Some data from the paper

In Lombardy for example the production of woollen cloths had declined from an yearly average of 15,000 to about 3,000 in 1640 in Milan and from 8-10,000 to about 400 in 1650 in Como; in Cremona the 187 members of the Arte della Lana to be counted in 1615 had shrunk to 23 by 1648; in Monza the 20 wool enterprises present in the city in 1620 had entirely disappeared by 1640. P. 33.

An economic riddle (credit markets in Italy)

We have examined the pattern of lending rates on overdraft facilities in Italy with a unique and large data set. This borrowing channel is especially im- portant for the self-employed and micro firms, which, in Italy, are especially numerous relative to other OECD countries. We document that women pay a higher interest rate even after controlling for a host of characteristics of the borrower, the bank and the structure of the banking sector. In fact, we find that the same bank charges more to women than men, so the result cannot be explained by women using different types of bank than men. We have tried to control as well as we could for risk factors like type of business, past credit history and the presence of guarantors, but the differential remains. Incidentally, women-owned businesses display a lower failure rate than male- owned ones in Italy. We also find that, in places with higher social capital and trust, banks charge lower interest, and the amount of this effect is quite large, but the differential between male and female borrowing rates is not confined in places with low social capital. Both men and women pay lower interest in places with high social capital, but women benefit less.

The authors (Alesina, Lotti, & Mistrulli, Journal of the European Economic Association, January, 2013) add:

The result is very robust. One interpretation is statistical discrimination, women being riskier than men. But we find that, on average, women show a better history then men in terms of past episodes of bad loans or bankrupt- cies. Guarantors are considered a risk factor for men: male borrowers are charged more if they have to post a guarantor. For women, is the opposite: when they post a male guarantor, their interest goes down, but, interestingly, if they have a female guarantor, the interest they pay goes way up. It would appear that even the gender of guarantor is considered a risk factor for banks, pointing out again the presence of some degree of taste-based discrimination. As discussed above, we could not explain the male versus female differential with many variables meant to capture differential risk, but it is possible that a bank has more information than the econometrician.

The full paper is here.  

Alesina, by the way, is one of the most productive economists today. See for example his recent paper on the link between diversity of birthplace and economic prosperity.  

Soccernomics: The Decline of the Italian Professional Football

There are three main critical areas in the Italian football industry. First, we find that the revenues of teams playing in Serie A are low and highly concentrated on TV rights, hence vulnerable to changing conditions in the mass media industry. Second, we document that there has been an exponential growth of players' salaries, which has been historically driving up the total costs up to unsustainable levels. The third problem relates to a lack of credibility of the competition, due to a long list of scandals and its potential effects on revenues. In particular, the 2006 investigation on match rigging, and the new episodes on betting scandals in 2009 and 2010, have depressed the total revenues of all teams not only of those directly involved in match fixing. There can also be second round effects via a deterioration of the quality of games, which may also reduce revenues of the clubs. Possible ways out of these problems are discussed in the last section.

From the new paper "The Decline of Professional Football in Italy" by Boeri & Severgnini  (November 2012). 

The authors explain:

Out of 37 teams participating in Serie A in the period 2001/02-2010/11, 9, that is, 25 per cent of the total, had to declare bankruptcy. 

Intelligence

Two abstracts from the journal Intelligence: 

Biological correlates of northern–southern Italy differences in IQ 

The present study was intended to provide perspective, albeit less than unequivocal, on the research of Lynn (2010) who reported higher IQs in the northern than southern Italian regions. He attributes this to northern Italians having a greater genetic similarity to middle Europeans and southern Italians to Mediterranean people. Higher regional IQ was associated with biological variables more characteristic of middle European than Mediterranean populations (cephalic index, eye color, hair color, multiple sclerosis rates, schizophrenia rates). It was maintained, however, that very confident and definitive inferences regarding genetic regional differences in IQ are not warranted. Social conceptualized variables also correlated significantly with IQ so as to suggest the importance of nutrition and economic developmental status more generally.

IQs predict differences in the technological development of nations from 1000 BC through 2000 AD

National IQs and measures of technological development given by Comin, Easterly and Gong (2010) are presented for 133 nations for the year 1000 BC, for 134 nations for 0 AD, for 120 nations for 1500 AD and for 133 nations for 2000 AD. It is shown that national IQs are significantly correlated with national differences in technological development at 0.42 in 1000 BC, 0.18 in 0 AD, 0.63 in 1500 D, and 0.75 in 2000 AD.

I did not find the papers online.  

The economic cost of organized crime

The graph below is from a fascinating paper by Paolo Pinotti, the full titles is: "The economic costs of organized crime: evidence from southern Italy" (April 2012):

The author explains:

This graph shows the relationship between organized crime and GDP per capita across Italian regions. Bold triangles denote regions with a historical presence of mafia organizations, hollow triangles denote regions with a more recent presence while circles denote all other regions.

Another illustrative graph - mafia allegations vs homicide rate:

Another one: 

The graph compares the time series of GDP per capita in Apulia and Basilicata (“actual with mafia”) and in a synthetic control that is a weighted average of the other Italian regions excluding those with a historical presence of mafia-type organizations (Sicily, Campania and Calabria) . . .

The author concludes:

The results suggest that the aggregate loss implied by the presence of organized crime amounts to a significant reduction of GDP per capita and goes mainly through a reallocation from private economic activity to (less productive) public investment.

I find this map intriguing:

Why is this map intriguing? Contrast it with the map below:
Map of civic capital:

There is an obvious negative geographic relationship between organized crime activity and measures of civic capital, which is not taken into consideration in Pinotti's paper.  

Map of the day

Map of civic capital measured by the first principal component of blood donations, volunteering, and electoral turnout.

That is from the new paper by Burker and Minerva "Civic capital and the size distribution of plants: Short-run dynamics and long-run equilibrium" (March 2012). The authors argue that the geography of civic capital shapes the geographic distribution of plants in Italy. 


HT: Fabio Sabatini. 

Spain and Italy: Public finance problems.

The news of the macroeconomics of Spain and Italy (and the Eurozone) are abundant these days. These graphs show the 10 year bond yield for both countries. The large increase indicates that the bonds are perceived as riskier by investors. Investors might think that both governments have a limited capacity to pay their debts in the future. Investor might think that the governments have fundamental public finance problems, as a consequence investors demand a higher yield. 

The question is what is gonna happen next? These are some broad and extreme scenarios just to understand the situation:

1) The European Central Bank (ECB) starts buying bonds from Spain and Italy. By doing that there is an increase in the demand for bonds. An increase in the demand will increase the price of bonds, and as a consequence the yield will go down (the yield and the price of bonds move in the opposite direction). Why this could work? When the yield goes down some expect that investor will gain confidence again and would perceive the bonds as less risky, and they will maintain their positions. Why this could not work? If the public finance problems of these countries are very serious, the buying of bonds from the ECB will have no effect or very limited effect in bringing tranquility to investors, who in spite of the actions of the ECB, would keep selling their bonds or/and demanding higher yields. 

1) The European Central Bank does nothing. Investors might become very nervous and might start selling their bonds, as a consequence the yield will continue increasing, reflecting higher and higher risk. The problem with this is that eventually investors will not want to hold any debt from these countries, as a consequence the governments will have lower income. This implies that their public services and social spending will suffer, which could bring social unrest. And this will reduce further foreign direct investment. 

Some are even saying that this might bring the braking up of the Eurozone:

The banking sector, too, is broken. Important parts of the eurozone economy are cut off from credit. The eurozone is now subject to a run by global investors, and a quiet bank run among its citizens.

This massive erosion of trust has also destroyed the main plank of the rescue strategy. The European Financial Stability Facility derives its firepower from the guarantees of its shareholders. As the crisis has spread to France, Belgium, the Netherlands and Austria, the EFSF itself is affected by the contagious spread of the disease. Unless something very drastic happens, the eurozone could break up very soon.

As in many of these cases the root of the problem is the bad health of public finances, but it can get more complicated than that. 

You can read different perspectives on this issue, one here, another here, another here., and here. 

Source of graphs.