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Local Financial Development, Socio-Institutional Environment, and Firm Productivity: Evidence from Italy

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  • Luigi Moretti

    (University of Padova)

Abstract

This paper investigates the effects of local financial development and quality of socioinstitutional environment on firmÕs productivity in Italy. We argue that social capital, judicial efficiency, and the presence of criminal organizations might impact the real economy through three channels: i) they have a direct impact through the creation of a business environment; ii) they have an indirect impact, as they are among the main determinants of private credit development and lending risk conditions; iii) they might act as constraints to the effects of financial development on the real economy through misallocation of credit to highly profitable investments. We study the Italian case, using firm level data for productivity and taking advantage of the variation in terms of banking sector development, judicial efficiency, and social capital among Italian provinces. After controlling for potential endogeneity, our empirical results confirm that the real effects of financial development are conditional on the quality of socioinstitutional environment. In particular, we find that i) a larger local banking market has higher positive effects on firm productivity when the socio-institutional environment is sufficiently developed; ii) an improvement of lending condition (reduction of lending rates) has higher effects when the socio-institutional environment is not developed. These evidences highlight that an improvement of socio-institutional environment might spur a virtuous cycle.

Suggested Citation

  • Luigi Moretti, 2013. "Local Financial Development, Socio-Institutional Environment, and Firm Productivity: Evidence from Italy," "Marco Fanno" Working Papers 0165, Dipartimento di Scienze Economiche "Marco Fanno".
  • Handle: RePEc:pad:wpaper:0165
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    2. Liu, Xiaohan & Liu, Jianmin & Wu, Haitao & Hao, Yu, 2022. "Do tax reductions stimulate firm productivity? A quasi-natural experiment from China," Economic Systems, Elsevier, vol. 46(4).
    3. Rosa Capolupo, 2018. "Finance, Investment and Growth: Evidence for Italy," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 47(1), pages 145-186, February.
    4. Decio Coviello & Luigi Moretti & Giancarlo Spagnolo & Paola Valbonesi, 2018. "Court Efficiency and Procurement Performance," Scandinavian Journal of Economics, Wiley Blackwell, vol. 120(3), pages 826-858, July.
    5. Roberto Ganau & Andrés Rodríguez†Pose, 2018. "Industrial clusters, organized crime, and productivity growth in Italian SMEs," Journal of Regional Science, Wiley Blackwell, vol. 58(2), pages 363-385, March.
    6. Tran, Viet T. & Walle, Yabibal M. & Herwartz, Helmut, 2020. "The impact of local financial development on firm growth in Vietnam: Does the level of corruption matter?," European Journal of Political Economy, Elsevier, vol. 62(C).
    7. Rouven E. Haschka & Helmut Herwartz & Clara Silva Coelho & Yabibal M. Walle, 2023. "The impact of local financial development and corruption control on firm efficiency in Vietnam: evidence from a geoadditive stochastic frontier analysis," Journal of Productivity Analysis, Springer, vol. 60(2), pages 203-226, October.
    8. Jancenelle, Vivien E., 2021. "Tangible−Intangible resource composition and firm success," Technovation, Elsevier, vol. 108(C).
    9. Giuseppe Albanese & Federico Antellini Russo & Roberto Zampino, 2016. "Criminalit? e scelte degli amministratori locali in tema di procedure di acquisto," ECONOMIA PUBBLICA, FrancoAngeli Editore, vol. 2016(2), pages 131-167.
    10. Henri Njangang & Luc Ndeffo Nembot & Joseph Pasky Ngameni, 2020. "Does financial development reduce the size of the informal economy in sub‐Saharan African countries?," African Development Review, African Development Bank, vol. 32(3), pages 375-391, September.
    11. Sorin Gabriel Anton, 2019. "Leverage and firm growth: an empirical investigation of gazelles from emerging Europe," International Entrepreneurship and Management Journal, Springer, vol. 15(1), pages 209-232, March.
    12. Belke, Ansgar & Setzer, Ralph & Haskamp, Ulrich, 2016. "Bank efficiency and regional growth in Europe: new evidence from micro-data," Working Paper Series 1983, European Central Bank.
    13. Paola Rossi & Diego Scalise, 2022. "Financial development and growth in European regions," Journal of Regional Science, Wiley Blackwell, vol. 62(2), pages 389-411, March.
    14. Giuseppe Di Vita, 2018. "Institutional quality and the growth rates of the Italian regions: The costs of regulatory complexity," Papers in Regional Science, Wiley Blackwell, vol. 97(4), pages 1057-1081, November.

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    • D2 - Microeconomics - - Production and Organizations
    • G2 - Financial Economics - - Financial Institutions and Services

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