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Why is Credit Riskier in the South?

Author

Listed:
  • Casolaro Luca

    (Bank of Italy)

  • Gallo Marco

    (Bank of Italy)

  • Iconio Garrì

    (Bank of Italy)

Abstract

This paper investigates the determinants of the territorial divides in the default rate of firm loans in Italy. During the period 2006–2019, the South of Italy exhibited consistently worse credit quality than the Centre-North, with the gap widening during the recession following the 2011 sovereign debt crisis. Credit demand and bank supply factors explain only less than half of the observed difference. Even when accounting for economic trends, a substantial unexplained gap remains. This residual gap is concentrated among the small and more vulnerable firms and appears to be essentially attributable to the external diseconomies that characterize southern Italy.

Suggested Citation

  • Casolaro Luca & Gallo Marco & Iconio Garrì, 2024. "Why is Credit Riskier in the South?," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 10(3), pages 1087-1117, November.
    • Handle: RePEc:spr:italej:v:10:y:2024:i:3:d:10.1007_s40797-024-00293-3
    DOI: 10.1007/s40797-024-00293-3
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    Keywords

    Credit quality; Geographical disparities;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • R19 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Other

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