A Country for Incumbent Firms? Evidence on Manufacturing Investments in Italy in the 20th Century

This paper studies the evolution of business dynamism in Italy (1903-1971), as measured by the share of investments made by new firms (a share which is arguably inversely related to barriers to entry). For this analysis, I reconstructed a series of tangible investments in the manufacturing sector based on joint-stock firm-level data. The analysis shows that until the late 1920s overall capital accumulation was largely driven by young firms. A substantial discontinuity emerged after the Great Depression, however, and was to last throughout the decades of the 'economic miracle' (1948-1973), with investments originating mostly from established firms. The paper presents and discusses suggestive evidence for two institutional explanations which could account for the latter finding. First, the demise of universal banking, associated with the 1926-1936 banking reform, may have constrained the external financing capacity of new firms. Second, a persistent reduction in product market competition resulted from the collusive practices which the Fascist government promoted during the 1930s.