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Five important facts about the Italian economy

Though the Eurozone crisis left many European countries struggling in its wake, Italy suffered one of the most crippling hits to its economy. As Gianni Toniolo notes in his edited volume, The Oxford Handbook of the Italian Economy Since Unification, between 2007-2009, there was a “loss of more than 5 percentage points in GDP per person, a decline comparable with that of the Italian Great depression of the early 1930s.” But there are too many preconceptions about both the history of the Italian economy and the state it’s in today.

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(1) Italy has been in debt for the greater part of its economic history.

“Italy’s history after the unification of the country in 1861 is characterized by high levels of public debt. Even excluding the exceptional years between the start of World War I and the end of World War II, nominal debt has been higher than GDP for long spells. The debt-to-GDP ratio has been above 100 percent in sixty-three years (42 percent of the time); it has exceeded 60 percent in 111 years (almost 75 percent of the time). Periods with low debt (e.g., less than 35 percent of GDP) are the exception and they are concentrated in the twenty years after the end of World War II, when Italy experienced its ‘economic miracle.’”
Fabrizio Balassone, Maura Francese, and Angelo Pace, “Public Debt and Economic Growth: Italy’s First 150 Years”

(2) Northern Italy accounts for more than 90% of Italian exports.

“The location of economic activity within a country is determined by three broad factors: (1) the location of natural advantages, such as mineral deposits, climate, or water supply; (2) domestic market access, meaning how well placed a location is to meet demand from the domestic market and also to obtain inputs from labor, capital, and intermediate goods markets; and (3) foreign market access, capturing access to international trade… Italy’s misfortune is that each, in the period when it was most important, has favored the North… As a consequence, the South of Italy now accounts for less than 10 percent of Italian exports. The legacy is that lack of international exposure weakens the competitive pressure to upgrade institutions and practice in business and in the wider socioeconomic environment. This is a vicious circle which there seems little prospect of breaking.”
Brian A’Hearn and Anthony J. Venables, “Regional Disparities: Internal Geography and External Trade”

(3) Despite the massive flux of migrants into the country, there is “little evidence of a negative effect on the wages and unemployment prospects of native workers.”

“Massive immigrant flows invariably generate fears about their impact on the host economy. Such fears, amply represented in print and in economic studies, often focus on the impact of immigrants on unemployment, wages, and on the long-run budgetary position of the host country… [however] research into the labor market impact of that immigration finds little evidence of a negative effect on the wages and unemployment prospects of native workers. Gavosto, Venturini, and Villosio (1999) found that immigration impacted positively on the wages of native unskilled labor, whereas Venturini and Villosio (2002, 2006) found that immigrant share had no effect on the transition from employment to unemployment for native workers and that immigration had a positive effect on wages.”
Matteo Gomellini and Cormac Ó Gráda, “Migrations”

(4) Italian companies are struggling to keep up with new technological developments.

“…For a significant part of the second half of the twentieth century, Italian firms’ innovative ability seems to be based more on creative adoption of foreign technologies and the systematic development of localized learning rather than on formal research (Antonelli and Barbiellini Amidei 2011)… In the era of new globalization the investment in local formalized innovative activity has become vital to capture and integrate with foreign sources of technologic knowledge, and the waning capacity to benefit from international knowledge flows has a critical role in the last decades’ Italian (underperforming) innovation. Moreover, the new direction of technologic change, based on digital technology favoring the intensive use of highly educated human capital (relatively scant in Italy), may have played a part in the recent decades’ innovative decay, dampening Italian firms’ absorptive capacity and slowing down their processes of creative adoption.”
Federico Barbiellini Amidei, John Cantwell, and Anna Spadavecchia, “Innovation and Foreign Technology”

(5) It will be years before the country’s successful education reforms directly impact its economic productivity and growth.

“…It is encouraging that the fastest improvement in average years of schooling in the population ever achieved by Italy came in the first decade of the twenty-first century: from 8.3 in 2001 to 10.8 in 2010, equal to an increase by 2.9 percent per year (3.6 percent in the South), compared with 1.7 percent over the previous thirty years. More important still, the share of population aged twenty-five to sixty-four that completed tertiary (university) education increased from 9.4 percent in 2000 to 14.5 percent in 2009… In this area enormous progress was made in the first decade of the twenty-first century, despite low GDP growth. Given the low starting level, however, it will take several years for the ratio of university graduates in the population of working age to come close to the OECD (Organisation for Economic Co-operation and Development) average and make an impact on growth.”
Gianni Toniolo, “An Overview of Italy’s Economic Growth”

All excerpts taken from chapters in Gianni Toniolo’s edited volume, The Oxford Handbook of the Italian Economy Since Unification. Gianni Toniolo is Research Professor of Economics at Duke University, Professor of Political Science at LUISS (Roma) and Research Fellow at the Center for Economic Policy Research in London. His research has been published in a number of academic journals and he has authored several books, including The World Economy between the Wars (Oxford University Press, 2008).

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Image credit: “Rome Italy Night Evening Trevi Fountain Water” by tpsdave. Public domain via pixabay.

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