Public capital, productivity and trade balances: some evidence for the Italian regions

This paper analyses the extent to which intensive investments in public capital may have had an unfavourable impact on the regional trade balances across the 20 Italian regions. Our working hypothesis is that investments in public capital, while stimulating the demand for tradables across the regions, may have a limited positive impact on the supply of tradables in regions characterised by relatively low productivity like the South of Italy (or Mezzogiorno). The empirical results are consistent with our expectations and suggest that programs of investments in public capital should be accompanied by additional policy measures that can remove the structural factors that hamper the total factor productivity growth in specific areas.