Structural change and firm dynamics in Southern Italy

In this paper, we study the structural change in both central-northern and southern Italy, focusing on its implications for productivity dynamics and its micro-economic determinants. We document three main results. First, between 2001 and 2018, the deindustrialization process involved both areas; however, in the southern regions it mostly started after the financial crisis. In the South, the employment shares in low knowledge-intensive services increased more than in the central-northern area, whereas those in high knowledge-intensive services increased less markedly. Second, structural change slowed down productivity growth in the central and northern regions, but had no role in the productivity fall in the South. Finally, in central and northern Italy, employment growth was driven by the net creation of jobs among incumbents and larger firms. In contrast, employment dynamics in the southern regions largely reflected the process of firms entering and exiting the market, in particular in less knowledge-intensive service sectors, and in young and smaller enterprises.