Extractive States: The Case of the Italian Unification

Abstract

Despite the huge evidence documenting the adverse impact of extractive policies, we still lack a framework that identifies their determinants. Here, we lay out a two-region, two-social class model for thinking about this issue, and we exploit its implications to propose a novel account of the present-day economic divide between North and South of Italy. In contrast with the extant literature, we document that its opening is the result of the region-specific policies selected between 1861 and 1911 by the elite of the Kingdom of Sardinia, which annexed the rest of Italy in 1861. To elaborate, pre-unitary regional revenues from land property taxes per capita and railway diffusion are only driven by the contemporaneous region's farming productivity but not by the region's political relevance for the Kingdom of Sardinia's elite, whereas the opposite is true for the post-unitary ones. Moreover, tax-collection costs, the regional political relevance, and tax distortions shaped the growing North-South gap in post-unitary development, culture, and literacy. Crucially, our framework clarifies the incentives of dominating groups in other political and economic unions, e.g., post-Civil War USA and EU.

Railways and manufacturing productivity in Italy after unification

“…This paper also conflicts slightly with two recent contributions claiming that the South was exploited by the North (more precisely by the Piedmont élite through conscription and heavy taxation (Brosio, 2018; de Oliveira & Guerriero, 2018). Our results show the positive effects of the infrastructure policy on the country as a whole and specifically contradict de Oliveira and Guerriero, who maintain that railways did not shape the VA of the manufacturing sector, and hence industrialization.…”

The origins of the state: technology, cooperation and institutions

“…Second, complementary skills might induce cooperation even without division of power and, possibly, strong protection of the nonelites' property if joint investment activities are sufficiently profitable. These conclusions disagree with Acemoglu and Robinson's (2012) caution that, even if developed, autocratic regimes must be inefficient, and they are consistent with recent empirical results on the insignificant long-run economic effect of a more inclusive political process (de Oliveira and Guerriero, 2018;Guerriero, 2020). To elaborate, these contributions show that more inclusive political institutions can favor an otherwise unfeasible inter-group cooperation in the short run, but might become irrelevant, if not detrimental, when social and/or technological innovations deprive investment of its role and if not accompanied by a forceful culture of cooperation (Boranbay and Guerriero, 2019).…”

Endogenous (in)formal institutions

“…We close by highlighting avenues for further research. First, an open issue is the identification of the more recent factors, like extractive policies (de Oliveira and Guerriero, 2016) and resource windfalls (Caselli and Tesei, 2016), shaping present-day (in)formal institutions.…”