Industrial Policy in Underdeveloped Regions: Lessons from Mezzogiorno

Abstract

Nowadays many countries are trying to solve the problem of regional inequality, and Russia is one of them. Russian policy against underdevelopment of some federal subjects includes special industrial policy for the North Caucasus, the least industrialized part of Russia. This article aims to evaluate the prospects of this policy by comparing it with the measures taken by the Italian government to stimulate economic growth in Mezzogiorno. The findings reveal that Italian authorities at first established anticompetitive industrial policy of “Cassa del Mezzogiorno”, but then changed it to a mixed policy of supporting industrial districts. I show that “Cassa del Mezzogiorno” policy of grants and subsidies for new heavy industry enterprises did not reach its goal of reducing regional inequality, as it distorted the incentives for the local businessmen. At the same time, supporting new industrial districts by creating an infrastructure needed by all the firms inside the district was more effective, even though the effect was significant only for the territories which received this aid. Comparing the current industrial policy in the North Caucasus with Italian examples, one can observe that the activity of the North Caucasus Development Corporation is close to the efforts of “Cassa del Mezzogiorno” and it risks being as inefficient. At the same time, mixed industrial policy such as the Italian one, in my opinion, may be more successful, as some preconditions of industrial district formation may be observed in several localities of the North Caucasus.