Structural change and the sustainability of regional convergence: Evidence from the Italian regions

Abstract

Empirical studies on economic convergence have typically paid poor attention to the role played by the structural characteristics of the economy. Using OECD data for the period 1995–2007, the relationship between structural change and the convergence process of the Italian regions is analysed by integrating two approaches. A modified version of shift-and-share analysis is first used in order to break the average growth rate of labour productivity into its infra-sectoral and structural components. The existence of a relationship between the components of the growth rate and the presence of regional convergence is then assessed econometrically. Unlike in most studies reported in the literature, the regression coefficient is broken up in two separate parts to assess how much of the observed regional growth can be referred to the infra-sectoral and the structural components. The empirical results confirm the existence of a (slow) convergence, but also that only structural change has played a statistically significant support role. The regional disparities are, in most cases, unchanged or even worsened when the infra-sectoral productivity growth is considered. In terms of policy implications, strong emphasis must remain on sectoral policies: ‘place-based’ and ‘sectoral smart specialisation’ policies are crucial for the convergence process to be sustainable in the long term.