No revenge of the places that don't matter? Evidence from Italy’s Cassa per il Mezzogiorno

Abstract

This study examines the impact of the decentralisation of a large regional development programme for Southern Italy, the Cassa per il Mezzogiorno, through the lens of the passive modernisation hypothesis (Felice and Vasta, Eur Rev Econ Hist 19(1):44–66, 2015). It focuses on the role of local institutions in exacerbating regional inequalities and hindering Southern economic growth. This paper tests the hypothesis that the devolution of the public investment programme undermined its effectiveness, actively damaging regional convergence. Using the synthetic control method, the results reveal that the decentralisation of developmental policies in 1971 led to an 11% total loss in GDP per capita for Southern Italy in the following decade, shedding new light on the resurgence of the Italian regional divide in the latter half of the twentieth century.