Determinants of long-run regional productivity with geographical spillovers: The role of R&D, human capital and public infrastructure

In this paper we estimate the long-run relationship between total factor productivity, R&D, human capital and public infrastructure between 1980 and 2001 across Italian regions. We take advantage of recent developments of panel cointegration techniques that control for endogeneity of regressors to estimate cointegration vectors. Empirical evidence shows that there exists a long-run equilibrium between productivity level and the three kinds of capital; among them, human capital turns out to have the strongest impact on productivity. Regional productivity is found also to be positively affected by R&D activity and public infrastructure of neighboring regions. Finally, results of the Granger-causality tests support the hypothesis that human capital and infrastructure Granger-cause productivity in the long-run while the opposite is not true; only for R&D stock is the bi-directional causality found.