Supply and demand-side determinants of productivity growth in Italian regions

• We estimate the long-run determinants of manufacturing productivity in Italy.
• We use a long dataset and consistent methodology addressing for simultaneity bias.
• We model conjunctly factors such as the Verdoorn effect, R&D and infrastructure.
• We find a statistically significant Verdoorn coefficient of about 0.5.
• R&D and infrastructure have a significant positive impact on productivity growth.

The objective of this paper is to identify the long run determinants of productivity growth for the manufacturing sector of the Italian regions. Demand and supply-side factors are considered: on the demand side, we refer to the estimation of the Verdoorn effect, while, on the supply side, we explore the role of R&D expenditures and transport infrastructure endowments. Our estimation methodology consists of both pooled cross-section OLS and time series LIML estimators using data collected by CRENoS and Istat covering the period 1964–2009. We find evidence of a statistically significant Verdoorn effect. Labor costs, R&D and railway infrastructure have a positive impact on productivity growth.