Regional economic divide and the role of technological spillovers in Italy. Evidence from microdata

This paper assesses the impact of Research and Development (R&D) efforts on production in the North and Centre-South of Italy by using a panel of 1,203 manufacturing firms over the period 1998–2003. The estimations are based on a nonlinear translog production function augmented by a measure of R&D spillovers. This measure combines the geographical distance between firms, the technological similarity within each pair of firms and the technical efficiency of each firm. The estimation method takes into account the endogeneity of regressors and the potential sample selection issue regarding firms’ decisions to invest in R&D. The two main results are as follows. Internal and external R&D have a lower impact in the Centre-South of Italy than in the rest of the country and they are weak substitutes whatever the area.