The Historical Roots of Corruption and Economic Development in Italy

We claim that a sequential mechanism linking history to development exists: first, history defines the quality of social capital; then, social capital determines the level of corruption; finally, corruption affects economic performance. We test this hypothesis on a dataset of Italian provinces, and address the possible endogeneity of corruption by applying an IV model. We use three sets of historical instruments for corruption: 1) foreign dominations in 16th-17th century, 2) autocracy/autonomous rule in the 14th century, and 3) an index of social capital between in the 19th-20th century. The results indicate a significant impact of historically-driven corruption on development.