TFP Differentials across Italian Macro-Regions: An Analysis of Manufacturing Corporations between 1995 and 2015

In this work we study the geographical differences in total factor productivity (TFP) estimated at firm level for corporations active in the manufacturing sector between 1995 and 2015. In 2015 the average TFP in the South was between 14 and 33 per cent lower than in the North-West: the largest estimate is obtained using the number of employees as a proxy for labor input; the smallest, by using the cost of labor which better captures the skill composition and the actual work intensity. Productivity levels in the North-East were close to those in the other Northern regions; firms in the Centre were in-between. During the two decades the TFP gap between more productive and less productive firms contracted in all areas, but more so in the South; this led to a modest reduction in the North-South TFP divide, which was also driven by a more intense selection process in the Southern regions during the economic recession.