Institutional quality and innovation: evidence from Emilia-Romagna

ABSTRACT

In the last few decades, the role of institutions has received renewed attention as a key factor to foster regional growth and innovative performance, raising researchers’ interest in assessing the mechanisms through which the institutional framework could affect innovation. This paper, by focusing attention to the Emilia-Romagna context, empirically investigates the effects on innovative capacity related to higher institutional quality and to its dimensions. This region, in fact, provides – due to the performance achieved in the new economic scenario (EMU, globalisation, Industry 4.0) – a relevant testing ground to verify the extent to which the evolution of regional institutions has favoured the creation of a fertile ecosystem able to promote innovative capacity. The main findings reveal a positive role associated with two fundamental institutional components: the quality of public services (government effectiveness) and the degree of association and social cooperation (voice and accountability), which represent the most important institutional dimensions in this region.

KEYWORDS:

• Innovation
• institutional quality
• government effectiveness
• voice and accountability
• structural change

JEL CLASSIFICATIONS:

• O10
• O43
• R10
• R11

Acknowledgements

The authors thank the editor and two anonymous referees for useful comments. The authors also thank all participants to the on-line seminar with the European Investment Bank (EIB) and conference participants to the XVII c.MET05 Workshop. The authors acknowledge the EIB financial support. Any errors remain those of the authors. The findings, interpretations and conclusions presented in this document are entirely those of the authors and should not be attributed in any manner to the EIB.

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

1 The common characteristic of these analyses is an assessment of the relationship between ‘social capital’ and the quality of economic development in Italy (Sabatini 2005), and – more in details – in its regions and provinces (Degli Antoni 2006). In the former, ‘social capital is measured through synthetic indicators representing strong family ties, weak informal ties, voluntary organization, and political participation’. In the latter, the two proxies are (i) the data drawn from the World Values Surveys (‘most people can be trusted’), and (ii) the ‘quantity and quality of associational life and related social norms’.

2 This concept was introduced to international debate because of Brusco’s (1982) contribution.

3 The five dimensions have been elaborated by aggregating 24 elementary indices.

4 In the figures released by Unioncamere Emilia-Romagna (2020), the base year (2000) has an index value equal to 100: in the years between 2007 and 2019 (the last year before the pandemic), Emilia-Romagna’s economy has shown a satisfactory growth rate (111.5) while Italy lagged behind (104.5).

5 Annual GDP growth rates (Banca d’Italia 2020): Emilia-Romagna 1.7% (2016), 2.3% (2017), 1.8% (2018); Veneto 1.8% (2016); 2.2% (2017), 1.3% (2018); Lombardia 1.9% (2016), 2.1% (2017), 0.6% (2018).

6 On this transformation (the so-called, ‘metamorphosis’), an extensive empirical evidence has been provided by a University of Parma research project (Mosconi 2008, 2011, 2012, 2018).

7 https://ec.europa.eu/eurostat/data/database

8 Considering the results of a survey, the Bank of Italy (Bentivogli and Viviano 2012, 14) wrote that ‘Emilia-Romagna was the first Italian region by incidence of cooperative employment on total non-agricultural jobs (9.7% against 4.6% of the national average) and by average size of cooperative firms (34.8 employees, more than double the national average)’ (our translation).

9 Fumagalli et al. (2018).

10 Prodi and Frattini (2018).

11 Andreoni, Frattini, and Prodi (2017).

12 This is the definition proposed by the EUROSTAT in the NACE Rev. 2.

13 In a medium-term analysis (1999-2016), the Directorate General for Economics of the Bank of Italy (Bugamelli et al. 2017, 5–6) argues that the relatively unsatisfactory performance of Italian aggregate exports between 1999 and 2007 was ‘the result of the interplay between three factors. The first is the significant appreciation of the real effective exchange rate for Italy (…) The second factor is the initial specialisation in productions that were particularly exposed to the increasing competition of low-wage countries (China in particular) on world exports (…) The third factor, which is intertwined with the previous two, is the size distribution of Italian firms and in particular the large number of small exporters, which struggled to: (i) defend their exports in the face of the exchange rate appreciation; (ii) keep pace with external demand; (iii) successfully face competition from low-wage countries.’ Over the next six-year period, the authors point out that ‘Italian exports have significantly supported GDP growth and have outpaced the demand stemming from destination market’. Thus, the question becomes: ‘To what extent do these facts signal a successful structural adjustment? On this, our evidence is mixed. On the one hand, cyclical or temporary factors may have been at play (…) On the other hand, the specialisation of Italy’s exports shifted towards sectors (vehicles and pharmaceuticals) that are less exposed to competitive pressure stemming from Chinese producers, and towards productions that are particularly effective in activating domestic value added (food and beverages). Moreover, the selection process triggered by the exceptional difficulties encountered by micro and small firms both before and during the global financial crisis might have structurally strengthened the population of Italian exporters, making it more resilient to negative shocks and more capable of taking advantage of new opportunities.’ (Bugamelli et al. 2017, 5–6).

14 Another recent analysis of the Directorate General for Economics of the Bank of Italy focusses on productivity growth in the medium-long term (since the second half of the 1990s). ‘In explaining the underperformance of Italy’s aggregate productivity’ – according to Bugamelli et al. (2018, 5–6) – the heterogeneity across firms within each sector is a crucial element, relatively more important than the heterogeneity across sectors. This is the consequence of a very polarised productive system. On the one hand, there are many micro and small enterprises, which are on average old, have a limited attitude to innovation, to the adoption of advanced technology and to internationalisation, are ineffective in their management skills and practices and have a vulnerable financial structure (…) Such a large share of micro and small firms curbs aggregate productivity growth not only via a composition effect, but also because in Italy these firms are on average less productive and dynamic than their euro-area counterparts (an observation that does not apply to medium and large enterprises). On the other hand, there is a small set of firms, mostly medium- and large-sized, whose efficiency, performance and strategies (in terms of innovation, technology and exports) are comparable to the most successful European competitors (…) It is these firms that are currently supporting growth. However, these high-performance firms’ average size and share of value added are smaller in Italy than in other countries.’

Additional information

Funding

This work was financially supported by the European Investment Bank (EIB) under the EIB-Institute ‘STAREBEI’ Programme (STAges de REcherche BEI-EIB research internships), Sept. 2019- Aug-2020.