Institutions, externalities, and economic growth in southern Italy: evidence from the cotton textile industry, 1861-1914

Italian economic development in the century following unification was marked by dramatic north-south divergence. This article explores the power of models based on positive externalities to explain this pattern, offering a case study of the cotton textile industry. In cotton textiles, effects such as technological spillovers, human capital externalities, labour market pooling, non-tradable inputs, and market size cum economies of scale and transport costs, were not powerful. The failure of southern Italy to participate in the textile boom can be better explained by difficulties in mobilizing local initiative and capital in support of industry.