Abstract
We analyse productivity differentials across about 63,000 manufacturing firms located in 103 Italian counties, in order to shed light on the relation between the business environment and firm performance. We find that a limited set of local variables related to institutional quality, local credit development, market access and innovation environment significantly contribute to explaining manufacturing productivity differentials in Italy. Our empirical findings confirm that firm competitiveness reacts to the local business environment on a multidimensional scale. This suggests that better targeted regional policies at the national and EU level, including measures for fostering convergence or decentralizing wage negotiations, should take into account the interdependence between productivity and the economic environment.
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