Internal vs. External Firm Productivity Drivers. A Study of the Italian Counties

We analyzed productivity growth differentials across 68,000 Italian manufacturing firms over 2001-2010, in order to disentangle internal and external productivity drivers. A two-stage procedure was implemented for extracting fixed effects on the firms for 103 home counties (stage one), and regressing them upon a number of external factors that could affect productivity dynamics (stage two). We found that a rather limited set of external drivers related to financial conditions, social capital and market potential explain approximately two-thirds of the cross-county productivity dispersion.