Essays on institutions and development

This thesis examines the effect of present and past institutions on development. In the first chapter I attempt to quantify the socio-economic effects of current institutional differences, with reference to the nature and degree of local autonomy in Italian regions on population growth in the Italian Alps in 2000-2015. I leverage the administrative discontinuity, showing that population of ordinary stature Italian regions declines significantly faster than in neighbouring autonomous regions. The spatial regression discontinuity analysis suggests that the effect is due to institutional differences across the border, with climate, elevation, income and other control data being continuous across it. Moreover, I examine two sources of autonomous status variation in order to support my claim. First, I make use of historical census population data starting from 1921 and show that the discontinuity in population dynamics was not present before the introduction of autonomous statute regions with the republican constitution. Second, I focus on a municipality, that managed to change its region from an ordinary statute region to a special statute one: when compared to nearby contiguous mountain municipalities that did not change region, the “little municipality that could’’ stopped its trend of population loss. While the discontinuity in demographic dynamics is an interesting result in and on itself, I further investigate its origin by resorting to demographic modelling in order to decompose population change into components and explore the plausible causal pathway from fiscal autonomy to population dynamics. I find that the likely culprit is different policy effecting the birth rates through increased fertility, including availability of facilities such as kindergartens. I argue that the patterns of local spending that positively influence birth rate in special statute regions are enabled by fiscal autonomy. The second, co-authored chapter of this thesis is examining long-term institutional persistence. We exploit the historical border between the Duchy of Milan under the rule of the Austrian Empire and the neighbouring Kingdom of Savoy. The border was established by the Aix-la-Chapelle treaty of 1748 as a result of War of Austrian succession. A significant part of this border runs through modern regions of Lombardy. While both the Habsburgs and the Kingdom implemented administrative reform aimed at homogenizing local practices, the regimes differed in the final scope and the type of the reform, with the Duchy municipalities gaining higher degree of local autonomy as opposed to Savoy. Indeed, our border strategy reveals a discontinuity in present day municipality efficiency in service provision across the historical border, which is not justified by a difference in other variables. The result holds when including relevant controls and is robust to a battery of additional tests. The discontinuity is also revealed by 1884 budget data. What is the mechanism that could lead to such long-term persistence? We introduce a model aimed at exploring possible pathways for persistence, showing that under some plausible conditions a government organization can perpetuate values that differ from those of the underlying population through enculturation of its individual members. While we establish a link between past reforms and current institutional differentials in service provision efficiency, we also present some concrete evidence of the effect this has on socio-economic outcomes. Ex-Duchy municipalities tend to provide significantly more nursery places than ex-Savoy ones, after controlling for relevant covariates. Having shown in Chapter 1 that the availability of childcare services Granger-causes fertility on the municipal level for Italy as a whole, municipalities’ service provision capacity receives a whole new importance especially for an ageing society.