Inherited culture, institutions and economic developmentin Italy∗

M. C. Bramati†, A. Palestini‡, and M. Rota§

Please do not quote this preliminary version

Abstract

This paper establishes a precise channel of long run effect of inherited cultural traitson current development. We use data on 102 provinces of Italy and we consider whethercultural traits from the past shape the today quality of formal institutions within country,proxied by the length of trials by province. Our results point to a strong effect of inheritedcultural traits on the different quality of the today formal institutions whereby differentlevels of development are determined within country. Those effects are robust to theinclusion of accumulation of human capital, past economic development, geographicallocation, and current civic capital. Moreover, we found that the effects of inherited culturaltraits might be additional and not necessarily alternative to past formal institutions ininfluencing current economic behaviour and outcomes.

Jel classification: O10, F10, P10, N13Keywords: inherited cultural traits, formal institutions, economic development, civil trials.

∗We acknowledge the Faculty of Economic, Sapienza University of Rome for financial support, (under-40researchers funding program 2012).†Sapienza, University of Rome, MEMOTEF Department, via del Castro Laurenziano, 9 000161 Rome‡Sapienza, University of Rome, MEMOTEF Department, via del Castro Laurenziano, 9 000161 Rome§Sapienza, University of Rome, MEMOTEF Department, via del Castro Laurenziano, 9 000161 Rome,

email:mauro.rota@uniroma1.it corresponding author

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1 Introduction

The cultural traits are often invoked as the determinants of different economic outcomes. Pref-erences, norms and beliefs are determined by those cultural traits which in turn are the resultsof events and institutional heritage from a very distant past (Bisin and Verdier 2001; Voigth-lander and Voth, 2012). Italy is a valuable laboratory to assess whether the large territorialdisparities in terms of income per capita are generated by different cultural traits, historicalheritages, and institutional set-ups.

After more than 150 years since the political and administrative unifications (1861), theSouth has not yet converged to the North (Felice 2013) despite ad hoc economic policies, asin the early years of XX centuries or in the four decades after World War II, and despite ofthe common set of formal institutions governing the social and economic life from the Alpes tothe Strait of Sicily. None of other European countries experiences larger and more persistentwithin country gap.

Two explanations of the fail in convergence of the Italian counties have become popular inthe past years calling into question the cultural traits: the attitude to satisfy self interests (theamoral familism of Banfield, 1958) and the lack of cooperative behaviour and trust (Putnam1993). These hardly ever alternative perspectives could explain why in the South people reactin a different way to the same set of incentives faced by Northern inhabitants. Yet, it is obviousthat incentives can vary from North to South along with the endowment of infrastructures,presence of organised crimes, investments and many other conditions. A recent lab-in-fieldexperiment (Bigoni et al. 2015) has revealed that a gap in cooperation between North andSouth persists even under the same set of incentives and that the measures of aggregated socialand civic capital do not reflect the pattern in cooperation found into the intra-groups behaviour.

These results leave an open question about the origin in a distant past of and the persis-tence of cooperation gap whose effects may still influence the level of development after 150 ofunification. Moreover, there is lively debate through which channels, if any, the cultural traitsshape the economic behaviour.

In lines with a growing literature (Guiso et al. 2004, Akcomak and Ter Weel, 2009, Tabellini2010; Algan and Cahuc, 2010) that searches in the past the roots of current behaviour ofgroups and societies, in this paper we explore whether some cultural traits, such as cooperativebehaviour, trust, and inclusiveness as well as formal education inherited from a distant pastinfluence the quality and efficiency of formal institutions today in Italy which in turn contributeto explain the different level of development across areas. Indeed, we argue that the transmissionof historical events runs from the inherited past informal institutions and norms, determinedby the cultural traits, to the current formal institutions, complementing the majority of thetheoretical and empirical studies that have assessed a precise channel running from the pastinherited formal institutions to both current formal institutions and cultural norms (Guiso etal., 2010; Voigthlander and Voth, 2012; Borowiecki, 2015).

We have found the signs of past cultural traits in the diffusion of and in the gender composi-tions within the Societa di mutuo soccorso, the voluntary organizations that provided assistanceto members and that emerged in the early years of unification. We assume the Societa as anindirect measure of trust, inclusiveness and cooperation of the past times. In 1873, six south-ern provinces had no Societa and the rest of the south had yet not developed the network ofinformal support that emerged in the north and in some areas of central Italy.

It is commonly shared the idea that the civic tradition of the Italian cities has its roots inthe communal life of late Middle Ages or in the Signoria of the Renaissance (Putnam 1993)whereby the cultural traits we are considering can be viewed as a wrong or biased perspective ofthe civic capital inherited. That could be true because the endowment of civic capital emergedin the XII-XV centuries may have produced economic benefits that perpetuated differences in

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civic capital until 1873 and beyond. We will discuss this aspect in the text showing in section7 that controlling in our empirical model for current measures of civic capital the transmissionchannel from our measures of inherited cultural traits to current formal institutions is notaltered yet it turns out to be complemented.

Moreover, we add to the standard concept of trust and cooperation the literacy rate observedin a very distant past to get a snapshot of the overall cultural traits. If we want to track theinherited culture we must take into account that relatively more educated people contributeto the social life of their own community in a well-informed way. More educated persons joineasier the community life, are less affected by stereotypes and prejudices, and are more proneto absorb the social norms and sentiments delivered by the diffusion of formal and informaleducation. Moreover, inclusion of literacy rate in our analysis helps to discount the potentialdegree of transmission of trust, cooperation and inclusiveness through generations especiallywhen we are not able, as in our context, to directly measure their intergenerational transmission.Our choice to include literacy rate is therefore consistent with Tabellini (2010) who uses pastilliteracy rate to causally identify the effect of today culture on current economic development.

The current formal institution we consider is the degree of protection of the property rights.Measures of property rights protection are available at country level but at either regionalor provincial level for Italy there are no comparable data. Hence, we look at the length ofcivil trials as a sign of institutional efficiency. The judicial system determines how much theproperty rights are secured by the law enforcement and how much the legal framework protectsthe potential investors and consumers. Trials are longer in the Southern courts suggesting alower degree of protection of property rights. In 2006 the median length of a first degree trialfor 102 Italian provinces considered in this study was 464 days (Belluno, Veneto) and only eightnorthern provinces placed over the median while none southern provinces was below that value.The standard variation across Italy is high and equal to six months.

What can account for the different length of trials across the Italian courts given thatthe judicial system in Italy is the same from North to South in terms of rules and personnelendowment and to the extent that the rules of law are established at national level? We relatethe different efficiency across area of the same institution to the informal institutions that eacharea of Italy inherited from the past. In particular, the length of trials today are linked to theintrinsic degree of infighting among citizens. Because the informal institutions may influencethe efficiency of formal institutions (Tabellini, 2010) the different degree of infighting can affectthe working of judicial courts generating longer trials. A society endowed with a sufficiently highlevel of trust, cooperation and inclusiveness generates less judicial controversies than societiesin which citizens do not trust and cooperate each other.

The analysis shows that the inherited cultural traits may explain the different quality ofthe same institutions within countries. In our empirical analysis we find a strong and robusteffect of inherited cultural traits on the quality of formal institutions proxied by the length ofthe civil trials which in turn contribute to explain the differences in the level of development ofthe Italian provinces. The results are robust to the inclusion of contemporaneous accumulatedhuman capital, past level of development, geographical variables and the degree of openness.Most importantly, those effects are robust when we control for current measures of social or civiccapital. A further robustness check we provide is the ”horse race” between inherited formalinstitutions and cultural traits. If we use past formal institution as excluded instrument theeffects of cultural traits on current formal institution is strongly confirmed and, as we expect,past formal institutions influence current efficiency of the courts. Yet we do not find any effectof past formal institutions in the equation that explains the level of development when theyare used as included regressor. Obviously, in this specification past formal institutions continueto be effective on current quality of formal institutions and the cultural traits effect is still inplace.

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Hence, our approach is new from three perspectives. First, we relate the quality of insti-tutions today to the informal inherited institutions trying to bridge the gap between genericassumptions and observable data. Second, we try to quantify the past informal institutionscapturing territorial differences in a detailed way and trying to interpret as close as possiblethe Putnam’s idea of inherited civic capital. Finally, we complement the civic capital with theliteracy rate to obtain an extensive measure of cultural traits.

Our paper also aims at contributing to the literature on the role played by inherited culturaltraits. First, compared to the existing literature that emphasizes that past cultural traitsdisplay permanent effect on current cultural traits, belief, preference and norms (Voigthlanderand Voth, Guiso et al. 2010) we add a further effect that runs from the inherited culturaltraits to formal institutions, at least in a within country context. Second, we provide evidencethat past cultural traits are a separate and complementary channel to past formal institutionsin shaping current formal institutions, and that they might be not an alternative channel.Third, we have also found robust evidence that the effects of past cultural traits cannot bemixed up to current civic capital either on current formal institutions or on the current levelof development. This last result is consistent with the findings of Guiso et al. (2004) whodistinguish between inherited and acquired social capital. Moreover, the other body of literaturewe aim to contribute is the extensive literature on income divergence and to that on North-South disparities in Italy, in particular. The empirical results support uncontroversially thathistory matters in the territorial divergence and that past cultural traits are still playing a role,distinct from the civic or social capital. In a very long run perspective Felice (2012) dischargesthe hypothesis that inherited social capital still affects convergence in the regions of Italy. Theeffect is found to be strong only in the last decades. We offer a different explanation than DiLiberto and Sideri (2015) who use measures of institutional quality proxied by the provisionof several public services, including the length of justice in 2004, to explain income per capitadifferences of 103 Italian provinces. To address the endogeneity problem they instrument theinstitutional quality with some historical variables. In particular, the causal identification iscarried out using the different foreign dominations that ruled Italian regions between the 16thand 17th century and over seven hundred years before the creation of the unified Italian State.The way in which they identify causality is by the use of generic codification of past institutions.The South of Italy in XIX century was under the rules of Bourbons and they left in heritagethe same set of formal institutions in Campania and Sicily, where the last King Francis II neverwent during his reign. Despite this fact, the provinces of Campania and Sicily display widedifferences in income per capita. The same is true for the provinces under the Papal State.Bologna is by far richer than any other province of the former Papal State (with the exceptionof Rome) and substantially richer than several northern provinces. The same argument can beused to doubt about the genuine effects of dominations before XIX century. Moreover, it couldbe questioned that some of past dominations delivered inefficient institutions that persisted. Asexample, let us consider the negative effect of the Norman domination of the XII Century in theSouth found in Di Liberto et al. (2015). It is difficult to reconcile this effect with the fact thatthe Reign of Frederick II of Swabia who ruled in Naples and Sicily and is historically consideredan innovator of bureaucracy and laws did not leave any significant impact on the quality ofinformal institutions in that area. Yet, a closer look at the duration of past domination suggeststhat were the Spanish rulers between the early XV century and the Treaty of Utrecht (1713)that deeply set the path of formal institutions. Precisely, those were the years in which theGran Duchy of Tuscany and the Centre-North of Italy were experiencing the epoch of theformation of civic tradition according to Putnam (1993). The sign of this heritage can befound, as our framework suggest, in the spirit of mutuality and trust that shaped social andeconomic preferences of the Italian populations. The first systematic snapshot of this heritageis, to our best knowledge, found in the voluntary associations of the early stages of Unification

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and in the formal and elementary level of education of a distant past.

2 Judicial trials and the efficiency of formal institutions

The Italian civil judicial system is organized in three degrees of judgement. All citizens canclaim their alleged rights in the first degree without any limit. The access to the second degreeis unrestricted but it is expensive. The last degree is the claim at the High Civil Court whichis restricted to some technical and legal circumstances. Hence, the first degree of judgementis the most informative in terms of efficiency of the judicial system as the access is actuallyfree and unrestricted. Moreover, the second degree is held in the Corte d’Appello serving morethan one province making it difficult to have data on the local degree of efficiency of the courts.As far as the first degree is concerned, the territorial distributions of the courts overlaps theadministrative partition at NUTS-3 level with some exceptions. We have data on 144 courtswhich is more than the Italian administrative provinces. To make data comparable to economicvariables we aggregate the courts according to the provincial administrative partition. Asexample, because the province of Rome has three active courts, Rome, Velletri and Civitavecchiawe summed up the trials in each court assigning the resulting value to the province of Rome.Hence, we obtained data on judicial trials for 106 provinces.

Available data show the existing trials at the end of the year, the new trials and the ex-hausted trials. The average length of trials is not observed yet can be estimated. Following theprocedure of the national institute of statistics (ISTAT) we compute the length of trials as:

Length =Pendingt−1 + Pendingt

Closedt +Newt

∗ 365 (1)

Figure ?? shows the geographical picture of the average length of the civil trials in 2006the last year before the crisis. The average length was 478 days with a standard deviation of184.5 days. The maximum value of 953 days has been registered in Vibo Valentia (Calabria)the lowest, 181 days, in Mantova. The southern courts take a longer time to close a trial thanthe northern courts affecting the contracts enforcement and the protection of property rightsin a negative way thereby determining a lower quality of the institutional set-up. A widerperiod to close a trial makes property rights less secure and increases uncertainty whereby thetransaction costs increase and the economic exchanges are discouraged.

Figure ?? indicate a clear pattern of the link between the length of trials and value added percapita. The unconditional association suggests that development and efficiency of institutionsare closely and negatively linked although nothing can be said about causality. Thus, thegeographical distribution of the length of civil trials is affected by several factors. One possiblereason is that in the more prosperous areas the potential sources of litigation are mitigatedby a wider availability of resources. If the pie is larger there is less probability that judicialconflicts might emerge relaxing the pressure on the courts. Yet in turn, it is also true that in thericher areas the number of the economic transactions is larger and the number of controversiesis potentially higher than in the more backward areas in which less transactions occur. If thisis the case, we expect that judicial claims could jam the working of the courts up. In thisperspectives, though from very different sides, the length of trials is strongly influenced by thelevel of income. The last consideration recalls a common conundrum when institutions andincome level are considered, namely the direction of the causality nexus.

Moreover, because the judicial system is governed by national rules, the differences in thelength of trials can be related to the efficiency of the human capital in the courts (judgesand auxiliary personnel). It is difficult to estimate efficiency of the human capital workingin the courts given that, in principle, judges and auxiliary personnel are selected according tostandardized quality at national level through a competitive selection process. We could observe

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Figure 1: The length of civil trials in 2006. Source: our computation on data provided byMinistry of Justice.

600 - 1.000

500 - 600

400 - 500

350 - 400

300 - 350

180 - 300

N.A.

Figure 2: Length of trials, appointed judges and value added per capita

(a) Correlation between value added per capita andcivil trials.

Agrigento

AlessandriaAncona

Aosta

Aquila

Arezzo

AscoliAsti

Avellino

Bari

Belluno

Benevento

Bergamo

Biella

Bologna

Brescia

Brindisi

Cagliari

Caltanissetta

Campobasso

Caserta

Catania

Catanzaro

Chieti

Como

Cosenza

Cremona

Crotone

Cuneo

Enna

Ferrara

Firenze

Foggia

Forli

Frosinone

Genova

Grosseto

Imperia

Isernia

La Spezia

Latina

Lecce

Lecco

LivornoLodiLucca Macerata

Mantova

Massa

MateraMessina

Milano

Modena

Monza

Napoli

Novara

Nuoro

Ogliastra

Oristano

Padova

Palermo

Parma

Pavia Perugia

Pesaro

Pescara

Piacenza

Pisa

Pistoia

Pordenone

Potenza

Prato

Ragusa

Ravenna

Reggio Calabria

Reggio Emilia

Rieti

Rimini

Roma

Rovigo

Salerno

Sassari

SavonaSiena

Siracusa

Sondrio

Taranto

Tempio

Teramo

Terni

Torino

Trapani

Treviso

UdineVarese Venezia

Verbania

Vercelli

Verona

Vibo

Vicenza

Viterbo

2.5

33.

5lo

g of

val

ue a

dde

per

capi

ta

200 400 600 800 1000length of civil trials (first degree) in days

(b) Correlation between the length of trials and theappointed judges (data on appointed judges were kindly provided

by the Consiglio Superiore della Magistartura.

AgrigentoAgrigentoAgrigentoAgrigentoAgrigentoAgrigento

AlessandriaAlessandriaAlessandriaAlessandriaAlessandriaAlessandriaAnconaAnconaAnconaAnconaAnconaAncona

AostaAostaAostaAostaAostaAosta

AquilaAquilaAquilaAquilaAquilaAquila

ArezzoArezzoArezzoArezzoArezzoArezzo

AscoliAscoliAscoliAscoliAscoliAscoli

AstiAstiAstiAstiAstiAsti

AvellinoAvellinoAvellinoAvellinoAvellinoAvellino

BariBariBariBariBariBari

BellunoBellunoBellunoBellunoBellunoBelluno

BeneventoBeneventoBeneventoBeneventoBeneventoBenevento

BergamoBergamoBergamoBergamoBergamoBergamoBiellaBiellaBiellaBiellaBiellaBiella

BolognaBolognaBolognaBolognaBolognaBolognaBresciaBresciaBresciaBresciaBresciaBrescia

BrindisiBrindisiBrindisiBrindisiBrindisiBrindisi

CagliariCagliariCagliariCagliariCagliariCagliari

CaltanissettaCaltanissettaCaltanissettaCaltanissettaCaltanissettaCaltanissetta

CampobassoCampobassoCampobassoCampobassoCampobassoCampobasso

CasertaCasertaCasertaCasertaCasertaCaserta

CataniaCataniaCataniaCataniaCataniaCatania

CatanzaroCatanzaroCatanzaroCatanzaroCatanzaroCatanzaro

ChietiChietiChietiChietiChietiChieti

ComoComoComoComoComoComo

CosenzaCosenzaCosenzaCosenzaCosenzaCosenza

CremonaCremonaCremonaCremonaCremonaCremona

CrotoneCrotoneCrotoneCrotoneCrotoneCrotone

CuneoCuneoCuneoCuneoCuneoCuneo

EnnaEnnaEnnaEnnaEnnaEnna

FerraraFerraraFerraraFerraraFerraraFerrara

FirenzeFirenzeFirenzeFirenzeFirenzeFirenze

FoggiaFoggiaFoggiaFoggiaFoggiaFoggia

ForlìForlìForlìForlìForlìForlì

FrosinoneFrosinoneFrosinoneFrosinoneFrosinoneFrosinone

GenovaGenovaGenovaGenovaGenovaGenova

GrossetoGrossetoGrossetoGrossetoGrossetoGrosseto

ImperiaImperiaImperiaImperiaImperiaImperia

IserniaIserniaIserniaIserniaIserniaIsernia

La SpeziaLa SpeziaLa SpeziaLa SpeziaLa SpeziaLa Spezia

LatinaLatinaLatinaLatinaLatinaLatinaLecceLecceLecceLecceLecceLecce

LeccoLeccoLeccoLeccoLeccoLeccoLivornoLivornoLivornoLivornoLivornoLivornoLodiLodiLodiLodiLodiLodi

LuccaLuccaLuccaLuccaLuccaLucca

MacerataMacerataMacerataMacerataMacerataMacerata

MantovaMantovaMantovaMantovaMantovaMantova

MassaMassaMassaMassaMassaMassaMateraMateraMateraMateraMateraMatera

MessinaMessinaMessinaMessinaMessinaMessina

MilanoMilanoMilanoMilanoMilanoMilanoModenaModenaModenaModenaModenaModena

MonzaMonzaMonzaMonzaMonzaMonza

NapoliNapoliNapoliNapoliNapoliNapoli

NovaraNovaraNovaraNovaraNovaraNovara

NuoroNuoroNuoroNuoroNuoroNuoro

OgliastraOgliastraOgliastraOgliastraOgliastraOgliastra

OristanoOristanoOristanoOristanoOristanoOristano

PadovaPadovaPadovaPadovaPadovaPadova

PalermoPalermoPalermoPalermoPalermoPalermo

ParmaParmaParmaParmaParmaParmaPaviaPaviaPaviaPaviaPaviaPavia

PerugiaPerugiaPerugiaPerugiaPerugiaPerugia

PesaroPesaroPesaroPesaroPesaroPesaro

PescaraPescaraPescaraPescaraPescaraPescara

PiacenzaPiacenzaPiacenzaPiacenzaPiacenzaPiacenza

PisaPisaPisaPisaPisaPisa

PistoiaPistoiaPistoiaPistoiaPistoiaPistoiaPordenonePordenonePordenonePordenonePordenonePordenone

PotenzaPotenzaPotenzaPotenzaPotenzaPotenza

PratoPratoPratoPratoPratoPrato

RagusaRagusaRagusaRagusaRagusaRagusa

RavennaRavennaRavennaRavennaRavennaRavenna

Reggio CalabriaReggio CalabriaReggio CalabriaReggio CalabriaReggio CalabriaReggio Calabria

Reggio EmiliaReggio EmiliaReggio EmiliaReggio EmiliaReggio EmiliaReggio Emilia

RietiRietiRietiRietiRietiRieti

RiminiRiminiRiminiRiminiRiminiRimini

RomaRomaRomaRomaRomaRoma

RovigoRovigoRovigoRovigoRovigoRovigo

SalernoSalernoSalernoSalernoSalernoSalerno

SassariSassariSassariSassariSassariSassari

SavonaSavonaSavonaSavonaSavonaSavonaSienaSienaSienaSienaSienaSiena

SiracusaSiracusaSiracusaSiracusaSiracusaSiracusa

SondrioSondrioSondrioSondrioSondrioSondrio

TarantoTarantoTarantoTarantoTarantoTaranto

TempioTempioTempioTempioTempioTempioTeramoTeramoTeramoTeramoTeramoTeramo

TerniTerniTerniTerniTerniTerni

TorinoTorinoTorinoTorinoTorinoTorino

TrapaniTrapaniTrapaniTrapaniTrapaniTrapani

TrevisoTrevisoTrevisoTrevisoTrevisoTreviso

UdineUdineUdineUdineUdineUdineVareseVareseVareseVareseVareseVarese

VeneziaVeneziaVeneziaVeneziaVeneziaVenezia

VerbaniaVerbaniaVerbaniaVerbaniaVerbaniaVerbaniaVercelliVercelliVercelliVercelliVercelliVercelli

VeronaVeronaVeronaVeronaVeronaVerona

ViboViboViboViboViboVibo

VicenzaVicenzaVicenzaVicenzaVicenzaVicenzaViterboViterboViterboViterboViterboViterbo

200

400

600

800

1000

Leng

th o

f civ

il tr

ials

in d

ays

(ave

rage

200

6−20

11)

.2 .4 .6 .8 1Judges appointed each 10000 inhabitants

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or estimate the individual effort and efficiency if detailed data would be available which is not thecase. An obvious concern is that the number of judges in the courts accounts for the differencesin the length of trials. In particular, the southern courts could be refused by the appointedjudges because the living standards in the South are less attractive. This circumstance seemsnot verified for two order of reasons. First, the number of judges is predetermined, according tothe number of inhabitants, each year by the Ministry of Justice who replaces the retired judgesor those appointed to other services by a competitive selection process. Second, the availabledata show that the length of trials and the number of judges relative to population appointedin each court are positively correlated meaning that the Ministry, observing the length of trialsor other information on the degree of litigation, reacts by appointing more judges. Yet, thereverse is not true. The different length of trials is not the result of understaffed courts.

In turn, the observed longer trials and the resulting poor quality of formal institutionsin the south could be the outcome of the poor endowment of civic capital, of the quality ofhuman capital as well as of some predetermined historical facts. We relate the length of civiltrials to the degree of infighting and litigation which can be higher in the south because asociety endowed with a sufficiently high level of trust inclusiveness and cooperation generatesless judicial controversies than societies in which citizens do not trust or cooperate each other.It is the civic tradition of Northern and part of the central Italy rooted in their history that stillinfluence the degree of infighting and litigation today even after the social and economic events,many of them common to the whole Italy, have raised physical, human, and civic capital.

3 Cultural traits from the past

Past civic capital or cultural traits because direct measures that could be assembled usingsurveys such as World Value Survey or in-field experiment are obviously unavailable for a verydistant past.

We consider the Societa di Mutuo Soccorso that emerged in the XIX century in each provinceas a proxy of trust and cooperation in the past. The Societa di Mutuo Soccorso were voluntaryorganizations among citizens emerged in order to provide mutual assistance in case of adverseevents such as physical diseases and poverty, and the support of widows and sons of the de-ceased members. They were diffuse in Europe since about the medieval times, although inItaly as well as in the rest of the continent, their institutional profiles evolved in the XVIIIand XIX centuries. The medieval and early modern period congregations were charitable asso-ciation organized according to hierarchical roles of members. The sympathetic behaviour wasto some extent vertical and the membership was restricted to a particular profession. In turn,the associations after XVIII century were free from any hierarchical relationship among themembers (horizontal) and open to all the citizens in the majority of the cases. Apart fromthe effectiveness in providing assistance and mutuality which was by far more efficient in themodern associations, the Societa di Mutuo Soccorso testify to the existence of cooperation andtrust in the areas where they developed.Hence, the membership in the Society did not provide a direct economic pay-off. Being a mem-ber entailed to support other members in event of sickness, widowhood, unemployment, andorphanhood. Nobody at the moment of becoming a member could know if he/she would inthe future be in one of the previous conditions. If were the economic rational expectations toinspire the membership we expect that in the South cooperation ought to be higher, becausethe mortality rates, life expectations and income per capita were lower than in the North. Asit shown in the next paragraph, in the South cooperation was effectively lower signalling thatjoining a Society was the mirror of civic attitude rather than of economic pay-off. Moreover,in 1873 the Societa were not yet regulated by any law and they conveyed the genuine attemptto organize and provide assistance to members. In the Reign of Italy in 1862 there were 443

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organizations which origins date back to the Unification for 234 of them. Before the unificationin the south only 13 societies were active. Between the unification and 1873, 146 societies werecreated in the south and 1053 in the centre-north without any particular effect of the unificationin their geographical distribution. The first comprehensive census of the society were taken in1873 (MAIC, 1875) after the ultimate defeat of what remained of the Papal State. The censusreported important information on the Societa di Mutuo Soccorso, and in particular on theirexact location, the number of members and the gender composition of the membership. In1873 were recorded 1448 Society and 220818 members whose 199816 were men and 21002 werewomen. The exact location of each society allows us to take account of changes in the provin-cial boundaries and to match the societies with the current boundaries of each Italian provincefinally obtaining a distribution of membership in the past comparable to the distribution ofthe current formal institutions and income per capita. We are forced to exclude the provincesof Bolzano, Trento, Gorizia and Trieste that joined the Reign of Italy after World War I andfor which we do not have data. We use this information to build two measures of cooperation,trust and inclusiveness from the past. The first is the number of members registered in theSocieta each ten thousands inhabitants. The second is the ratio of female members to malemembers. A higher value of the ratio may signal a higher degree of inclusiveness of a society.In computing our measures we have taken into account the response rate to the survey. In1873, just 280 out of 1448 did not send data for various reasons and without any geographicalregularity. Hence, we re-weighted our measures of civic capital on the response rates.

Figure 3: Components of past cultural traits in the early 1870s. Members of the Societa dimutuo soccorso each 10000 inhabitants (Panel A), associated female to male ratio (Panel B),and illiteracy rate (Panel C). Source: our computation on MAIC (1875a and 1875b)

(a) Members of the Societa each10000 inhab.

0 - 10

10 - 30

30 - 60

60 - 100

100 - 200

200 - 425

N.A.

(b) Female to male ratio in theSocieta.

0

0 - 0,05

0,05 - 0,075

0,075 - 0,1

0,1 - 0,15

0,15 - 0,72

N.A.

(c) Illiteracy rate.

0,88 - 0,923

0,84 - 0,88

0,78 - 0,84

0,7 - 0,78

0,5 -0,7

0,4 - 0,5

N.A.

We complement the measures of cultural traits drawn by the membership in the Societawith the level of literacy rate in the past. Although the literacy rate can be viewed as a proxyof the human capital accumulation, it is an active part of the building of the cultural traitsof a society, as the frequently cited piece of Cipolla (1969, p.102) argues: ”widespread literacymeant not only an elastic supply of literate workers but also a more rational and more receptiveapproach to life on the part of the population”. This is true for the acquisition of techniques andprofessional skills as well as of the customs and beliefs delivered by the formal education. Anindividual in absence of access to formal education acquires his cultural traits typically from

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Figure 4: Geographical distributions of the inherited cultural traits

-1 - -0,6

- 0,6 - -0,3

-0,3 - 0

0 - +0,6

+0,6 - +1,2

+1,2 - +2,4

N.A.

parents, determining the long term persistence of those traits (Bisin and Verdier, 2001). Theimperfect empathy is responsible for the persistence given that parents transfer to children thecultural traits and have a preference for their own cultural beliefs. Yet, many historical studiesargue that changes in cultural beliefs are also possible. For example, the feelings about Jewishpopulation, though persistent in Germany, evaporated in the German Hansa cities because oftheir particular geographical and economic evolution showing that cultural traits are malleableunder some circumstance. Hence, the inclusion of literacy rate is in turn a potential predictorof future changes in cultural traits that we do not observe. Moreover, Tabellini (2010) includespast literacy rate as a key determinant of current cultural traits.

Given the imperfect measurement of the different indicators of cultural traits, we suggest acontinuous latent variable (CT ) to capture the historical cultural traits as the results of threecomponents: the number of members of the Societa di Mutuo Soccorso each ten thousandinhabitants in each province (Members), the associated female to male ratio in membership(FtoM) and the illiteracy rate in the past (Illrate):

IC = f(Members, F toM, Illrate) (2)

The factor analysis returns a clear pattern of how the previous component determine thecultural traits. Membership in the Societa and related measures increase the cultural traits andthe illiteracy rates lowers them. The latent variable patterns shown by the map in Figure ??is clear: moving from North to South the cultural traits worsen. It is interesting to note thatthe areas with the best cultural traits matches with the provinces that Putnam emphasized inhis celebrated book in 1993. Other area of high quality of cultural traits were Turin, Vercelli,Milan, Lecco, and La Spezia. The distribution in the past of cultural traits seem to be largelyindependent by the level of past development. If we consider the urbanization rate in 1871 asa proxy of economic development, its correlation with our latent variable of cultural traits isvirtually zero, In the empirical analysis of the next sections we control for the urbanizationrates in the past to clean possible mutual effects between inherited cultural traits and pasteconomic development.

4 The effects of formal institutions and inherited cul-

tural traits on the level of development

In this section we estimates how much the quality and effectiveness of formal institutionsinfluence the territorial disparities in Italy. Although the judicial system is the same within

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the country, local courts perform on average better in the North than in the South with fewexceptions. We argue, in first instance, that the differences in the functioning of the courtspartly reflects the difference in the effectiveness of formal institutions as a whole. We start witha very simple model such as:

yi = α + δ ∗ Li + β ∗ y0 + γ ∗ si + ε (3)

where y is the value added per capita in 102 Italian provinces L is the length of process, y0 is ameasure of development in the far past and i is a measure of human capital accumulation, i.e.the years of schooling, ε is the error term. Our model includes regional fixed effects in the shapeof fixed capital formation. We rely on this measure to capture unobserved heterogeneity acrossprovinces. Generic dummy variable are avoided in our specification because of the loss in thedegree of freedom. Moreover, the only reason to control for regional fixed effect is the role thatregional government can play in the fixed capital formation. In fact, the other possible channelis precisely the quality of institutions that is the focus of the analysis. We will introduce otherinteresting fixed effects such as the presence of organised crimes (dummy variable equals to oneif provinces are in the historical area of influence of Camorra, Mafia, and Ndrangheta and themembership to the historical Mezzogiorno club (provinces in the former Kingdom of the TwoSicilies and the provinces of Sardinia) .

Our model is very similar to the basic specification in Tabellini (2010). The differences arethat here we are interested to the role of formal institutions in income divergence and not tothe current cultural traits that, to our best knowledge, is not possible to compute at provinciallevel for Italy. In a later section we will include current measures of civic capital which areclose to, although different from, the current cultural traits. We anticipate since now that ourentire reasoning is not invalidated by the current measure of civic capital.Table ?? investigates the correlation of formal institutions, namely the length of civil trials, onvalue added per capita in columns 1 and 2, the reduced form including the inherited culturaltraits in columns 3 and 4, and the first stage regression of inherited cultural traits on currentformal institutions in columns 5 and 6. Value added per capita is expressed in log whereaslength of trials and the years of schooling are in level. All specification include regional fixedeffect in shape of investment rate, south dummy variable and organised crime dummy variable.We look at 2006 which is the last year before the crisis.

The OLS results in Table ?? indicate that the level of income per capita is inversely corre-lated with the length of trials, and, as we expect the years of schooling and the past developmentare positively correlated. The coefficient of the length of trials has a powerful economic mean-ing. A reduction in the length of trials of one standard deviation (184 days) is associated withan increase in the value added per capita by 4.8% in columns 1 and 2. Most importantly, theinclusion of inherited cultural traits in the reduced form equation states that historical vari-ables matters in the current economic performance and that our purported effect via formalinstitutions might work. Finally, columns 5 and 6 show that inherited cultural traits are cor-related with the quality of current formal institutions. The interpretation of the coefficients ofinherited cultural traits is straightforward. In the reduced form if the provinces with the worstcultural traits in 1871 (Ogliastra in Sardinia) had had the best cultural traits in the sample(Biella in Piedimont), its value added per capita in 2006 would have been 7.2% higher. In thefirst stage regressions inherited cultural traits is negatively associated to the length of trials. Ifthe province with the worst cultural traits had had the best in the sample the length of trialswould be today shorter of by 102 days.

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Table 1: Effects of formal institutions on value added per capita and reduced form of the effectof past cultural traits. OLS regressions

value added per capita 2006 length of trials 2006

(1) (2) (3) (4) (5) (6)

length of -0.000265*** -0.000265***civil trials (7.46e-05) (7.16e-05)schooling 0.175*** 0.175*** 0.184*** 0.184*** -29.96 -29.96

(0.0273) (0.0224) (0.0245) (0.0211) (30.24) (36.13)urbanization 0.0775* 0.0775** 0.0525 0.0525 65.22 65.22rate in 1871 (0.0431) (0.0365) (0.0413) (0.0432) (57.53) (72.60)inherited 0.0485*** 0.0485** -69.21*** -69.21***cultural traits (0.0171) (0.0172) (21.91) (22.01)Constant 1.048*** 1.048*** 0.771*** 0.771** 961.4*** 961.4**

(0.326) (0.306) (0.286) (0.290) (343.4) (365.3)

Observations 102 102 102 102 102 102R-squared 0.890 0.890 0.886 0.886 0.674 0.674

*** p<0.01, ** p<0.05, * p<0.1 Robust standard errors in parentheses in cols 1-3-5,robust and clustered standard errors by region in cols 2-4-6.

5 Causal identification

However, the length of process are likely to be correlated with the error term ε in equation??raising standard problem of endogeneity. The potential sources of endogeneity are the reversecausality with the value added per capita and the omission of important variable. One way toovercome endogeneity is to model the length of process as a stochastic process in which thesame regressors in the (??) appear together with some excluded variables able to capture theexogenous variation in the length of trials across provinces. We imagine that the length oftrials is potentially influenced by the degree of litigation in each area which in turn dependson the inherited cultural traits. More cooperative and inclusive societies have a lower degreeof infighting among citizens. Moreover, the cooperative behaviour matters also when a disputearrives to the court. The judicial controversy is solved quickly if the sides do not try tocircumvent the legal procedures or to cheat using improperly the legal instruments. However,we do not observe the degree of infighting among citizens. To cope with this issue we haveproposed in the previous section the inherited cultural traits from a distant past. Becausethe cultural traits are long term persistent we expect that they still influence the behaviour ofeconomic agents today. Therefore, the chain of causality ought run from inherited cultural traitsto today formal institutions which in turn determine the differences in the level of development.Using the results of columns 5 and 6 of Table ?? we imagine that the length of trials can beapproximated by the following stochastic process:

Li = a+ d ∗ ICi + b ∗ y0i + g ∗Xi + ηi (4)

where L is the length of civil trials today in the i − th provinces, ICi are the inheritedcultural traits and Xi include the same set of regressors of equation ??.

By combining equations ?? and ?? we might estimate the causal effect of the formal insti-tutions on the level of development today using as excluded instruments the inherited culturaltraits. The following Table ?? shows the result of our exercise. Let us note that in columns 1 are

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Table 2: Effects of formal institutions on value added per capita. IV regressions.

(1) (2) (3) (4)IV First stage IV First stage

length of trials -0.000700 -0.000645(0.000296)** (0.000273)**[0.000196]*** [0.000188]***

school 0.163 -29.96 0.160 -23.70(0.0299)*** (30.24) (0.0274)*** (30.65)[0.0257]*** [36.13] [0.0250]*** [38.02]

urb. rate 1871 0.0981* 65.22 0.0788 64.92(0.0539)* (57.53) (0.0514) (58.44)[0.0488]** [72.60] [0.0449]* [71.41]

inherited culture -69.21 -68.58(21.91)*** (22.14)***[22.01]*** [22.24]***

openess 0.0800 -25.75(0.0349)*** (29.84)[0.0310]*** [28.21]

Constant 1.445*** 961.4 1.422 906.5(0.397) (343.4)*** (0.367)*** (350.9)**[0.330] [365.3]*** [0.320]*** [392.9]**

Observations 102 102 101 101R-squared 0.854 0.674 0.871 0.675

All specification include regional fixed effect in shape of investment rate, south dummy variable,and organised crime dummy variable.Robust standard errors in parentheses and clustered robust standard errors in squared brackets*** p<0.01, ** p<0.05, * p<0.1

reported the results of the instrumental variable regression, that columns 2 is, obviously, iden-tical to columns 5 (and 6) of Table ??, and that columns 4 and 5 include an addition regressor,the degree of provincial openess ( import+export

grossvalueadded), in both first stage and IV regressions.

Our causal identification is supported into the data. By instrumenting the length of trialswith the inherited culture we find that the effect of our proxy of property rights protection isconfirmed. Compared to OLS estimation the coefficient is higher. A one month reduction in thelength of trials increase value added per capita by 2.7%. Schooling maintains its positive andsignificant effect on value added per capita as well as past urbanization rate. The results arerobust to the inclusion of a further regressor, the openess degree, in columns 4 and 5. Indeed,an excessively long time passing from submission to the first decision of a judicial controversyis a symptom of institutional inefficiency. Economic agents perceive the length of trials as aninadequate and insufficient level of protection of property rights, the transaction costs increaseand the economic activity turns out to be depressed. It is also plausible that foreign directinvestments are likely to occur in the areas with the lowest lengths of trials, inducing non-domestic agents to select the location of investments.However, we do not explore the effects onFDI in this research.

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Table 3: Effects of formal institutions on value added per capita: Inherited institutions vscurrent social capital. IV regressions

(1) (2) (3) (4)IV First stage IV First stage

length -0.000700 -0.000645(0.000296)** (0.000274)**[0.000195]*** [0.000188]***

school 0.164 -11.20 0.160 -2.246(0.0319)*** (28.42) (0.0298)*** (28.96)[0.0247]*** [33.93] [0.0251]*** [35.83]

urbrate10k 0.100 102.8 0.0785 105.3(0.0628) (58.99)* (0.0591) (59.73)*[0.0547]* [69.58] [0.0506] [68.31]

cartocci -0.000851 -17.09 0.000121 -18.44(0.00902) (6.930)** (0.00853) (6.859)***[0.00696] [4.722]*** [0.00654] [4.604]***

factor -69.00 -68.24(21.13)*** (21.36)***[19.81)*** [20.09]***

openess 0.0800 -30.59(0.0351)** (29.37)[0.0308]*** [30.31]

Constant 1.429 637.3 1.424 546.1(0.386)*** (331.7)* (0.359)*** (340.3)[0.325]*** [344.5]* [0.330]*** [377.3]

Observations 102 102 101 101R-squared 0.854 0.692 0.871 0.696

All specification include regional fixed effect in shape of investment rate, south dummy variable,and organised crime dummy variable.Robust standard errors in parentheses and clustered robust standard errors in squared brackets*** p<0.01, ** p<0.05, * p<0.1

6 Inherited informal institutions vs current civic capital

The cultural traits from the past result in an invalid instrument if they affect income per capitathrough other channels and through accumulation of civic capital in particular. One possiblerisk in our causal identification is the omission of current measures of civic capital. It wouldbe the case that civic capital today is capturing the degree of infighting that we are tryingto measure using the length of civil trials. Under this circumstance, the effects of duration oflegal trials on the value added per capita should evaporate or, at least, substantially shrink.Moreover, the effect of inherited informal institutions on the protection of property rights shoulddisappear or reduce whenever the current civic capital has capturing the inherited cultural traitsfrom the past. We carry out the exercise in Table ?? where a current measure of civic capitalis introduced. At provincial level, the series of Cartocci (2007), the most popular in this field,captures under one variable four proxies of civic capital, namely the diffusion of newspaper,the political participation, the blood donations and the membership to sport association. Incolumns 3 and 4 we add also the usual indicator of openness.

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The inclusion of current social capital does not change the results either in the IV regressionor in the first stage. The length of process are still positive and significant for the level of valueadded and the inherited cultural traits do not evaporate in the first stage regression. Moreover,the current civic capital has no direct effect on the value added yet it could affect economicoutcome via efficiency of formal institutions. If current capital reflected the past cultural traitswe would find that our measure were no longer effective on the length of trials. This findingmay figure out two sources of civic capital, that is one coming from the past and anotheraccumulated in recent years.

7 Inherited informal institutions vs past formal institu-

tions.

It might be possible that formal institutions from a very distant past shaped the informalinstitutions and that the pattern of formal institutions today are driven by them. In Tabellini(2010) the formal institutions from the past are used to causal identify the cultural traits today.We follow a similar logic introducing in the first stage equation the past formal institutionsthat prevailed in the pre-unification Kingdoms to check whether our framework is robust to thiscontrol. Our measure of formal institutions is the average of the polity score (Polity IV project)achieved by the Italian states between 1848 and the unification. In 1848 the uprising in severalpre-unification kingdoms culminated in constitutional reforms of the executive constraints andpolitical participation that with varying degree improved the quality of formal institutionsin the pre-Unification kingdoms. Tables ?? compares the effects of both past formal andinherited informal institutions on the length of civil trials and, in turn, on the value addedtoday controlling for schooling, past level of urbanization, current social capital and openess.Let us to note that the coding of past formal institution is highly collinear with one of ourfixed effects, i.e. the dummy variable of south regions. Hence we compare the results with andwithout the dummy south into the specification, maintaining in both cases all the other fixedeffects.

The results are difficult to interpret. First of all our measure of inherited cultural traits ispowerful in explaining the length of process today, i.e. the efficiency of current institutions inprotecting property rights. Controlling for past institutions its coefficients is significant andpositive whether we include or not a south dummy variable. In turn the effects of the lengthof trials on the value added per capita are still in place and they are highly significant. Yetthe magnitude of the coefficient in the specification without the south dummy is 43% largerthan with the south dummy. This could suggest that the specification in columns 3 and 4 aresomewhat upward biased. However, the results are clearly driven by the high collinearity ofpast formal institutions with the south dummy variable because the provinces in the south wereunder the same set of formal institutions in XIX century with the exception of the Sardinianprovinces. When the south dummy is excluded the formal institutions from the past display theexpected effect on the efficiency of formal institutions today. However, as far as the robustnessof our hypothesis is concerned we do not find any competitive effect of past formal institutionson our cultural traits being possible that their influence on current economic behaviour andoutcomes works throughout different channels.

8 Conclusions

Cultural traits and informal institutions affect economic outcome and behaviour yet it is notclear the channel through which they shape economic results. Culture is persistent throughgenerations, although it is malleable and subject to change over time along with development

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Table 4: Effects of formal institutions on value added per capita: Inherited institutions vsinherited formal institutions. IV regressions

(1) (2) (3) (4)IV First stage IV First stage

length -0.000763 -0.00109(0.000271)*** (0.000208)***[0.000167]*** [0.000179]***

school 0.161 -9.150 0.161 -13.69(0.0309)*** (28.84) (0.0372***) (30.31)[0.0267]*** [33.85] [0.0373***] [32.66]

urbrate10k 0.0891 74.93 0.102 80.43(0.0651) (67.37) (0.0801) (68.07)[0.0549] [75.22] [0.0721] [74.81]

cartocci -0.00208 -19.94 -0.000512 -29.31(0.00888) (6.657)*** (0.0108) (6.025)***[0.00724] [4.892]*** [0.00769] [6.300]***

openess 0.0752** -22.07 0.0772 -31.19(0.0360)** (30.50) (0.0449)* (29.38)[0.0302]** [27.93] [0.0373]** [26.18]

factor -64.47 -82.38(20.32)*** (19.50)***[17.94]*** [15.49]***

formalinst1848 -12.43 -19.63(7.658) (7.912)**[9.220] [9.847]*

Constant 1.482 458.2 1.743 308.0(0.363)*** (346.3) (0.424)*** (381.3)[0.352]*** [407.9] [0.404]*** [452.6]

South dummy Y Y N N

J-stat p.value (0.258) (0.235)[0.384] [0.388]

Observations 101 101 101 101R-squared 0.851 0.686 0.769 0.702

All specification include regional fixed effect in shape of investment rate and organised crimedummy variable.Robust standard errors in parentheses and clustered robust standard errors in squared brackets*** p<0.01, ** p<0.05, * p<0.1

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and accumulation of human and physical capital. However, the inherited culture from the pastis an important piece of the current cultural traits and might be responsible for the differentreaction of citizens to the same incentives. We have tested, in the context of the Italianprovinces, whether cultural traits form a very distant past still play a role in income divergence.Because of its historical events, Italy is a suitable laboratory to carry out this exercise. Thedifferent institutional arrangements in the past and the proceedings of history have rooteddifferent cultural traits in the population. Those traits in turns have shaped the attitudetowards cooperation, trust, and inclusiveness of which we found systematic and quantitativeevidence in the early years of Unification. They have proven to be a good predictor of differentefficiency and quality of formal institutions today. Thus, we have established a precise channelof influence of inherited cultural traits and a causality nexus running from past culture toformal institutions today finally to divergence in income per capita. Our model complementsthe possible and plausible channels of how history influences the current economic outcomes.

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