Rule of law as a determinant of the export performance of Italian provinces

Abstract

Our article presents an empirical investigation of the relationship between the export performance of Italian provinces and the quality of their local institutions, specifically the rule of law, over the period 2004–2016. According to the results obtained by different econometric approaches (OLS, FE, SYS-GMM), in general a secure and well-defined legal framework – by reducing transaction costs and uncertainty, facilitating capital accumulation and an increase in the firms' scale of production – is associated with better export performance. Interestingly, when the analysis is replicated at the level of the Italian macro-areas (North, Centre and South), the results indicate that the rule of law has a statistically significant and positive association with export performance only in northern provinces, thus suggesting that the effectiveness of this institutional dimension might depend on the level of development of the socioeconomic and institutional features at the local level, i.e. only when a set of suitable economic incentive mechanisms are already in place.