Extractive States: The Case of the Italian Unification

Despite the huge evidence on the adverse impact of extractive policies, we still lack a formal framework to identify their origins and role. Here, we lay out a two-region, two-social class model for thinking about this issue, and we exploit its implications to propose a novel account of the present-day divide between North and South of Italy. To illustrate, we document that it also arose because of the region-specific policies selected between 1861 and 1911 by the elite of the Kingdom of Sardinia, which unified Italy in 1861. While pre-unitary revenues from land property taxes and railway diffusion were shaped by each region's farming productivity but not by its political relevance for the Piedmontese elite, the opposite was true for the post-unitary ones. Moreover, tax distortions and the severity of all the other extractive policies are related to the growing post-unitary divide in culture and literacy, but not to the gap in the manufacturing industry value added. These two sets of results imply that extraction has neither eased the formation of a unitary market nor favored industrialization. Reassuringly, we reach similar conclusions when we consider region fixed effects and time dummies whether interacted or not with the structural conditions differentiating the two blocks of regions in 1861, i.e., inclusiveness of political institutions, land ownership fragmentation, and inputs. Crucially, our framework sheds light on the incentives of other groups dominating political and economic unions, e.g., Germany within the post-crisis EU.