Geography and Access to Credit: The Case of the Italian Mezzogiorno

We analyze the geographical differences in the Italian firms’ access conditions to credit in the period 2010–19. In line with earlier studies, our econometric results confirm that firms headquartered in the South of Italy face worse borrowing conditions compared to similar firms in the Centre-North. Southern firms pay higher interest rates on loans and are more frequently asked to pledge their assets as collateral. Credit lines granted to them are also more fragile as banks are more prone to call them back. Those less favorable credit access conditions end up reducing credit demand. Finally, we document, in line with previous studies, that the gap in credit conditions is partly due to external diseconomies that are more severe in the South of Italy.