Why growth rates differ? Path of innovation in Italian provinces

This paper analyses the way in which innovation and absorptive capacity affect the productivity of Italian provinces. It builds on the Neo-Schumpeterian literature which investigates how technology gaps explain development disparities between countries and regions. The study is carried out at the provincial level, which allows a more fine-tuned analysis of the resource endowment linked to knowledge generation and economic performance. Moreover, it distinguishes between two very different types of innovation: those directly dependent on R&D and new knowledge generation which are generally measured by the number of patents; and those relying on the adaptation of processes, products and materials and thus mostly based on the exploitation of already existing knowledge, which are here measured by a new index based on registered utility models and industrial designs. Main results indicate a case of divergence in productivity levels instead of one of catching up among the Italian provinces; moreover, they suggest that the main effort to get productivity gains in this country has been carried out through a reduction of employment and of its related costs instead of via increasing R&D and human capital.