Where do we go from here? Market access and regional development in Italy (1871-1911)

Italy has been characterized, throughout its unitary history, by large regional differentials in income, level of industrialization, and development. This article aims at testing the New Economic Geography hypothesis on the role of market access in explaining these regional differentials. We first quantify the market potentials of the Italian regions. We then use these estimates to study the causal link between GDP per capita and market potential. The main result of this article is that only domestic market potential, which represents the home market, shows a "traditional" North-South divide. When international markets are introduced, the South does not appear to lag behind. Regression analysis confirms that market potential is a strong determinant of GDP per capita only in its domestic formulation. This suggests that the home market in this period mattered far more for growth than the international markets, casting new light on one of the classical explanations to the North-South divide.