Keeping up with the Joneses? The rise of modern universities and local economic development in Italy

Abstract This paper uses own built historical register tracing the evolution of Italian higher education from the High Middle Ages to 2010 to analyse the economic effects of the rise of modern universities. The registry data prompts the creation of a panel dataset measuring higher education supply across 110 Italian provinces from 1870 to 2010, which corresponds to the transition from elite to mass higher education in Italy. Our econometric approach combines a fixed effects estimator with Bartik-style instruments that exploit the historical cross-province distribution of higher education institutions in Italy. We find significant economic returns of universities, particularly in synergy with industrialisation, contributing to Italy’s transition to sustained growth. Our estimates predict that a province exposed to an average supply (equivalent to 7 universities, approximately) experiences an annual 2% increase in real gross value added per capita compared to a province with a zero supply. We show that about two thirds of these returns arise locally, while the remaining third originates from externalities. We argue that such high local concentration of economic returns contribute to fostering inequalities between small peripheral areas and large university hubs.