On the Productivity Effects of Higher Education Supply: Evidence from Italian History

This paper uses own built historical data to analyse the effects of higher education institutions on productivity, measured in terms of real Gross Value Added (GVA) per capita. We employ a fixed-effect instrumental variables estimator and use instruments à la Bartik to identify the productivity effects of higher education supply at the provincial level. We also take into account the influence that neighbouring provinces have in this context. Our analysis covers the period 1870-2010, which corresponds to the transition from elite to mass higher education in Italy. We find significant positive effects of higher education supply on productivity, particularly in synergy with industrialisation, contributing to Italy’s transition to sustained growth. Further, we evaluate the estimated effects at 2001 supply levels, and suggest that a 10% increase in higher education supply (both within the province and neighbouring provinces) leads to an annual rise of 0.19% in per capita GVA. Our computations suggest that local supply accounts for approximately 58% of these annual returns, on average. The remaining 42% originates from faculties in nearby provinces. This positive externality persists even considering the local productivity loss caused by the negative displacement effects stemming from the supply of neighbouring areas.