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Long Term Persistence

by Luigi Guiso, Paola Sapienza, and Luigi Zingales. Reading for Tuesday, 9 October.

Is social capital long lasting? Does it affect long term economic performance? To answer these questions we test Putnam?s conjecture that today marked differences in social capital between the North and South of Italy are due to the culture of independence fostered by the free city states experience in the North of Italy at the turn of the first millennium. We show that the medieval experience of independence has an impact on social capital within the North, even when we instrument for the probability of becoming a city state with historical factors (such as the Etruscan origin of the city and the presence of a bishop in year 1,000). More importantly, we show that the difference in social capital between towns that in the Middle Age had the characteristics to become independent and towns that did not exists only in the North (where most of these towns did become independent) and not in the South (where the power of the Norman kingdom prevented them form doing so). Our difference in difference estimates suggest that at least 50% of the North-South gap in social capital is due lack of a free city state experience in the South.

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