Abstract

Recent literature has outlined that many countries are characterized by regional heterogeneity in terms of both economic growth and legal and financial characteristics. Moreover, the local level of law enforcement, the habits to cooperate, the diffusion of corruption affect the ability of firms to access to external finance fostering firm growth. Based on a large panel of Italian manufacturing SMEs, examined over the period 2002-2012, this empirical investigation tries to test the impact on firm growth of institutions as a whole, as well as the effects connected to the single components of the Institutional Quality Index elaborated by Nifo and Vecchione (2015) for the Italian provinces. The results show that firm growth in the South is positively affected by the proper functioning of the entire system of local institutions. Conversely, when we consider the role of the single components of the synthetic index our outcomes show that for the Italian regions, and especially for the South, the law enforcement appears the main component leading to a positive institution-firm growth nexus.