Human Capital, Good Government and Economic Development: Evidence from Italian Provinces

Whether the increase in a region’s economic activity could be at- tributable to the presence of a university is an important issue in eco- nomic geography. This paper uses the age of universities (some dating back to the 11th and 12th century) along with grants from private foun- dations and student’s fees as instruments for human capital production, to estimate the impact of universities’ degree production on the economic development in context of Italy. We furthermore test whether institutions, in terms of voice and accountability, government effectiveness, regulatory quality, rule of law, and corruption, may play an important moderating role in the human capital production-local economic development rela- tionship. The findings firstly reveal the beneficial effect of the university system on local economic development through the gain in human cap- ital. Secondly, we argue that the development of high quality legal and administrative institutions is an important channel linking universities to greater economic activity.