Agglomeration externalities and technical efficiency in Italian regions

The aim of the present work is to estimate an aggregate production function for the 20 Italian regions by emphasizing the role that agglomeration externalities (localization externalities and urbanization externalities) and spatial spillovers have in influencing the technical efficiency of the production process. To this purpose, we use the stochastic frontier approach. The results highlight the relevance and the positive impact that localization and urbanization externalities have in improving the efficiency level of the production process of Northern and Central Italy regions. Furthermore, spatial spillovers represent a source of development and growth both for Northern-Central regions and Southern regions. Finally, we show that the beta-convergence analysis of regional performance depends on the structural characteristics of each economy (Northern-Central Italy and Southern Italy), and these structural differences imply that Northern-Central and Southern macro-areas will have different steady states with regard to production performance.