Market versus endowment: explaining early industrial location in Italy (1871–1911)

This article aims to explain the location of the manufacturing industries in Italy in the period 1871–1911. The analytical framework takes into account of two competing theories on the determinants of the location of economic activity: the Heckscher–Ohlin (H–O) theory on factor endowments and the new economic geography (NEG) theory on access to markets. The methodology used here is based on Midelfart-Knarvik et al. (The location of European industry, European Economy Economic Papers 142. European Commission, 2000) and has seen several historical applications. The location of industries is explained through interactions between characteristics of the regions and characteristics of the sectors, of both H–O type and NEG type. The main finding is that endowments, and in particular energy and human capital, were the determinants of the geography of the first Italian industrialization. Market access, at this point of industrialization, mattered only in its domestic formulation and only through economies of scale.