Inherited culture, institutions and economic development in Italy∗ M. C. Bramati,y A. Palestini,z and M. Rotax Please do not quote this preliminary version Abstract This paper establishes a precise channel of long run effect of inherited cultural traits on current development. We use data on 102 provinces of Italy and we consider whether cultural traits from the past shape the today quality of formal institutions within country, proxied by the length of trials by province. Our results point to a strong effect of inherited cultural traits on the different quality of the today formal institutions whereby different levels of development are determined within country. Those effects are robust to the inclusion of accumulation of human capital, past economic development, geographical location, and current civic capital. Moreover, we found that the effects of inherited cultural traits might be additional and not necessarily alternative to past formal institutions in influencing current economic behaviour and outcomes. Jel classification: O10, F10, P10, N13 Keywords: inherited cultural traits, formal institutions, economic development, civil trials. ∗We acknowledge the Faculty of Economic, Sapienza University of Rome for financial support, (under-40 researchers funding program 2012). ySapienza, University of Rome, MEMOTEF Department, via del Castro Laurenziano, 9 000161 Rome zSapienza, University of Rome, MEMOTEF Department, via del Castro Laurenziano, 9 000161 Rome xSapienza, University of Rome, MEMOTEF Department, via del Castro Laurenziano, 9 000161 Rome, email:[email protected] corresponding author 1 1 Introduction The cultural traits are often invoked as the determinants of different economic outcomes. Pref- erences, norms and beliefs are determined by those cultural traits which in turn are the results of events and institutional heritage from a very distant past (Bisin and Verdier 2001; Voigth- lander and Voth, 2012). Italy is a valuable laboratory to assess whether the large territorial disparities in terms of income per capita are generated by different cultural traits, historical heritages, and institutional set-ups. After more than 150 years since the political and administrative unifications (1861), the South has not yet converged to the North (Felice 2013) despite ad hoc economic policies, as in the early years of XX centuries or in the four decades after World War II, and despite of the common set of formal institutions governing the social and economic life from the Alpes to the Strait of Sicily. None of other European countries experiences larger and more persistent within country gap. Two explanations of the fail in convergence of the Italian counties have become popular in the past years calling into question the cultural traits: the attitude to satisfy self interests (the amoral familism of Banfield, 1958) and the lack of cooperative behaviour and trust (Putnam 1993). These hardly ever alternative perspectives could explain why in the South people react in a different way to the same set of incentives faced by Northern inhabitants. Yet, it is obvious that incentives can vary from North to South along with the endowment of infrastructures, presence of organised crimes, investments and many other conditions. A recent lab-in-field experiment (Bigoni et al. 2015) has revealed that a gap in cooperation between North and South persists even under the same set of incentives and that the measures of aggregated social and civic capital do not reflect the pattern in cooperation found into the intra-groups behaviour. These results leave an open question about the origin in a distant past of and the persis- tence of cooperation gap whose effects may still influence the level of development after 150 of unification. Moreover, there is lively debate through which channels, if any, the cultural traits shape the economic behaviour. In lines with a growing literature (Guiso et al. 2004, Ak¸comakand Ter Weel, 2009, Tabellini 2010; Algan and Cahuc, 2010) that searches in the past the roots of current behaviour of groups and societies, in this paper we explore whether some cultural traits, such as cooperative behaviour, trust, and inclusiveness as well as formal education inherited from a distant past influence the quality and efficiency of formal institutions today in Italy which in turn contribute to explain the different level of development across areas. Indeed, we argue that the transmission of historical events runs from the inherited past informal institutions and norms, determined by the cultural traits, to the current formal institutions, complementing the majority of the theoretical and empirical studies that have assessed a precise channel running from the past inherited formal institutions to both current formal institutions and cultural norms (Guiso et al., 2010; Voigthlander and Voth, 2012; Borowiecki, 2015). We have found the signs of past cultural traits in the diffusion of and in the gender composi- tions within the Societ`adi mutuo soccorso, the voluntary organizations that provided assistance to members and that emerged in the early years of unification. We assume the Societ`a as an indirect measure of trust, inclusiveness and cooperation of the past times. In 1873, six south- ern provinces had no Societ`a and the rest of the south had yet not developed the network of informal support that emerged in the north and in some areas of central Italy. It is commonly shared the idea that the civic tradition of the Italian cities has its roots in the communal life of late Middle Ages or in the Signoria of the Renaissance (Putnam 1993) whereby the cultural traits we are considering can be viewed as a wrong or biased perspective of the civic capital inherited. That could be true because the endowment of civic capital emerged in the XII-XV centuries may have produced economic benefits that perpetuated differences in 2 civic capital until 1873 and beyond. We will discuss this aspect in the text showing in section 7 that controlling in our empirical model for current measures of civic capital the transmission channel from our measures of inherited cultural traits to current formal institutions is not altered yet it turns out to be complemented. Moreover, we add to the standard concept of trust and cooperation the literacy rate observed in a very distant past to get a snapshot of the overall cultural traits. If we want to track the inherited culture we must take into account that relatively more educated people contribute to the social life of their own community in a well-informed way. More educated persons join easier the community life, are less affected by stereotypes and prejudices, and are more prone to absorb the social norms and sentiments delivered by the diffusion of formal and informal education. Moreover, inclusion of literacy rate in our analysis helps to discount the potential degree of transmission of trust, cooperation and inclusiveness through generations especially when we are not able, as in our context, to directly measure their intergenerational transmission. Our choice to include literacy rate is therefore consistent with Tabellini (2010) who uses past illiteracy rate to causally identify the effect of today culture on current economic development. The current formal institution we consider is the degree of protection of the property rights. Measures of property rights protection are available at country level but at either regional or provincial level for Italy there are no comparable data. Hence, we look at the length of civil trials as a sign of institutional efficiency. The judicial system determines how much the property rights are secured by the law enforcement and how much the legal framework protects the potential investors and consumers. Trials are longer in the Southern courts suggesting a lower degree of protection of property rights. In 2006 the median length of a first degree trial for 102 Italian provinces considered in this study was 464 days (Belluno, Veneto) and only eight northern provinces placed over the median while none southern provinces was below that value. The standard variation across Italy is high and equal to six months. What can account for the different length of trials across the Italian courts given that the judicial system in Italy is the same from North to South in terms of rules and personnel endowment and to the extent that the rules of law are established at national level? We relate the different efficiency across area of the same institution to the informal institutions that each area of Italy inherited from the past. In particular, the length of trials today are linked to the intrinsic degree of infighting among citizens. Because the informal institutions may influence the efficiency of formal institutions (Tabellini, 2010) the different degree of infighting can affect the working of judicial courts generating longer trials. A society endowed with a sufficiently high level of trust, cooperation and inclusiveness generates less judicial controversies than societies in which citizens do not trust and cooperate each other. The analysis shows that the inherited cultural traits may explain the different quality of the same institutions within countries. In our empirical analysis we find a strong and robust effect of inherited cultural traits on the quality of formal institutions proxied by the length of the civil trials which in turn contribute to explain the differences in the level of development of the Italian provinces. The results are robust to the inclusion of contemporaneous accumulated human capital, past level of development, geographical variables and the degree of openness. Most importantly, those effects are robust when we control for current measures of social or civic capital. A further robustness check we provide is the "horse race" between inherited formal institutions and cultural traits. If we use past formal institution as excluded instrument the effects of cultural traits on current formal institution is strongly confirmed and, as we expect, past formal institutions influence current efficiency of the courts.