Il supporto alla crescita economica degli investimenti verdi: un'analisi empirica per le province italiane, Forthcoming at Economia Italiana

Weathering the Storm: Sectoral Economic and Inflationary Effects of Floods and the Role of Adaptation, Forthcoming Bank of England Staff Working Paper with Rebecca Mari. [draft and slides available upon request]

Abstract: This paper investigates the impact of floods on economic output and prices at the sector level for local authorities in England using highly granular climate and economic data. We use precipitation z-scores as an instrument for floods to deal with endogeneity stemming from adaptation capital and we obtain dynamic impulse responses to the shock on GDP and inflation with a local projection approach (LP-IV). We find significant heterogeneities across sectors in terms of size, timing and sign, with sectoral output (prices) declining (increasing) up to 20% (250 bp) following a 1 sd flood shock. This evidence explains well the delayed response of GDP and inflation found in the literature. Our estimates suggest that reduced investment can only partially explain the decline in output, and only in manufacturing. The response of the number and value of real estate market transactions is instead consistent with a wealth effect that is line with the demand-side behaviour in wholesale and retail trade. To shed more light on the interaction among sectors, we use input-output tables and show that flood shocks propagate through the production network. Using local authority expenditure on flood defences and a proxy for adaptation capital, we further find that investments in adaptation strongly reduce the likelihood of flooding, but they are less effective at mitigating economic damages once a flood hits, and only in some sectors. Our analysis highlights the importance of disentangling the economic impact of climate change at the sectoral level and the importance of adaptation.

Public Spending, Green Growth, and Corruption: a Local Fiscal Multiplier Analysis for Italian Provinces, IHEID Working Paper No. HEIDWP11-2024 [slides]

Abstract: This paper estimates local fiscal multipliers for green and non-green public works in Italian provinces, and disentangles the geographic and institutional heterogeneities behind them. I construct a fiscal shock by taking the variation of the difference between actual and budgeted spending, and I show that it is exogenous to provincial institutional and macroeconomic conditions. Using local projections, I find that a €1 increase in government spending generates negligible GDP losses in the first two years for overall and non-green projects, while it increases output by €0.98 after 3 years for green projects. These results are smaller than the prevailing estimates in the literature. A triple interaction approach reveals that overall and non-green multipliers are driven by southern provinces, while the green multiplier is driven by the rest of the country, despite the contemporaneous green multiplier being equal to 1.43 in the south. I link the heterogeneity to governance characteristics: higher government effectiveness and institutional quality decrease the overall and non-green multiplier, while they increase the green multiplier. Interestingly, corruption positively affects all multipliers. I show that the effect of corruption can be explained by its role in easing bureaucratic and regulatory burdens. These results suggest that taking national fiscal multipliers at face value can lead to an overestimation of the impact of fiscal expansions.

Trade and Innovation in MENA, EBRD Working Paper No. 267 (2022) with Meryem Gökten, Péter Harazstosi, Zsóka Kóczán, Roberta Lesma, Rozália Pál, and Christoph Weiss. 

Abstract: This paper examines trade participation and innovation activities and how they are intertwined in the Middle East and North Africa region. While the level of trade participation of firms in the region is similar to other peer economies, innovation rates are particularly low. Many productive firms, especially smaller firms, might not be able to reap the scale and efficiency benefits from trade and innovation activity because of the weak business environment in the region. The paper shows that innovative firms tend to be more productive when they trade, while exporters tend to grow faster (in terms of sales) when they also invest in innovation. In addition, the use of foreign-licensed technology appears to have a key role in innovation, even after controlling for the effects of trade participation and foreign ownership. The paper also finds that traders and innovative firms were more likely to adapt to the COVID-19 crisis and the associated sharp sales shock. Overall, the results confirm the importance of international technology diffusion in the innovation process through access to foreign markets.

Fiscal Policy and Inflation, with Guido Ardizzone