Institutions and Innovation: Evidence from the Italian Unification

Institutions and Innovation: Evidence from the Italian Unification

Economists have long acknowledged the centrality of innovation in economic growth and of institutions %, defined as the “rules of the game”, as a determinant of innovation outcomes. This paper studies the impact on innovation of an important historical episode of institutional change, from the Italian unification process. We leverage quasi-random variation in the establishment of a new border after a war between Piedmont and Austria in 1859; and argue that the Western part of the Lombardo-Venetian Kingdom, which was annexed by Piedmont, was exposed to more liberal institutions than the Eastern part, which remained under Austria. We measure innovation using patent data from Italy and Austria, as well as data from universal exhibitions taking place between 1855 and 1911. Our geographically-localised difference-in-difference design reveals a positive long-term effect on patenting.