Local Development, Urban Economies and Aggregate Growth

The aim of this paper is to present an overview of the results of a recent research project by the Bank of Italy. The paper analyses the interplay between historical origins, congestion costs, and agglomeration benefits in shaping the Italian urban system. It shows that urban agglomeration externalities (on wages, productivity, or innovation) tend to be smaller in Italy than in other developed countries; it also shows that the costs of congestion are relatively high and that high housing cost—explained by both physical constraints and public administration inefficiencies—discourage mobility. These features have a relevant impact on the development of an advanced urban system with possible negative consequences on the country’s ability to grow.