07/10/2022

Background

  • After the GFEC of 2007-09, worsening economic and social conditions with deteriorating public finances
  • In 2019, GDP per capita 6.4% below the pre-crisis peak of 2007
  • In 2014, unemployment was at 12.9%, youth unemployment at 42.7%
  • Poverty rate doubled from 3.5% in 2007 to 7% in 2018
  • The debt-to-GDP ratio increased from 103.9% in 2007 to 134.5% in 2019
  • How to explain the decline of the Italian economy and in particular the lack of recovery after the GFEC?
  • Which regime emerges for the country after the GFEC? And how to explain the regime transition?

A model for Italy in the CPE literature

  • The VoC approach proposed the well-known distinction between LMEs and CMEs based on supply-side characteristics of the economy (Hall and Soskice 2001)
  • The Italian model seen as ambiguous, showing institutional incoherence and lack of complementarities thus relegated to the case of a mixed market economy (Molina and Rhodes 2007); “dysfunctional state capitalism” mimicking elements of a CME in the post-war period and more recently of a LME without becoming either one (Della Sala 2004)
  • Baccaro and Pontusson (2016) shifted the attention of the CPE literature from supply-side institutions to post-Keynesian macroeconomics bringing at the center of the analysis income distribution and aggregate demand
  • post-Keynesian analysed demand and growth regimes and the shift of regimes after the GFEC (Dodig et al. 2016, Hein 2019, Hein and Martschin 2021)

GDP growth contributions

Average values in the period 2001-2009 and 2010-2019.

2001-2009 2010-2019
Y 0.18 0.27
C 0.23 0.06
I -0.09 -0.06
G 0.22 -0.10
NX -0.19 0.37

Source: AMECO. Own elaboration.

Sectoral financial balances

Average values in the period 2001-2009 and 2010-2019.

2001-2009 2010-2019
HS 2.46 1.27
CS -0.23 2.45
GS -3.28 -2.77
FS 1.11 -0.89

Source: AMECO. Own elaboration.

Which growth model after the GFEC?

  • Italy as a domestic demand-led economy in the period 2001-09? Export-led in the period 2010-2019?
  • “A genuine export-led GM is one where the dynamism of exports translates into high economic growth underpinned by a political coalition” (Kohler and Stockhammer 2021)
  • Improvement in trade balance mainly due decreasing imports
  • A restrictive macroeconomic policy regime made Italy a stagnating export-led economy (Hein and Martschin 2021)

Source: AMECO. Own elaboration.

The attempt of an export-led recovery strategy

  • How to sustain growth after the GFEC? Domestic private consumption? Investment? Public demand?
  • Italy should commit to a recovery strategy sustained by foreign demand following the example of Germany (Cottarelli 2018)
  • The country was pushed toward the green area by the macroeconomic policy context at the domestic level and at the European level
  • Italy was not the only €-zone country to follow this trajectory

Source: AMECO. Own elaboration. Note: The color of the dots goes from grey in 2001 to red in 2019.

Germany as a role model

  • In the mainstream view, Germany’s success since mid 2000s improperly attributed to painful but necessary reforms; Germany turned from the “sick man of Europe” into a model for the whole EMU thanks to labour market flexibilisation and restrictive budgetary policies (Schuldenbremse) (Piattoni and Notermans 2021)
  • This interpretation was questioned at the time (Hein and Truger 2005) but remained deeply ingrained in the European policy discourse
  • Germany pursued a mercantilist strategy to the detriment of its European partners in violation EU rules (Cesaratto and Stirati 2010)
  • Germany’s export-led mercantilist regime resulted particularly attractive to Italy given the similar export-oriented manufacturing vocation

Italy as an export-led economy? (1/2)

Share of gross value added in the EU, all industries (except construction), average 2001-2019

Source: Eurostat. Own elaboration.

Export similarity index by product (Finger and Kreinin 1979), average 2002-2019

Source: ITS. Own elaboration. HS4 2-digits.

Italy as an export-led economy? (2/2)

  • After WWII, Italy’s growth driven by exports demand (Graziani 2000); empirical investigations provide evidence of export-led growth for the period 1960–98 (Marconi and Federici 2002)
  • Italy and Germany two export-led economies that more recently followed different trajectories due to the changing international context (Guerrieri and Esposito 2012)
  • The two countries show similarities in the relative composition of goods export (Foresti and Trenti 2011, Heimberger and Krowall 2020)
  • Italian export performance lagged behind €-zone peers and suffered a “China shock” (Bugamelli et al. 2018)

Country 2001-2007 2008-2013 2014-2019
Growth rate of total export, average value
France 3.19 1.83 3.39
Germany 7.58 2.48 3.24
Italy 3.29 0.35 3.06
Spain 3.92 2.34 3.88
Growth rate of goods export, average value
France 3.12 1.16 3.45
Germany 7.51 2.27 2.84
Italy 3.65 0.38 2.78
Spain 4.53 3.26 3.14
Share of goods export in total export, average value
France 74.66 72.38 69.95
Germany 85.04 83.76 82.01
Italy 79.53 81.39 81.41
Spain 66.87 68.79 68.95
Note:
Source: AMECO. Own elaboration.

Italy learned the “wrong lesson” from Germany

  • Initially, price competitiveness to explain persistent current account surpluses of Germany (Stockhammer and Onaran 2012); this interpretation was questioned (Hein and Truger 2017)
  • Germany’s export success due to strong non-price competitiveness factors (Storm and Naastepad 2015; Neumann 2020) but also to reorientation of export markets, specialisation in advanced sectors, reorganisation of production networks (Simonazzi et al. 2013)
  • Italy did not emulate the “correct” model; tryied to boost export only by means of internal devaluation; did not reorganize its export markets; no technological upgrading

Average rate of growth of hourly wage by sector

Source: Eurostat (NACE Rev. 2). Own elaboration.

Main trading partners for Germany, 2000-2019

Source: ITC. Own elaboration.

Main trading partners for Italy, 2000-2019

Source: ITC. Own elaboration.

Country 2000 2007 2019
R&D Spending (public and private), % of GDP*
Germany 2.4 2.4 3.1
France 2.1 2.0 2.2
Italy 1.0 1.1 1.4
Spain 0.9 1.2 1.2
Government education spending, % of GDP
Germany 4.1 3.9 4.3
France 5.6 5.3 5.3
Italy 4.3 4.4 3.9
Spain 4.1 4.0 4.0
Economic complexity index, rank
Germany 2.0 2.0 4.0
France 10.0 13.0 15.0
Italy 13.0 18.0 17.0
Spain 19.0 26.0 34.0
Note:
Source: World Bank, Eurostat, OEC. *Last value 2018.

Conclusions

  • Attempt to explain Italy’s stagnation in particular after the GFEC with the failure of an export-led recovery strategy; Italy turned into a stagnationist export-led regime
  • Germany emerged as the successful model to follow; Italy and Germany are two export-led economies with close similarity in the array of exported products
  • However, Italy learned the “wrong lesson” from Germany; deflationary wage policy has only led to persistent stagnation
  • German export success due to technological competitiveness and access to new markets
  • Export-led regime intrinsically unsustainable (“aggregation problem”); need for an income-led recovery strategy (Hein 2019)

Thanks for your attention!

Questions?

bramucci@hwr-berlin.de

References

L. Baccaro and J. Pontusson. “Rethinking Comparative Political Economy: The Growth Model Perspective”. In: Politics & Society 44.2 (2016), pp. 175-207.

Bugamelli et al. “Back on track? A macro-micro narrative of Italian exports”. In: Italian Economic Journal 4 (2018), pp. 1-31.

S. Cesaratto and A. Stirati. “Germany and the European and Global Crises”. In: International Journal of Political Economy 39.4 (2010), pp. 56-86.

C. Cottarelli. I sette peccati capitali dell’economia italiana. Feltrinelli, 2018.

V. Della Sala. “The Italian model of capitalism: on the road between globalization and Europeanization?” In: Journal of European Public Policy 11.6 (2004), pp. 1041-1057.

N. Dodig, E. Hein and D. Detzer. (Ed.) Financialisation and the Financial and Economic Crises: Country Studies. Cheltenham: Edward Elgar, 2016.

D. Federici and D. Marconi. “On exports and economic growth: the case of Italy”. In: The Journal of International Trade & Economic Development 11.3 (2002), pp. 323-340.

J. Finger and M. Kreinin. “A Measure of ‘Export Similarity’ and Its Possible Uses”. In: Economic Journal, 89.356, pp. 905-12, (1979).

G. Foresti and S. Trenti. “Struttura e performance delle esportazioni: Italia e Germania a confronto”. In: Economia e Politica Industriale 2012/2.2 (2011), pp. 77-109.

A. Graziani. Lo sviluppo dell’economia italiana. Dalla ricostruzione alla moneta europea. Bollati Boringhieri, 2000.

P. Guerrieri and P. Esposito. “Italia e Germania: due modelli di crescita export-led a confronto”. In: Economia e Politica Industriale (2012), pp. 17-53.

P. A. Hall and D. Soskice. Varieties of Capitalism: The Institutional Foundations of Comparative Advantage. Oxford University Press, 2001.

P. Heimberger and N. Krowall. “Seven surprising facts about the Italian economy”. In: Social Europe (2020).

E. Hein. “Financialisation and tendencies towards stagnation: the role of macroeconomic regime changes in the course of and after the financial and economic crisis 2007–09”. In: Cambridge Journal of Economics (2019).

E. Hein and J. Martschin. “Demand and growth regimes in finance-dominated capitalism and the role of the macroeconomic policy regime: a post-Keynesian comparative study on France, Germany, Italy and Spain before and after the Great Financial Crisis and the Great Recession”. In: Review of Evolutionary Political Economy (2021).

E. Hein and A. Truger. “Opportunities and limits of rebalancing the Eurozone via wage policies. Theoretical considerations and empirical illustrations for the case of Germany”. In: PSL Quarterly Review 70.283 (2017), pp. 421-447.

E. Hein and A. Truger. “What ever happened to Germany? Is the decline of the former european key currency country caused by structural sclerosis or by macroeconomic mismanagement?” In: International Review of Applied Economics 19.1 (2005), pp. 3-28.

References

K. Kohler and E. Stockhammer. “Growing differently? Financial cycles, austerity, and competitiveness in growth models since the Global Financial Crisis”. In: Review of International Political Economy (2021), pp. 1-28.

O. Molina and M. Rhodes. “The Political Economy of Adjustment in Mixed Market Economies: A Study of Spain and Italy”. In: Beyond Varieties of Capitalism: Conflict, Contradictions, and Complementarities in the European Economy. Ed. by B. Hancke, M. Rhodes and M. Thatcher. Oxford University Press, 2007.

H. Neumann. “The determinants of German exports-an analysis of intra- and extra-EMU trade”. In: International Review of Applied Economics 34.1 (2020), pp. 126-145.

S. Piattoni and T. Notermans. “Introduction to Italy and Germany: Incompatible Varieties of Europe?” In: German Politics 30.3 (2021), pp. 301-318.

S. Simonazzi, A. Ginzburg, and G. Nocella. “Economic relations between Germany and southern Europe”. In: Cambridge Journal of Economics 37.3 (2013), pp. 653-675.

E. Stockhammer and O. Onaran. “Rethinking wage policy in the face of the Euro crisis. Implications of the wage-led demand regime”. In: International Review of Applied Economics 26.2 (2012).

S. Storm and C. Naastepad. “Crisis and recovery in the German economy: The real lessons”. In: Structural Change and Economic Dynamics 32 (2015), pp. 11-24.