The Economic Geography of Institutional Quality: Local Administrations, Human Capital and Mobility

A substantial body of evidence demonstrates that institutions shape prosperity. Seminal contributions have established that the quality of institutions is a fundamental driver of economic growth, yet research on the role of local institutions in influencing economic activity remains limited. This dissertation shows that the quality of local formal institutions is measurable at scale and materially shapes economic and demographic outcomes, both in ordinary times and in the aftermath of disasters caused by natural hazards. Chapter 1 develops a conceptual framework for municipal administrative quality and introduces the Municipal Administration Quality Index (MAQI), the first longitudinal, nationwide measure for Italy, covering almost all municipalities over more than two decades. MAQI aggregates eleven objective indicators on public employees, local politicians, and fiscal and economic performance using a non-compensatory, equal-weight method, enabling consistent comparisons across jurisdictions and over time. Leveraging MAQI, Chapter 2 identifies the causal effect of jurisdiction size on institutional quality by exploiting the staggered mergers of 197 municipalities. Enlarging municipal scale significantly improves administrative quality, primarily through enhanced quality of local politicians and strengthened economic and fiscal performance, whereas bureaucratic efficiency improves only marginally. These positive outcomes appear to stem from economies of scale and the self-selection of higher-quality local politicians, who are attracted by the opportunity to earn higher wages. While Chapter 2 examines whether a specific jurisdictional characteristic – its size – affects administrative quality, Chapters 3 and 4 investigate how administrative quality and capacity influences post-disaster outcomes. Focusing on the aftermath of the 2016 Central Italy earthquake and employing the synthetic difference-in-differences estimator, Chapter 3 tests the mediating role of municipal public human capital – one specific dimension of local institutional quality – in shaping the resilience and recovery of economic activity. The findings indicate that generic public-sector human capital does not mitigate economic losses, whereas task-specific human capital substantially cushions post-quake declines in employment and active firms. Chapter 4 explores whether regional institutional quality affects post-disaster population flows, exploiting the case of the Irpinia earthquake, which struck the border between the Italian regions of Campania and Basilicata – two areas with starkly different institutional quality – and drawing on a novel municipal-level dataset on population flows over an extended time span. While the results suggest no significant impact on the overall volume of migration, they reveal marked differences in its composition: higher regional quality and denser civic networks reduce the out-migration of incumbents. Complementary evidence from municipal industrial censuses and a synthetic-control analysis at the regional level shows a stronger rebound in value added per worker and GDP per capita where regional institutional quality is higher, suggesting that higher in-migration in places with lower institutional quality is a result of a demand surge mechanism, without benefits for the local economy. Taken together, Chapters 3 and 4 demonstrate that places experiencing similar levels of physical damage can nonetheless follow divergent recovery paths and display distinct migration patterns, depending on administrative quality and related institutional features. This evidence complements country-level research and underscores the importance of further exploring how to design more effective policies for post-disaster recovery.