Abstract

In this work we study the geographical differences in total factor productivity (TFP) estimated at firm level for corporations active in the manufacturing sector between 1995 and 2015. In 2015 the average TFP in the South was between 13 and 33% lower than in the North-West: the largest estimate is obtained using the number of employees as a proxy for labour input; the smallest, by using the cost of labour which better captures the skill composition and the actual work intensity. Productivity levels in the North-East were close to those in the other Northern regions, while firms in the Centre were in-between. During the two decades the TFP gap between more and less productive firms contracted in all areas, but more so in the South. This led to a reduction in the North-South TFP divide, which was also driven by a more intense selection process in the Southern regions during the economic recession.