Reconstruction Aid, Public Infrastructure, and Economic Development: The Case of the Marshall Plan in Italy

The Marshall Plan (1948-1952) was the largest aid transfer in history. This paper estimates its effects on Italy's postwar economic development. It exploits differences between Italian provinces in the value of reconstruction grants they received. Provinces that could modernize their infrastructure more quickly experienced higher increases in agricultural production, especially for perishable crops. In the same provinces, we observe larger investments in labor-saving machines, the entry of more firms into the industrial sector, and a larger expansion of the industrial and service workforces.