Entrepreneurship, Social Capital and Institutions: Evidence from Italy

A large body of literature has argued that social capital (i.e. 'good culture') reduces transaction costs and boosts investment by households and firms. It probably also reduces systemic risk, so that the choice of becoming an entrepreneur becomes less risky and more profitable. In this paper I test this hypothesis on a set of Italian cities. In particular, I present some econometric evidence on the correlation between social capital and entrepreneurship. To tackle the issue of endogeneity I use instruments related to the institutional past of the cities in my sample, finding support for the hypothesis that social capital is important for entrepreneurship, although my results are difficult to generalize to other contexts, given the specificity of Italy in terms of cultural heterogeneity.