The subtitle of this paper should be “Historical institutions do not explain why Southern Italy fares so poorly.” Particularly since the work early last decade by Acemoglu and his coauthors, there has been a lot of research into how historical institutions affect modern economic outcomes; for instance, colonies that made for good plantations 300 years ago tend to see lower incomes today, presumably because the optimal institution in the plantation era has to some level persisted, and such institutions are not conducive to growth. But this argument is not wholly convincing: revolutions, such as those in the post-colonial era, have effected enormous changes in institutions without overthrowing the historical legacy. What might explain this? Tabellini looks to Italy for answers. Historical institutions also affect culture, culture persists, and culture helps determine economic outcomes (e.g., trustworthy societies see higher growth). The author uses regional output data from eight European countries, where modern institutions are roughly identical within each region, to assess whether differences in historical institutions (say, high illiteracy) might have persisted (say, through less trust of others) to differences in modern outcomes.
Credit to the author for honesty – the instrumental variables he uses do not appear, in the sense of statistical tests, to be particularly valid. Nonetheless, the result that historic institutions can have effects through routes other than modern formal institutions is robust to sensitivity analysis. My bigger worry is whether anything whatsoever about historic institutions is captured through this paper. In particular, might it just be that culture itself was different in Northern and Southern Italy in 1850, and that the culture has persisted, with no reference to prior institutions? I think the same critique is valid for much of the work in this strain of literature. Nonetheless, measuring historic culture as distinct from governments and economies is a difficult thing indeed – even Max Weber was not wholly successful.
http://www.mitpressjournals.org/doi/pdf/10.1162/jeea_a_00001 (Final JEEA version, available free without registration as of the date of this post)