Finance and Development in Italy, 1870-1913

This paper analyses the impact of different sources of financing (foreign capital, migrants’ remittances, and domestic banks intermediation) on Italy’s economic development between 1861 and the World War I. Existing literature has analysed the role of these channels of financial intermediation separately, while this paper for the first time considers them in conjunction. Using IRF from a Cholesky identification structure of a VAR model and relying on an original dataset that combines the most recent series of several financial and economic aggregates, this paper shows that investment in Italy was fuelled by a plurality of sources of funding. A crucial role was played by national saving mobilized by domestic banks and also remittances had a significant impact. Our evidence is instead weaker for foreign capital.