Interregional Migration, Human Capital Externalities and Unemployment Dynamics: Evidence from Italian Provinces

The role of labour mobility on regional disparities is at the core of a heated debate: while standard competitive models posit that mobility works as an equilibrating device and reduces the unemployment, models featuring externalities lead to opposite conclusions. Against this backdrop, we present a simple two-region model adapted to the main features of the Italian North-South dualism that illustrates the effects of labour mobility with and without human capital externalities. We show that, when externalities are introduced, regional mobility may exacerbate regional unemployment disparities. Using longitudinal data over the years 2002- 2011 for 103 NUTS-3 Italian regions, we document that net outflows of human capital from the South to the North have increased the unemployment rate in the South and decreased the unemployment rate in the North. Our conclusions support the literature that finds an important role of regional externalities, and suggest that reducing human capital flight from Southern regions should be a priority.