Trentino, a wealthy region in the North of Italy, was one of Europe’s top performers for productivity growth until the early 2000s. Since then, Trentino’s productivity growth has stagnated, while its peers continued to forge ahead. This resulted in a productivity gap of more than 25% in recent years. Why is it that Trentino has not kept up with its peers, and why does it matter?
A development trap
Trentino is not alone in this challenge. Lorraine and Picardie in France, Wallonia in Belgium, Northern Jutland in Denmark or the English Midlands, are other relatively wealthy European regions now stuck in a “development trap” with growth rates persistently below the national average in their country.
What is different in Trentino, however, is that the local government has recently set up a provincial Productivity and Competitiveness Board to find out why. The boards work closely with local stakeholders and researchers to understand the drivers of performance and bottlenecks, considering “hard” factors, like transport infrastructure and housing, plus “soft” factors, like skills development and innovation support.
The comparison of Trentino with its “peer” regions – i.e., similar European regions that had the same level of productivity of Trentino in early 2000s, and outpaced Trentino afterwards – helps untangle the web of factors stifling Trentino’s productivity growth. In particular, it became clear that Trentino’s manufacturing sector has a lower productivity and smaller economic share compared to its peers, in part due to a lack of large, high-productivity firms.
Medium-high technology activities constitute about 27% of Trentino’s manufacturing employment, compared to 40% seen in peer regions. Internationalisation remains underdeveloped in Trentino compared to peers, with lower job creation from FDI and smaller export/import ratios relative to regional GDP.
Trentino also struggles to attract and retain skilled workers. The Board is diving deeper into these issues, making the most of its 3-year mandate. The affiliated researchers are investigating what’s holding back productivity in manufacturing, why many local firms aren’t exporting, and why there’s a shortage of skilled workers.
Trentino’s policy makers are taking action. They are building on the initial findings by planning a bundle of policy interventions to bring Trentino’s productivity growth back on track.
One of the main objectives is creating a stronger ecosystem to transform Trentino into a hub for high-tech manufacturing. This includes the creation of thematic innovation centres in technologies like life sciences, hydrogen, and mechatronics, designed to spark synergy between businesses and research institutions.
In parallel, the local government is also planning to support SMEs that want to scale up. This goes hand-in-hand with interventions to boost workforce skills. The regional labour agency is ramping up its offerings of continuous training, complemented by initiatives to enhance managerial skills across key areas like R&D and exports.
The fact that Trentino is not the only region that needs to reinvent its growth strategy presents an opportunity for all regions that face similar challenges.
The Basque Country, which, like Trentino, faced stagnating productivity and a lack of high-tech industries in the past, managed to grow thanks to targeted investments in technology innovation centres and comprehensive vocational training programmes.
By learning from peers, “trapped” regions can adopt and adapt successful strategies. Sharing lessons across regions can drive collective growth, ensuring that every region finds its own special policy mix for productivity growth and enhanced well-being.
Additional reading
Diemer, A., Iammarino, S., Rodríguez-Pose, A., & Storper, M. (2022). The Regional Development Trap in Europe. Economic Geography, 98(5), 487–509. https://doi.org/10.1080/00130095.2022.2080655
Italy: Trentino Spatial Productivity Review. https://www.oecd.org/cfe/leed/trentino-spl-review.htm
OECD (2024), “Bringing Trentino’s productivity growth back on track: A comparison with OECD “peer” regions”, OECD Local Economic and Employment Development (LEED) Papers, No. 2024/03, OECD Publishing, Paris, https://doi.org/10.1787/0e74a691-en.
Alessandra Proto is the Head of the OECD Trento Centre for Local Development, based in Italy, where she has been working since its establishment in 2004. She supervises the OECD Trento Centre activities, including the Spatial Productivity Lab and the capacity building initiatives. Previously, as policy analyst, she managed numerous projects on capacity building and local development, developed thematic research and reviews including on culture, creative industries and local development.
Laura Pedron is the General Director of the Department of Economic Development, Research, and Employment of the Autonomous Province of Trento. Formerly she was Director of the Employment Agency of the Autonomous Province of Trento. She holds a PhD in Political Science and has previous professional experience at some of Italy's most prestigious universities.
Carlo Menon is the Lead of the OECD Spatial Productivity Lab at the OECD Trento Centre. His areas of expertise are micro-data analysis, business dynamics, innovation, regional and urban economics, and policy evaluation. He first joined the OECD in 2011 and also held positions at the Central Bank of Italy and at Laterite, a fast-growing research company operating in East Africa. His research has been published in renowned academic journals, including Economic Policy, Journal of Economic Geography, Industrial and Corporate Change, and World Bank Economic Review. He also co-authored more than 30 policy reports and working papers. His paper on local firm size and civil justice enforcement, co-authored with Silvia Giacomelli, was awarded with the Urban Land Institute Prize for the best paper published in the Journal of Economic Geography in 2017. He holds a PhD from the London School of Economics and Political Science, UK, and graduate and undergraduate degrees in Economics from the Ca’ Foscari University of Venice, Italy.
Wessel is an economist at the OECD Trento Centre for Local Development where he works in the Spatial Productivity Lab on local drivers and determinants of regional productivity ranging from the performance of firms to the functioning of local labour markets. Before joining the OECD, he was an Assistant-Professor at Newcastle University and Research Fellow at Oxford University, UK.