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.
