Agglomeration and Regional Performance and Innovation Dynamics in Italy Across the Covid-19 Shock

Abstract

Regional disparities remain a central issue in economic geography, particularly within the European Union, where territorial cohesion is a key policy objective. This study examines the joint dynamics of agglomeration, economic performance, and innovation across Italian macro-regions (NUTS-1) over the period 2017–2023, focusing on the structural break induced by the COVID-19 pandemic. Building on the New Economic Geography framework, and in particular the contributions of Philippe Martin, the analysis combines a panel interaction model with β-convergence, σ-convergence, and spatial autocorrelation measures (Moran's I), providing a comprehensive assessment of regional dynamics. The results reveal heterogeneous patterns. Innovation exhibits convergence, suggesting a gradual diffusion of knowledge across regions. In contrast, GDP shows limited convergence, indicating persistent disparities, while agglomeration displays divergence, reflecting increasing spatial concentration after 2020. Furthermore, econometric results indicate that the effect of agglomeration on both GDP and innovation strengthens in the post-COVID period. Overall, the findings point to an asymmetric adjustment process: while innovation converges, economic performance and spatial structures remain characterised by persistence and cumulative agglomeration forces.