economic growth and productivity : italy and the role of knowledge ignazio visco governor of the bank of italy euroscience open forum 2020 4 september 2020 1. i would like to thank professor stefano fantoni for his kind invitation and the conference organisers for their determination in setting up this event during these very difficult times. in this presentation, i will focus on the well - known role of human capital and innovation as determinants of economic growth and consider how crucial delays in the field of knowledge may have translated, in italy, into the slow growth of gross domestic product ( gdp ) that we have observed in the last 30 years or so. 2. there is no need to emphasise how serious the public health emergency caused by the rapid spread of the new coronavirus all over the world has become. over 25 million of people are estimated to have been affected and close to one million have lost their lives. italy was the first western country in which the epidemic took hold, in early 2020. the toll has been very high, with more than 250 thousand people affected and 35 thousand deaths. 3. the drastic measures adopted to contain the propagation of the virus – which have included the limitation of people ’ s movements and social interaction, the suspension of teaching in schools and universities, and the temporary closure of many productive activities – have hit the italian economy profoundly. as the latest figures suggest, by mid - 2020, gdp had returned to the level observed in early 1993 ( slide 1 in the accompanying presentation ). in per capita terms, gdp dropped down to values recorded in the late 1980s. 4. the reason for this huge jump of about 30 years back in the past is twofold. the first is, of course, the striking extent of the collapse of the economy due to the pandemic : in the second quarter of this year, in particular, gdp fell by almost 13 per cent with respect to the previous quarter. as a result, in just three months gdp lost more than during the whole 2008 - 2013 period, which includes the double - dip recession related to the global financial crisis and the euro - area debt crisis, which had already been the worst slump in peacetime since italy ’ s unification in 1861. the second reason why we went so far back in the past is that, since the 1990s, italy ’ s gdp growth has been extremely weak. while other advanced countries have suffered similar or even worse declines of gdp in the second quarter of 2020 ( ‑ 9. 1 per

capital formation – in accounting for the very low average size of firms, and especially their very modest ability to grow. 3. 1 direct evidence of financial literacy and adult skills on average, entrepreneurs and managers of italian smes have a relatively low level of financial literacy. in the 2008 wave of the bank of italy ’ s survey on household income and wealth ( shiw ), heads of households were asked questions aimed at measuring their competencies and financial knowledge. the answers to questions on ( i ) changes in purchasing power, ( ii ) differences in the levels of risk of investing in shares and bonds, and ( iii ) portfolio diversification ( questions chosen with the aim of following the lead by lusardi and mitchell in their comparisons of financial literacy among individuals and across countries ; see lusardi and mitchell, 2008 and 2011 ) show that only 47 per cent of entrepreneurs and managers of firms with less than 100 employees were able to respond correctly to all three ( relatively simple ) questions. hence more than half of these entrepreneurs and managers were not able to answer at least one of the relevant questions. this compares to 43 per cent among managers in the public sector or larger ( with more than 500 employees ) enterprises ( the difference between the two groups is only partly explained by their educational qualifications ). less than one quarter of all respondents were able to provide a correct answer to all three questions. these findings clearly suggest that there is significant room for improvement. perhaps even more worrying is the result from the 2013 oecd survey of adult skills that shows that a significant proportion of italian adults ( higher than in the other surveyed countries ) score the lowest levels of proficiency on the literacy and numeracy scales. less than 30 per cent of adults score level 3 or above ( on a 1 – 5 scale ) in both literacy and numeracy skills, compared to more than 50 per cent in the oecd average. italian workers also display lower skills in literacy and numeracy in the work place ( possibly also due to the average size of small companies ), even if they seem to score better in their ability to use ict. an insufficient level of literacy and numeracy skills might impact productivity and innovation even more than financial literacy. 3. 2 indirect evidence of the lack of financial literacy indirect evidence of the lack of financial literacy can be obtained by looking at the possible inefficient uses of financial instruments by smaller companies. one example is the potential misuse of derivatives by non - financial corporations