Once credited as the leading hedge of the Italian economy, industrial districts (IDs) are now often identified as the problem rather than the solution to Italy's stagnation. But we can observe a clearly better performance for IDs in mechanics, particularly in those showing signs of a vertical re-specialization, evolving from the production of final goods in the "made in Italy" tradition to the production of the related investment goods. We posit that this type of vertical re-specialization could offer Italy a way to upgrade its competitiveness.
Against such background, this paper evaluates whether, indeed, re-specialized firms are more innovative and whether there are any financial peculiarities behind the vertical re-specialization of the successful IDs. Specifically, producing capital rather than final goods supposedly calls for higher leverage and, in turn, for more relationship finance.
We test these hypotheses using data from the Capitalia survey focusing on firms producing capital goods for the most typical "made in Italy" final goods (food products; textiles and clothing; furnishings; leather & shoes, etc.). First, while we find no specific effect for generic ID firms, innovation is more likely for ID firms specializing in the production of capital goods for the "made in Italy" final goods. Second, we find that the more intense relationship lending - as measured by the length of the relationship between the firm and its main bank - the more likely firms make innovations and/or a high R&D expense intensity. Furthermore, we show that additional financial structure variables - e.g. belonging to a credit or export consortium; subscribing innovative financial instruments - have a positive impact on innovation and R&D expenditure. Third and most important here, the impact of relationship lending on innovation is stronger only for the ID firms specializing in the production of capital goods for the "made in Italy".