It's not About the Money: New evidence on U.S. Reconstruction Aid in Italy, 1947-1968

This paper studies the economic impact of foreign aid on Italian firms. In particular, I study the different effects of three main forms of aid: The Export-Import Bank loans, the Marshall Plan ERP ‘dollars’ loans, and the Marshall Plan ERP ‘lire’ loans. In all programs, the U.S. sent technologically advanced machinery to allow a modernisation of the technology of Italian firms, but the conditions of such loans differed. This paper tests how crucial such different features have been for the effectiveness of firm reconstruction aid. By creating a new data set on recipient firms and linking it to a large comprehensive firm-level dataset (Imita.db), I can compare the effects on the performance of firms. I find that the Export-Import Bank loan raised the long-run profitability of firms, but that firms who received more flexible forms of Marshall Plan aid (‘ERP-lire’) raised their performance much more than Export-Import Bank recipients. Recipients who only received funds provided with long delays (‘ERP-dollars’) did not benefit from them. This evidence suggests that rather than receiving foreign aid per se, receiving on time the goods that were most needed has been the crucial feature of reconstruction aid in Italy.