Shadow Economy or Economic Driver? The Impact of Counterfeiting on Italy's Growth

This study examines the impact of economic crime, specifically counterfeiting, on economic growth in Italy after the Great Recession (2008-19), when the country experienced lower economic growth than its developed counterparts. Counterfeiting is orchestrated by mafia-like organizations that turn large areas into hubs for the production/trading of counterfeit goods, thereby damaging genuine brands. Our study, using a unique regional dataset, demonstrates that in Italy, two direct effects of counterfeiting are significant. First, it stimulates economic growth by flooding markets with counterfeit goods. Second, it undermines market modernization by violating the intellectual property rights of innovative firms in high-value sectors. Moreover, the resources absorbed by illegal activities determine an indirect negative effect: once counterfeiting is controlled, the standard drivers of economic development become more effective. This suggests that if all growth drivers were channeled into legal activities, Italy would experience a development path in line with the performance of its top competitor countries. JEL: E26; O47; C23; K14