Digital Innovation and NextGenerationEU: Spatial Patterns in Italian Local Government Performance

This paper investigates the spatial diffusion of digital innovation funded through Italy’s National Recovery and Resilience Plan (NRRP) in local governments, focusing on initiatives aimed at modernising public administration in line with NextGenerationEU objectives. Using a novel cross-sectional dataset covering 6,400 Italian municipalities and applying spatial econometric techniques, we find that municipalities respond significantly and positively to changes in the digital NRRP initiatives of neighbouring municipalities. Territorial heterogeneity emerges across macro-areas. Municipalities in Central and Northern Italy exhibit both spatial interdependence and spillovers in NRRP funding for digitalisation, whereas spatial effects are less pronounced in Southern municipalities. The spatial diffusion of digital investments is driven primarily by territorial productive structures and, to a lesser extent, by local political capacity. In particular, municipalities characterised by weaker economic structures or lower political quality appear more responsive to neighbouring adoption patterns, consistent with spatial learning as well as adaptation to common policy standards.