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This paper exploits a own built dataset on the foundation of higher education institutions
in Italy during the period 1861-2010 to analyze the eects of spatial competition and strategic
interactions in the local supply of higher education. We measure the latter by the number
of faculties in each province, as a function of the supply of neigbours. Our empirical strat-
egy relies on instrumental variables that exploits the eect of initial conditions of the Italian
higher education system (i.e. pre-existing Italian unication occurred in 1861) on higher edu-
cation supply, through reforms implemented over the period 1870-2010. Results show evidence
of strong competition eects in the supply of higher education at the local level: our more
conservative estimates suggest that having 6 more faculties in the neighborhood reduces the
local supply of higher education by about 1 faculty. This local competition eect is generally
concentrated within the same eld of study, while it is lower between dierent elds. We also
show that this provincial competition has signicant beggar-thy-neighbor eects, by inducing
roughly a 2.5 percent loss of local per capita productivity.Our results suggest also heteroge-
neous eects of higher education supply on the extensive margin (labor participation) and the
intensive margin (productivity per worker).
