After a prolonged and disappointing period, manufacturing productivity has relatively improved in Italy. It is a decade now that it has been increasing in line with Germany and France. Better manufacturing productivity helped to stop the long-lasting fall of the share of industrial value added and then to reverse it. This mainly reflected the biased productivity growth in the traded sector starting in 2009, a process similar to the one that has characterized Germany since the inception of the monetary union. A substantially stable specialization pattern has underlain productivity improvement. This sector composition stability, relative to competitors, reflected real technological comparative advantages that influenced the distribution of the firm population: there are more producers, compared to competitors, in sectors in which Italy has a comparative advantage. Contrary to sector specialization, no correlation is observable when considering size- class distributions of productive advantages and firms. Italian manufacturing is characterized by a relatively large population of micro-firms which present a comparative disadvantage. On the contrary, the size-classes where Italian technological advantages are the highest (medium and small sized firms) appear relatively low-populated. As a corollary, the breakdown of the Italian productivity gap with Germany highlights that size is the most important factor explaining the remaining distance. The productivity performance observed in the last decade has reflected the selection process among producers induced by global competition and the cleansing effects of the recessions. Italy lost more than 70.000 manufacturing firms between 2008 and 2016. The shrinkage was also accompanied by a substantial reshuffling in the population of producers. Recent evidence shows that reallocation of workers from less towards more productive firms sustained productivity. Information about exporting and non-exporting firms helps to point out that reallocation also involved an increase in the proportion of exporters characterized by a productivity advantage over domestic producers; a productivity premium that also rose somewhat in the observed period. Italian manufacturing came out smaller from the recessions, but also more efficient.

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