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Regional investment incentives in Germany: Impacts on factor demand and growth

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Author Info
Gerhard Untiedt () (Gesellschaft für ökonomische Regionalanalysen , Salzmannstr. 152, 48159 Münster, Germany)
Hans Joachim Schalk () (ifo Institute for Economic Research, Poschingerstr. 5, 81679 Munich, Germany)

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Abstract

The aim of this paper is to analyse the effects of regional investment incentives - a main component of regional policy in West Germany - on regional factor demand (investment and labor), growth and convergence of per capita income for the period 1978 to 1989. Demand for investment and labor arise from a model of cost minimization at given output with a putty-clay production function. The production function allows for regional technical efficiency. To model the output effect on factor demand an auxiliary output function is specified. In estimating the functions attention is given to the short-run dynamics and the long-run behaviour of factor demand by error-correction models. The empirical long-run relationships are then used to simulate the effects of regional investment incentives. In contrast to most studies for other countries the empirical results provide evidence that regional policy in Germany induces not only additional investment but also creates positive employment effects. However, the effects of regional investment incentives on growth and convergence of labor productivity are negligible.

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Publisher Info
Article provided by Springer in its journal The Annals of Regional Science.

Volume (Year): 34 (2000)
Issue (Month): 2 ()
Pages: 173-195
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Handle: RePEc:spr:anresc:v:34:y:2000:i:2:p:173-195

Note: Received: October 1996/Accepted: May 1999
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  1. Mika Haapanen & Anu Tokila & Jari Ritsilä, 2005. "When are investment subsidies crucial for investments?," ERSA conference papers ersa05p466, European Regional Science Association. [Downloadable!]
  2. Lammers, Konrad & Niebuhr, Annekatrin, 2002. "Erfolgskontrolle in der deutschen Regionalpolitik: Uberblick und Bewertung," Report Series 26089, Hamburg Institute of International Economics. [Downloadable!]
  3. John Bradley & Gerhard Untiedt, 2007. "Do economic models tell us anything useful about Cohesion Policy impacts? A comparison of HERMIN, QUEST and ECOMOD," Working Papers 3-2007, GEFRA - Gesellschaft fuer Finanz- und Regionalanalysen. [Downloadable!]
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