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Growth and Convergence in a Two-Region Model of Unified Germany

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Author Info
Funke, Michael
Strulik, Holge

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Abstract

The paper sets up a two-region endogenous growth model to discuss growth and regional convergence of unified Germany. It emphasises the role of private and public capital accumulati on during the developing process. The theoretical part derives fiscal policy rules which establish convergence of regional output per capita and convergence of reginal human wealth. To assess the speed of convergence the model is calibrated with German da ta. Given a fiscal policy rule that is consistent with the data on government spending in East and West Germany after unification the model suggests that East Germany will reach eighty percent of West Germany's income per capita between 20 and 30 years after unification and that actual transfers are approximately sufficient to equalise regional human wealth. The results are compared with an extension of the model that includes wage setting behaviour and unemployment in the eastern region.

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Publisher Info
Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number CESifo Working Paper No. 206.

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Date of creation: 1999
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Handle: RePEc:ces:ceswps:_206

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Related research
Keywords: German unification; regional convergence; government spending;

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Find related papers by JEL classification:
H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
H40 - Public Economics - - Publicly Provided Goods - - - General
O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
O52 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - Europe

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Burda, Michael C & Funke, Michael, 1993. "Eastern Germany: Can't We Be More Optimistic?," CEPR Discussion Papers 863, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  2. G. Duggal, Vijaya & Saltzman, Cynthia & Klein, Lawrence R., 1999. "Infrastructure and productivity: a nonlinear approach," Journal of Econometrics, Elsevier, vol. 92(1), pages 47-74, September. [Downloadable!] (restricted)
  3. Jan-Egbert Sturm & Gerard H. Kuper & Jakob de Haan,, 1996. "Modelling government investment and economic growth at the macro level: A review," Working Papers 29, Centre for Economic Research, University of Groningen and University of Twente. [Downloadable!]
  4. Young, Alwyn, 1994. "Lessons from the East Asian NICS: A contrarian view," European Economic Review, Elsevier, vol. 38(3-4), pages 964-973, April. [Downloadable!] (restricted)
  5. Burda, Michael C & Funke, Michael, 1991. "German Trade Unions After Unification: Third Degree Wage Discriminating Monopolists?," CEPR Discussion Papers 573, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  6. Martin Brunner & Holger Strulik, 1998. "Solution of Perfect Foresight Saddlepoint Problems: A Simple Method and Applications," Quantitative Macroeconomics Working Papers 19805, Hamburg University, Department of Economics. [Downloadable!]
  7. Brunner, Martin & Strulik, Holger, 2002. "Solution of perfect foresight saddlepoint problems: a simple method and applications," Journal of Economic Dynamics and Control, Elsevier, vol. 26(5), pages 737-753, May. [Downloadable!] (restricted)
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  8. Barro, Robert J, 1990. "Government Spending in a Simple Model of Endogenous Growth," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages S103-26, October. [Downloadable!] (restricted)
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  9. Francesco Caselli & Jaume Ventura, 2000. "A Representative Consumer Theory of Distribution," American Economic Review, American Economic Association, vol. 90(4), pages 909-926, September. [Downloadable!] (restricted)
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  10. Rudiger Dornbusch & Holger Wolf, 1992. "Economic Transition in Eastern Germany," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 23(1992-1), pages 235-272. [Downloadable!]
  11. Barro, R.J. & Sala-I-Martin, X., 1991. "Convergence Across States and Regions," Papers 629, Yale - Economic Growth Center.
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  12. Hughes Hallett, A J & Ma, Yue, 1993. "East Germany, West Germany, and Their Mezzogiorno Problem: A Parable for European Economic Integration," Economic Journal, Royal Economic Society, vol. 103(417), pages 416-28, March. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Bonin, Holger, 2005. "Tarifpolitik, Entgeltflexibilität und Beschäftigung in Ostdeutschland (Colletive bargaining policy, wage flexibility and employment in eastern Germany)," Zeitschrift für ArbeitsmarktForschung - Journal for Labour Market Research, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 38(2/3), pages 165-179. [Downloadable!]
  2. Michael Funke & Holger Strulik, 2005. "Growth and Convergence in a Two-Region Model: The Hypothetical Case of Korean Unification," Quantitative Macroeconomics Working Papers 20505, Hamburg University, Department of Economics. [Downloadable!]
    Other versions:
  3. Kilin F.S., 2003. "Analysis of convergence process of East German economy on the base of a two-region growth model," GE, Growth, Math methods 0304002, EconWPA. [Downloadable!]
  4. Michael Funke & Jörg Rahn, 2000. "How Efficient is the East German Economy? An Exploration With Micro Data," Quantitative Macroeconomics Working Papers 20012, Hamburg University, Department of Economics. [Downloadable!]
    Other versions:
  5. Erich Gundlach, 2003. "Growth Effects of EU Membership: The Case of East Germany," Empirica, Springer, vol. 30(3), pages 237-270, September. [Downloadable!] (restricted)
  6. Oleg Badunenko & Michael Fritsch & Andreas Stephan, 2006. "What Determines the Technical Efficiency of a Firm? The Importance of Industry, Location, and Size," Jenaer Schriften zur Wirtschaftswissenschaft 33/2006, Friedrich-Schiller-Universität Jena, Wirtschaftswissenschaftliche Fakultät. [Downloadable!]
  7. Reinhold Kosfeld & Hans-Friedrich Eckey & Christian Dreger, 2006. "Regional productivity and income convergence in the unified Germany, 1992--2000," Regional Studies, Taylor and Francis Journals, vol. 40(7), pages 755-767, October. [Downloadable!] (restricted)
  8. Falko Juessen, 2005. "A distribution dynamics approach to regional income convergence in reunified Germany," ERSA conference papers ersa05p411, European Regional Science Association. [Downloadable!]
  9. Juessen Falko, 2005. "A distribution dynamics approach to regional GDP convergence in reunified Germany," Urban/Regional 0506008, EconWPA. [Downloadable!]
    Other versions:
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