IDEAS home Printed from https://ideas.repec.org/p/ces/ceswps/_206.html
   My bibliography  Save this paper

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

Author

Listed:
  • Michael Funke
  • Holge Strulik

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.

Suggested Citation

  • Michael Funke & Holge Strulik, 1999. "Growth and Convergence in a Two-Region Model of Unified Germany," CESifo Working Paper Series 206, CESifo.
    • Handle: RePEc:ces:ceswps:_206
    as

    Download full text from publisher

    File URL: https://www.cesifo.org/DocDL/cesifo_wp206.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. 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 416-428, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Andreas Schäfer & Thomas Steger, 2014. "Journey into the Unknown? Economic Consequences of Factor Market Integration under Increasing Returns to Scale," Review of International Economics, Wiley Blackwell, vol. 22(4), pages 783-807, September.
    2. Erich Gundlach, 2003. "Growth Effects of EU Membership: The Case of East Germany," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 30(3), pages 237-270, September.
    3. Sebastian Vollmer & Hajo Holzmann & Florian Ketterer & Stephan Klasen, 2013. "Distribution dynamics of regional GDP per employee in unified Germany," Empirical Economics, Springer, vol. 44(2), pages 491-509, April.
    4. Michael Funke & Jörg Rahn, 2002. "How efficient is the East German economy? An exploration with microdata," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 10(1), pages 201-223.
    5. Funke, Michael & Strulik, Holger, 2005. "Growth and convergence in a two-region model: The hypothetical case of Korean unification," Journal of Asian Economics, Elsevier, vol. 16(2), pages 255-279, April.
    6. Hans-Friedrich Eckey & Reinhold Kosfeld & Matthias Türck, 2007. "Regional Convergence in Germany: a Geographically Weighted Regression Approach," Spatial Economic Analysis, Taylor & Francis Journals, vol. 2(1), pages 45-64.
    7. 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, University Library of Munich, Germany.
    8. Gießler Stefan & Heinisch Katja & Holtemöller Oliver, 2021. "(Since When) Are East and West German Business Cycles Synchronised?," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 241(1), pages 1-28, February.
    9. Stephen Dobson & Carlyn Ramlogan & Eric Strobl, 2006. "Why Do Rates Of Β‐Convergence Differ? A Meta‐Regression Analysis," Scottish Journal of Political Economy, Scottish Economic Society, vol. 53(2), pages 153-173, May.
    10. Falko Juessen, 2009. "A distribution dynamics approach to regional GDP convergence in unified Germany," Empirical Economics, Springer, vol. 37(3), pages 627-652, December.
    11. Yvonne Schindele, 2010. "How Long Does it Take to Become an Entrepreneurial Society - The Case of German Convergence in Self-Employment," Jena Economics Research Papers 2010-015, Friedrich-Schiller-University Jena.
    12. Bernd Aumann & Rolf Scheufele, 2010. "Is East Germany catching up? A time series perspective," Post-Communist Economies, Taylor & Francis Journals, vol. 22(2), pages 177-192.
    13. Andreas Schäfer & Thomas Steger, 2010. "History, Expectations, and Public Policy: Economic Development in Eastern Germany," CESifo Working Paper Series 3184, CESifo.
    14. 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.
    15. Falko Juessen, 2005. "A distribution dynamics approach to regional income convergence in reunified Germany," ERSA conference papers ersa05p411, European Regional Science Association.
    16. Reinhold Kosfeld & Hans-Friedrich Eckey & Christian Dreger, 2006. "Regional productivity and income convergence in the unified Germany, 1992-2000," Regional Studies, Taylor & Francis Journals, vol. 40(7), pages 755-767.
    17. Herrmann Marco, 2002. "Zur empirischen Suche nach einer effizienten Investitionsquote für Ostdeutschland / About the Empirical Search for an Efficient Ratio of Investment to GDP for East Germany," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 222(6), pages 683-705, December.
    18. Böhm, Sebastian, 2015. "Regional economic integration and factor mobility in unified Germany," FSES Working Papers 463, Faculty of Economics and Social Sciences, University of Freiburg/Fribourg Switzerland.
    19. Volker Grossmann & Thomas Steger, 2013. "Konvergieren die Einkommen zwischen Ost- und Westdeutschland? Das deutsch-deutsche Experiment aus wachstumsökonomischer Sicht," ifo Dresden berichtet, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 20(02), pages 29-32, April.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Erich Gundlach, 2003. "Growth Effects of EU Membership: The Case of East Germany," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 30(3), pages 237-270, September.
    2. Agnès Bénassy-Quéré & Pierre Villa, 1994. "La réunification allemande du point de vue de la politique économique," Working Papers 1994-09, CEPII research center.
    3. John Driffill & Marcus Miller, 2003. "No Credit for Transition: European Institutions and German Unemployment," Scottish Journal of Political Economy, Scottish Economic Society, vol. 50(1), pages 41-60, February.
    4. Fabio Canova & Morten Ravn, 2000. "The Macroeconomic Effects of German Unification: Real Adjustments and the Welfare State," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(3), pages 423-460, July.
    5. Hughes Hallett, A. & Ma, Y. & Melitz, J., 1996. "Unification and the policy predicament in Germany," Economic Modelling, Elsevier, vol. 13(4), pages 519-544, October.
    6. Ugo Fratesi, 2008. "Regional policy from a supra-regional perspective," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 42(3), pages 681-703, September.
    7. Claro, Sebastian, 2006. "Supporting inefficient firms with capital subsidies: China and Germany in the 1990s," Journal of Comparative Economics, Elsevier, vol. 34(2), pages 377-401, June.
    8. Falko Juessen, 2009. "A distribution dynamics approach to regional GDP convergence in unified Germany," Empirical Economics, Springer, vol. 37(3), pages 627-652, December.
    9. Michael Funke & Jörg Rahn, 2002. "How efficient is the East German economy? An exploration with microdata," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 10(1), pages 201-223.
    10. Pacheco, Luís Miguel, 2000. "Fiscal Federalism, EMU and Shock Absorption Mechanisms: A Guide to the Literature," European Integration online Papers (EIoP), European Community Studies Association Austria (ECSA-A), vol. 4, March.
    11. Michael C. Burda & Jennifer Hunt, 2001. "From Reunification to Economic Integration: Productivity and the Labor Market in Eastern Germany," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 32(2), pages 1-92.
    12. Smolny Werner, 2009. "Wage Adjustment, Competitiveness and Unemployment – East Germany after Unification," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 229(2-3), pages 130-145, April.
    13. Stephan, Johannes, 2000. "EU-Integration and Development - Prospects of CEECs - The Productivity-Gap and Technological Structural Change," IWH Discussion Papers 112/2000, Halle Institute for Economic Research (IWH).
    14. Easterlin, Richard A. & Plagnol, Anke C., 2008. "Life satisfaction and economic conditions in East and West Germany pre- and post-unification," Journal of Economic Behavior & Organization, Elsevier, vol. 68(3-4), pages 433-444, December.
    15. Robert Brooks & Robert Faff & David Sokulsky, 2005. "The stock market impact of German reunification: international evidence," Applied Financial Economics, Taylor & Francis Journals, vol. 15(1), pages 31-42.
    16. Andrea Boltho & Wendy Carlin & Pasquale Scaramozzino, 1999. "Will East Germany become a new Mezzogiorno?," Chapters, in: John Adams & Francesco Pigliaru (ed.), Economic Growth and Change, chapter 13, Edward Elgar Publishing.
    17. C. Hefeker, 1994. "German Monetary Union, the Bundesbank and the EMS collapse," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 47(191), pages 379-398.
    18. Ray Barrell & Dirk Willem Te Velde, 2000. "Catching‐up of East German Labour Productivity in the 1990s," German Economic Review, Verein für Socialpolitik, vol. 1(3), pages 271-297, August.
    19. Demertzis, Maria & Hughes Hallett, Andrew & Schermer, Nicolien, 2009. "Europeanization or globalization? Transnational wage bargaining and the distribution of activity in European labor markets," The North American Journal of Economics and Finance, Elsevier, vol. 20(2), pages 177-192, August.
    20. Keller, Wolfgang, 2000. "From socialist showcase to Mezzogiorno? Lessons on the role of technical change from East Germany's post-World War II growth performance," Journal of Development Economics, Elsevier, vol. 63(2), pages 485-514, December.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ces:ceswps:_206. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Klaus Wohlrabe (email available below). General contact details of provider: https://edirc.repec.org/data/cesifde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.