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Germany's Economic Unification. An Assessment after Ten Years

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  • Hans-Werner Sinn

Abstract

A political miracle occurred when Germany was reunited, and at first glance an economic miracle has followed. Real incomes in the east have now reached the western level, and investment per capita has been much higher than in the w est. However, every third deutschmark spent in the east has been coming from the west, investment in equipment has fallen below the west German per capita level, and convergence seems to have come to a halt at an overall labor productivity of only 55% of west Germany. Excessively high wages coupled with investment incentives that made the cost of capital negative rank high among the possible explanations. This paper describes reforms of the labor market that could help to make convergence continue.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 247.

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Date of creation: 2000
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Handle: RePEc:ces:ceswps:_247

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  1. Franz, Wolfgang & Steiner, Viktor, 1999. "Wages in the East German transition process: facts and explanations," ZEW Discussion Papers, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research 99-40, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  2. George A. Akerlof & Andrew K. Rose & Janet L. Yellen & Helga Hessenius, 1991. "East Germany in from the Cold: The Economic Aftermath of Currency Union," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 22(1), pages 1-106.
  3. Wolfgang Keller, 1997. "From Socialist Showcase to Mezzogiorno? Lessons on the Role of Technical Change from East Germany's Post-World War II Growth Performance," NBER Working Papers 6079, National Bureau of Economic Research, Inc.
  4. Hans-Werner Sinn, 2000. "EU Enlargement, Migration, and Lessons from German Unification," German Economic Review, Verein für Socialpolitik, Verein für Socialpolitik, vol. 1(3), pages 299-314, 08.
  5. Karl-Heinz Paque, 1999. "Zehn Jahre Aufbau Ost: eine Zwischenbilanz," Ifo Schnelldienst, Ifo Institute for Economic Research at the University of Munich, vol. 52(34), pages 13-19, 02.
  6. Boltho, Andrea & Carlin, Wendy & Scaramozzino, Pasquale, 1996. "Will East Germany Become a New Mezzogiorno?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1256, C.E.P.R. Discussion Papers.
  7. Wolfgang Nierhaus, 1999. "Höhere Rentenanpassung in Ostdeutschland erforderlich ?," ifo Dresden berichtet, Ifo Institute for Economic Research at the University of Munich, Ifo Institute for Economic Research at the University of Munich, vol. 6(04), pages 45-51, October.
  8. Albert Müller, 2000. "Aufholprozess der ostdeutschen Wirtschaft stagniert," Ifo Schnelldienst, Ifo Institute for Economic Research at the University of Munich, vol. 53(3), pages 9-16, 02.
  9. Henning Klodt, 1999. "Industrial Policy and the East German Productivity Puzzle," Kiel Working Papers 943, Kiel Institute for the World Economy.
  10. Hans-Werner Sinn, 1995. "Staggering along: wages policy and investment support in East Germany," The Economics of Transition, The European Bank for Reconstruction and Development, The European Bank for Reconstruction and Development, vol. 3(4), pages 403-426, December.
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