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Eastern Germany: Can't We Be More Optimistic?

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  • Burda, Michael C
  • Funke, Michael

Abstract

This paper argues that the application of the `2% rule' to the case of Eastern Germany, which implies convergence in three decades or more, is overly pessimistic. First, it ignores discrete improvements in initial conditions related to the transition, which have been significant to date. Because labour productivity in manufacturing exhibits wide sectoral dispersion, structural change is likely to increase aggregate productivity further. Second, convergence is also driven by physical and human capital mobility, which in contrast to labour mobility appears to be high in Eastern Germany. Finally, an unusually high rate of physical investment in Eastern Germany will accelerate convergence.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 863.

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Date of creation: Dec 1993
Date of revision:
Handle: RePEc:cpr:ceprdp:863

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Related research

Keywords: Convergence; Eastern Germany; Factor Mobility; German Unification; Regional Integration;

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Cited by:
  1. 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," Development and Comp Systems 9707002, EconWPA.
  2. Noland, Marcus & Robinson, Sherman & Wang, Tao, 2000. "Modeling Korean Unification," Journal of Comparative Economics, Elsevier, vol. 28(2), pages 400-421, June.
  3. 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.
  4. 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.
  5. Rodrik, Dani, 1996. "Coordination failures and government policy: A model with applications to East Asia and Eastern Europe," Journal of International Economics, Elsevier, vol. 40(1-2), pages 1-22, February.
  6. Juessen, Falko, 2009. "A Distribution Dynamics Approach to Regional GDP Convergence in Unified Germany," IZA Discussion Papers 4177, Institute for the Study of Labor (IZA).
  7. Falko Juessen, 2005. "A distribution dynamics approach to regional income convergence in reunified Germany," ERSA conference papers ersa05p411, European Regional Science Association.
  8. Brenke, Karl & Zimmermann, Klaus F., 2009. "Ostdeutschland 20 Jahre nach dem Mauerfall: Was war und was ist heute mit der Wirtschaft?," IZA Standpunkte 20, Institute for the Study of Labor (IZA).
  9. Frank Siebern, 2000. "Better LATE? Instrumental Variables Estimation of the Returns to Job Mobility during Transition," German Economic Review, Verein für Socialpolitik, vol. 1(3), pages 335-362, 08.
  10. 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, 08.
  11. Klodt, Henning, 1994. "Wieviel Industrie braucht Ostdeutschland?," Open Access Publications from Kiel Institute for the World Economy 1615, Kiel Institute for the World Economy (IfW).
  12. Lehmann, Hartmut, 1995. "Active labor market policies in the OECD and in selected transition economies," Policy Research Working Paper Series 1502, The World Bank.

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