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What kind of shock was it? Regional Integration and Structural Change in Germany after Unification

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Author Info
Michael C. Burda

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Abstract

Eastern Germany’s recovery from the "unification shock" has been characterized by deep structural change – with apparent repercussions for the West as well – and an integration process involving both capital deepening (extensive and intensive investment) and labor thinning (net out-migration). I propose a constant-returns neoclassical model of economic integration which can account for these facts. Adjustment costs determine dynamics and steady state regional distribution of production factors. The model also explains persistent wage and capital rate-of-return differentials along the equilibrium path. Under competitive conditions, observed factor price differentials contain information on those adjustment costs.

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Paper provided by Sonderforschungsbereich 649, Humboldt University, Berlin, Germany in its series SFB 649 Discussion Papers with number SFB649DP2006-087.

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Length: 29 pages
Date of creation: Dec 2006
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Handle: RePEc:hum:wpaper:sfb649dp2006-087

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Related research
Keywords: German Reunification Regional Integration Costs of Adjustment Capital Mobility Migration

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Find related papers by JEL classification:
F2 - International Economics - - International Factor Movements and International Business
J61 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Geographic Labor Mobility; Immigrant Workers
P23 - Economic Systems - - Socialist Systems and Transition Economies - - - Factor and Product Markets; Industry Studies; Population

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  1. Ronald Bachmann & Michael C. Burda, 2007. "Sectoral Transformation, Turbulence, and Labor Market Dynamics in Germany," Ruhr Economic Papers 0005, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen. [Downloadable!]
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  2. Thomas Dohmen & Armin Falk & David Huffman & Uwe Sunde & Jürgen Schupp & Gert G. Wagner, 2005. "Individual Risk Attitudes: New Evidence from a Large, Representative, Experimentally-Validated Survey," IZA Discussion Papers 1730, Institute for the Study of Labor (IZA). [Downloadable!]
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  3. Harald Uhlig, 2006. "Regional Labor Markets, Network Externalities and Migration: The Case of German Reunification," American Economic Review, American Economic Association, vol. 96(2), pages 383-387, May. [Downloadable!]
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  4. Nicola Fuchs-Schuendeln, 2005. "Adjustment to a Large Shock - Do Households Smooth Low Frequency Consumption?," 2005 Meeting Papers 517, Society for Economic Dynamics. [Downloadable!]
  5. Dennis J. Snower & Christian Merkl, 2006. "The Caring Hand that Cripples: The East German Labor Market after Reunification," American Economic Review, American Economic Association, vol. 96(2), pages 375-382, May. [Downloadable!]
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  6. 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(2001-2), pages 1-92. [Downloadable!]
  7. 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(1991-1), pages 1-106. [Downloadable!]
  8. Michael C. Burda, 2006. "Factor Reallocation in Eastern Germany after Reunification," American Economic Review, American Economic Association, vol. 96(2), pages 368-374, May. [Downloadable!]
  9. Barry Eichengreen., 1990. "One Money for Europe? Lessons from the US Currency Union," Economics Working Papers 90-132, University of California at Berkeley.
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