Advanced Search
MyIDEAS: Login to save this paper or follow this series

Migration, wages, and parental background: Obstacles to entrepreneurship and growth in East Germany

Contents:

Author Info

  • Zoë Kuehn

    ()
    (Universidad Carlos III de Madrid)

Abstract

For the last decade, the East German economy has been suffering from high unemployment and low economic growth. Policy makers often point to the lack of entrepreneurship as one of East Germany's main problems. This paper addresses the question of how East Germany's integration into an established economy, West Germany, may have hindered a fruitful development of entrepreneurship and how this may have affected economic growth. I build a model economy that places Lucas's (1978) span-of-control model into an overlapping-generations framework. Following Hassler and Rodríguez Mora (2000) managerial knowhow is defined as a combination of two factors, innate talent and entrepreneurial parental background, and growth depends on the innate talent of entrepreneurs. In East Germany, the lack of entrepreneurial parental background makes talent the decisive factor in occupational choice and more talented entrepreneurs should contribute to high growth rates. However, three key aspects of its integration into West Germany inhibit this mechanism: 1) the unrestricted mobility of East Germans to the West, 2) the policy of fixing East German wages as fractions of West German wages, and 3) the importance of parental background for entrepreneurship in West Germany. Counterfactual experiments show that eliminating any of these three aspects leads to more entrepreneurs, less unemployment, and higher economic growth in East Germany.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://repec.imdea.org/pdf/imdea-wp2010-08.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Instituto Madrileño de Estudios Avanzados (IMDEA) Ciencias Sociales in its series Working Papers with number 2010-08.

as in new window
Length:
Date of creation: 12 May 2010
Date of revision: 01 Sep 2011
Handle: RePEc:imd:wpaper:wp2010-08

Note: This paper is included in the IMDEA Social Sciences Working Paper Series through the Bank of Spain Excellence Programme
Contact details of provider:
Postal: Veláquez 76, 28001 Madrid
Phone: +34917816570
Fax: +34916766052
Email:
Web page: http://www.cienciassociales.imdea.org/
More information through EDIRC

Related research

Keywords: entrepreneurship; allocation of talent; social mobility; transition;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

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.:
as in new window
  1. Nezih Guner & Gustavo Ventura & Xu Yi, 2008. "Macroeconomic Implications of Size-Dependent Policies," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(4), pages 721-744, October.
  2. Joachim Ragnitz, 2007. "Explaining the East German Productivity Gap � The Role of Human Capital," Kiel Working Papers 1310, Kiel Institute for the World Economy.
  3. Alberto Alesina & Nicola Fuchs-Schundeln, 2005. "Good bye Lenin (or not?): The effect of Communism on people's preferences," Harvard Institute of Economic Research Working Papers 2076, Harvard - Institute of Economic Research.
  4. Joachim Ragnitz, 2002. "Wirtschaftsförderung in Ostdeutschland: Wirkungen, Nebenwirkungen und ein Reformvorschlag," IWH Discussion Papers 167, Halle Institute for Economic Research.
  5. Craig Burnside & Martin Eichenbaum & Sergio Rebelo, 1995. "Capital Utilization and Returns to Scale," NBER Working Papers 5125, National Bureau of Economic Research, Inc.
  6. Robert E. Lucas Jr., 1978. "On the Size Distribution of Business Firms," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 508-523, Autumn.
  7. Johannes Gernandt & Friedhelm Pfeiffer, 2007. "Rising Wage Inequality in Germany," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 227(4), pages 358-380, August.
  8. Randall Morck & David Stangeland & Bernard Yeung, 2000. "Inherited Wealth, Corporate Control, and Economic Growth The Canadian Disease?," NBER Chapters, in: Concentrated Corporate Ownership, pages 319-372 National Bureau of Economic Research, Inc.
  9. Claustre Bajona & Luis Locay, 2009. "Entrepreneurship and Productivity: The Slow Growth of the Planned Economies," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(3), pages 505-522, July.
  10. Francesco Caselli & Nicola Gennaioli, 2013. "Dynastic Management," Economic Inquiry, Western Economic Association International, vol. 51(1), pages 971-996, 01.
  11. Bernard F. Lentz & David N. Laband, 1990. "Entrepreneurial Success and Occupational Inheritance among Proprietors," Canadian Journal of Economics, Canadian Economics Association, vol. 23(3), pages 563-79, August.
  12. Konrad B. Burchardi & Tarek Alexander Hassan, 2011. "The Economic Impact of Social Ties: Evidence from German Reunification," NBER Working Papers 17186, National Bureau of Economic Research, Inc.
  13. Earle, John S. & Sakova, Zuzana, 2000. "Business start-ups or disguised unemployment? Evidence on the character of self-employment from transition economies," Labour Economics, Elsevier, vol. 7(5), pages 575-601, September.
  14. Diego Restuccia & Richard Rogerson, 2008. "Policy Distortions and Aggregate Productivity with Heterogeneous Plants," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(4), pages 707-720, October.
  15. Merkl, Christian & Snower, Dennis J., 2006. "The Caring Hand that Cripples: The East German Labour Market after Reunification," CEPR Discussion Papers 5656, C.E.P.R. Discussion Papers.
  16. Kevin M. Murphy & Andrei Shleifer & Robert W. Vishny, 1990. "The Allocation of Talent: Implications for Growth," NBER Working Papers 3530, National Bureau of Economic Research, Inc.
  17. Jennifer Hunt, 2006. "Staunching Emigration from East Germany: Age and the Determinants of Migration," Journal of the European Economic Association, MIT Press, vol. 4(5), pages 1014-1037, 09.
  18. P. Mueller, 2006. "Entrepreneurship in the Region: Breeding Ground for Nascent Entrepreneurs?," Small Business Economics, Springer, vol. 27(1), pages 41-58, August.
  19. Chang-Tai Hsieh & Peter J. Klenow, 2009. "Misallocation and Manufacturing TFP in China and India," The Quarterly Journal of Economics, MIT Press, vol. 124(4), pages 1403-1448, November.
  20. Brücker, Herbert & Trübswetter, Parvati, 2004. "Do the Best Go West? An Analysis of the Self-Selection of Employed East-West Migrants in Germany," IZA Discussion Papers 986, Institute for the Study of Labor (IZA).
  21. Nicola Fuchs-Schuendeln, 2008. "On Preferences for Being Self-Employed," 2008 Meeting Papers 634, Society for Economic Dynamics.
  22. Goldberger, A.S., 1989. "Economic And Mechanical Models Of Intergenerational Transmission," Working papers 374, Wisconsin Madison - Social Systems.
  23. Harald Uhlig, 2007. "Regional Labor Markets, Network Externalities and Migration: The Case of German Reunification," Kiel Working Papers 1311, Kiel Institute for the World Economy.
  24. Canova, Fabio & Ravn, Morten O., 1998. "The Macroeconomic Effects of German Unification: Real Adjustments and the Welfare State," CEPR Discussion Papers 2038, C.E.P.R. Discussion Papers.
  25. Chang, Yongsung, 2000. "Wages, business cycles, and comparative advantage," Journal of Monetary Economics, Elsevier, vol. 46(1), pages 143-171, August.
  26. Burda, Michael C, 1993. "The Determinants of East-West German Migration: Some First Results," CEPR Discussion Papers 764, C.E.P.R. Discussion Papers.
  27. Thomas Dunn & Douglas Holtz-Eakin, 1996. "Financial Capital, Human Capital, and the Transition to Self-Employment:Evidence from Intergenerational Links," NBER Working Papers 5622, National Bureau of Economic Research, Inc.
  28. Nicola Fuchs-Schündeln & Rima Izem, 2007. "Explaining the Low Labor Productivity in East Germany. A Spatial Analysis," Kiel Working Papers 1307, Kiel Institute for the World Economy.
  29. 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.
  30. Galor, O. & Tsiddon, D., 1996. "Technological Progress, Mobility and Economic Growth," Papers 13-96, Tel Aviv.
  31. Frank Heiland, 2004. "Trends in East-West German Migration from 1989 to 2002," Demographic Research, Max Planck Institute for Demographic Research, Rostock, Germany, vol. 11(7), pages 173-194, September.
  32. Hans-Werner Sinn, 2000. "Germany's Economic Unification: An Assessment after Ten Years," NBER Working Papers 7586, National Bureau of Economic Research, Inc.
  33. Bonin, Holger & Zimmermann, Klaus F., 2000. "The Post-Unification German Labor Market," IZA Discussion Papers 185, Institute for the Study of Labor (IZA).
  34. Ariel T. Burstein & Alexander Monge-Naranjo, 2009. "Foreign Know-How, Firm Control, and the Income of Developing Countries-super-," The Quarterly Journal of Economics, MIT Press, vol. 124(1), pages 149-195, February.
  35. Snower, Dennis J. & Merkl, Christian, 2006. "The Caring Hand that Cripples: The East German Labor Market After Reunification (Detailed Version)," IZA Discussion Papers 2066, Institute for the Study of Labor (IZA).
  36. Eckhard Wurzel, 2001. "The Economic Integration of Germany's New Länder," OECD Economics Department Working Papers 307, OECD Publishing.
  37. Gérard Roland, 2004. "Transition and Economics: Politics, Markets, and Firms," MIT Press Books, The MIT Press, edition 1, volume 1, number 026268148x, December.
  38. Gary Solon, 2002. "Cross-Country Differences in Intergenerational Earnings Mobility," Journal of Economic Perspectives, American Economic Association, vol. 16(3), pages 59-66, Summer.
  39. Nicola Fuchs-Schündeln & Matthias Schündeln, 2009. "Who stays, who goes, who returns?," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 17(4), pages 703-738, October.
  40. Fuchs-Schundeln, Nicola & Alesina, Alberto, 2007. "Good-Bye Lenin (Or Not?): The Effect of Communism on People's Preferences," Scholarly Articles 4553032, Harvard University Department of Economics.
  41. 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.
  42. Pia Arenius & Maria Minniti, 2005. "Perceptual Variables and Nascent Entrepreneurship," Small Business Economics, Springer, vol. 24(3), pages 233-247, 02.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:imd:wpaper:wp2010-08. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (IMDEA RePEc Maintainer).

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 references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.

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