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An Economic Life in Vain − Path Dependence and East Germany’s Pre- and Post-Unification Economic Stagnation

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  • Ulrich Blum

Abstract

20 years after unification, the East German twin’s economic position is relatively stagnant compared to most of the West German productivity and income variables. The strong initial takeoff until the mid-end 1990s ended at a level of 70% to 80% of the western reference. In this paper, two interdependent hypotheses are put to the test: (i) that the communist economy prior to unification was on a stagnating path contrary to what standard analyses show; (ii) that strong elements of path dependence exist and that the switch from plan to market offset the pre-unification stagnation but was not able to repair structural deficits inherited from the past. In fact, looking into West German long-term data, an extremely stable development path can be found that extends from the 19th century to the present. Thus, the analysis of the East German development path is both economically relevant and politically interesting if economic policies are to be formulated.

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Bibliographic Info

Paper provided by Halle Institute for Economic Research in its series IWH Discussion Papers with number 10.

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Date of creation: Jul 2011
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Handle: RePEc:iwh:dispap:10-11

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Keywords: East Germany; time series; income; institution; product; unification; economic growth; convergence;

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  1. Ulrich Blum & Leonard Dudley, 2000. "Blood, Sweat, and Tears: The Rise and Decline of the East German Economy, 1949-1988," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 220(4), pages 438-452.
  2. Harald Uhlig, 2006. "Regional Labor Markets, Network Externalities and Migration: The Case of German Reunification," SFB 649 Discussion Papers SFB649DP2006-004, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  3. Wolfgang Nierhaus, 2001. "Warum die Preise in West- und Ostdeutschland so stark steigen," Ifo Schnelldienst, Ifo Institute for Economic Research at the University of Munich, vol. 54(11), pages 28-31, October.
  4. Lutz Schneider & Alexander Kubis, 2010. "Are there Gender-specific Preferences for Location Factors? A Grouped Conditional Logit-Model of Interregional Migration Flows in Germany," Schmollers Jahrbuch : Journal of Applied Social Science Studies / Zeitschrift für Wirtschafts- und Sozialwissenschaften, Duncker & Humblot, Berlin, vol. 130(2), pages 143-168.
  5. Renate Filip-Köhn & Udo Ludwig, 1990. "Dimensionen eines Ausgleichs des Wirtschaftsgefälles zur DDR," Discussion Papers of DIW Berlin 3, DIW Berlin, German Institute for Economic Research.
  6. John Hall & Udo Ludwig, 2009. "Gunnar Myrdal and the Persistence of Germany's Regional Inequality," Journal of Economic Issues, M.E. Sharpe, Inc., vol. 43(2), pages 345-352, June.
  7. Michael J. Boskin, 1998. "Consumer Prices, the Consumer Price Index, and the Cost of Living," Journal of Economic Perspectives, American Economic Association, vol. 12(1), pages 3-26, Winter.
  8. Sinn, Gerlinde & Sinn, Hans-Werner, 1992. "Kaltstart. Volkswirtschaftliche Aspekte der Deutschen Vereinigung," Monograph, Mohr Siebeck, Tübingen, edition 2, number urn:isbn:9783161459429, February.
  9. Ulrich Blum & Leonard Dudley, 1999. "The Two Germanies: Information Technology and Economic Divergence, 1949-1989," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 155(4), pages 710-, December.
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