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Transfers, non-tradable goods and a distorted economy in eastern Germany

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  • Harald Simons

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    (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)

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    Abstract

    A neoclassical 2x2 model with one tradable and one non-tradable good is used to examine some effects of the public transfers to eastern Germany. Results indicate that transfers enlarge the non-tradable sector at the expense of the tradable sector. In the case of minimum-wage-induced unemployment, transfers have a similar localisation effect. Using data from social security employment statistics, the localisation effect can clearly be shown. The paper concludes with some speculation on the effects of transfers on growth prospects and hypothesises whether the transfer itself might be one cause for the low growth rates of the eastern German economy.

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    File URL: http://www.ww.uni-magdeburg.de/fwwdeka/femm/a2007_Dateien/2007_02.pdf
    File Function: First version, 2007
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    Bibliographic Info

    Paper provided by Otto-von-Guericke University Magdeburg, Faculty of Economics and Management in its series FEMM Working Papers with number 07002.

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    Length: 19 pages
    Date of creation: Jan 2007
    Date of revision:
    Handle: RePEc:mag:wpaper:07002

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    Keywords: Transfer; non-tradeable goods; eastern Germany;

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    1. Sinn, Hans-Werner, 2002. "Germany’s Economic Unification: An Assessment after Ten Years," Munich Reprints in Economics 19643, University of Munich, Department of Economics.
    2. Jose De Gregorio & Alberto Giovannini, 1993. "International Evidence on Tradables and Nontradable Inflation," NBER Working Papers 4438, National Bureau of Economic Research, Inc.
    3. Harald Lehmann & Udo Ludwig & Joachim Ragnitz, 2005. "Originäre Wirtschaftskraft der neuen Länder noch schwächer als bislang angenommen," Wirtschaft im Wandel, Halle Institute for Economic Research, vol. 11(5), pages 134-145.
    4. Jacqueline Dwyer & Christine Groeger, 1994. "Resource Flows to the Traded Goods Sector," RBA Research Discussion Papers rdp9401, Reserve Bank of Australia.
    5. Brecher, Richard A, 1974. "Minimum Wage Rates and the Pure Theory of International Trade," The Quarterly Journal of Economics, MIT Press, vol. 88(1), pages 98-116, February.
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