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Allocative efficiency, plant dynamics and regional productivity: Evidence from Germany

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  • Bruhn, Simon
  • Grebel, Thomas

Abstract

This paper argues that regional variation in the efficiency of labor allocation among German manufacturing plants plays a critical role in explaining regional disparities in productivity. In fact, we show that over 50% of the East-West productivity gap is associated with a less efficient labor allocation in former East Germany. Yet, we also demonstrate that the mere focus on East-West comparisons hides partially large differences between the German federal states. These results suggest that regional productivity differences could be substantially narrowed by a more efficient labor allocation among plants. With respect to the underlying causes, we find evidence that the regional differences in allocative efficiency are significantly correlated with differences in export intensity, market concentration and plant size.

Suggested Citation

  • Bruhn, Simon & Grebel, Thomas, 2023. "Allocative efficiency, plant dynamics and regional productivity: Evidence from Germany," Ilmenau Economics Discussion Papers 172, Ilmenau University of Technology, Institute of Economics.
    • Handle: RePEc:zbw:tuiedp:172
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    More about this item

    Keywords

    Regional productivity gap; productivity decomposition; allocative efficiency; labor allocation;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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