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Finance, economic development and the transition: the East German case

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  • Carlin, Wendy
  • Richthofen, Peter

Abstract

The role of banks in the transition concerns three issues: the bad loans problem, the role of banks in providing a solution to the problems of corporate governance of privatized enterprises and the access of new enterprises to finance for investment. This paper shows how the combination of early privatization of the banking system plus financial restructuring of enterprises by the Treuhand prevented the development of a 'bad loans' problem in East Germany. The merits of banks as large stakeholders in privatized enterprises has been frequently debated in Eastern Europe. Although the role of banks as owners of non-financial companies in West Germany is frequently exaggerated, there was a widespread public expectation that they would play a considerable role in the restructuring of East German enterprises. We show that their role in acquiring stakes in privatized firms in East Germany has been negligible and suggest reasons for this outcome. East Germany is characterized by a very high level of investment and the second part of the paper investigates how the financial system can affect the relationship between investment and growth. It has been argued that the inefficiencies of both development and commercial banking in the Italian Mezzogiorno have contributed to the failure there of high levels of investment to translate into growth. The efficiency characteristics of development and commercial banking in Southern Italy are contrasted with those in East Germany. Considerable attention is given to the extent of competition in commercial banking and to the delegation by the development banks of screening and monitoring activities to the commercial banks, which characterizes the German system. It is argued that the German banking system which has been transferred to East Germany does not suffer from the inefficiencies found in Italy. Evidence is provided for the convergence of the structure of banking in East and West Germany. Nevertheless, in spite of the extensive access of East German firms to development bank finance, evidence is provided that the financial system does not foster investment in intangibles such as in marketing and in R&D. This has serious consequences for those firms which are not owned by Western firms and hence do not have access to the retained earnings of the owner, nor to the ability of the owner to guarantee loans from the banking system. -- Die Rolle der Banken im Übergangsprozeß in Mittel- und Osteuropa umfaßt vor allem drei Aspekte: das Problem „fauler Kredite, ihre Rolle bei der Lösung des corporate governance-Problems privatisierter Unternehmen und das Problem des Zugangs neuer Unternehmen zur Finanzierung ihrer Investitionen. In dem Papier wird dargelegt, wie die Kombination von früher Privatisierung des Bankensystems und der Wiederaufbau einer finanziellen Basis in den Unternehmen durch die Treuhand ein „Faule-Kredite-Problem in Ostdeutschland verhinderten. Die Verdienste der Banken als große Anteilseigner in privatisierten Unternehmen sind in Osteuropa viel diskutiert worden. Auch wenn die Rolle der Banken als Eigentümer von Unternehmen in Westdeutschland häufig überschätzt wird, gab es eine verbreitete öffentliche Erwartung, daß die Banken eine bedeutende Rolle bei der Umstrukturierung der ostdeutschen Unternehmen spielen würden. In der Analyse wird gezeigt, daß ihre Rolle bei der Übernahme von Anteilen privatisierter Unternehmen in Ostdeutschland sehr gering ist und es wird versucht, die Gründe für diese Entwicklung darzulegen. In Ostdeutschland herrscht ein hohes Investitionsniveau. Der zweite Teil des Papiers untersucht daher, wie das Finanzsystem die Beziehung zwischen Investitionen und Wachstum beeinflussen kann. Bezogen auf die Entwicklung im Mezzogiorno in Italien wurde häufig argumentiert, Ineffektivitäten der Förder- wie der Geschäftsbanken hätten verhindert, daß ein hohes Investitionsniveau zu Wachstum geführt habe. Die Leistungsmerkmale der Förder- wie der Geschäftsbanken in Süditalien werden mit der Situation in Ostdeutschland kontrastiert. Dabei wird besonderes Augenmerk auf das Ausmaß des Wettbewerbs im Geschäftsbankensektor gelegt sowie auf die Auswahl- und Überwachungsfunktion der Geschäftsbanken, die sie im Auftrag der Förderbanken übernehmen, eine für das deutsche System typische Konstellation. Die Analyse kommt zu dem Schluß, daß das nach Ostdeutschland übertragene westdeutsche Bankensystem nicht an den Ineffektivitäten leidet, wie sie für Italien's Mezzogiorno festzustellen sind. Die Bankenstruktur in Ostdeutschland hat sich schnell derjenigen in Westdeutschland angenähert. Es ist offensichtlich: Auch wenn jedes Unternehmen in Ostdeutschland problemlosen Zugang zu Förderbanken- Krediten hat, bleibt die Kreditwürdigkeit von Investitionen in immaterielle Aktivitäten wie Marketing oder Forschung und Entwicklung wegen mangelnder Realsicherheiten problematisch. Dies hat ernsthafte Auswirkungen für solche Unternehmen, die nicht westdeutschen Unternehmen gehören und die von daher weder auf thesaurierte Gewinne noch auf die Kreditwürdigkeit ihrer Eigentümer zurückgreifen können.

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Bibliographic Info

Paper provided by Social Science Research Center Berlin (WZB) in its series Discussion Papers, Research Unit: Economic Change and Employment with number FS I 95-301.

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Date of creation: 1995
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Handle: RePEc:zbw:wzbece:fsi95301

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References

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  1. Alexander, Ian & Mayer, Colin, 1990. "Banks and Securities Markets: Corporate Financing in Germany and the UK," CEPR Discussion Papers 433, C.E.P.R. Discussion Papers.
  2. Edwards,Jeremy & Fischer,Klaus, 1996. "Banks, Finance and Investment in Germany," Cambridge Books, Cambridge University Press, number 9780521566087, October.
  3. Faini, R. & Galli, G. & Giannini, C., 1992. "Finance and Development : the Case of Southern Italy," Papers 170, Banca Italia - Servizio di Studi.
  4. Aghion, Philippe & Blanchard, Olivier J & Carlin, Wendy, 1994. "The Economics of Enterprise Restructuring in Central and Eastern Europe," CEPR Discussion Papers 1058, C.E.P.R. Discussion Papers.
  5. Carlin, Wendy & Mayer, Colin, 1992. "Restructuring Enterprises in Eastern Europe," CEPR Discussion Papers 700, C.E.P.R. Discussion Papers.
  6. Corbett, Jenny & Mayer, Colin, 1991. "Financial Reform in Eastern Europe: Progress with the Wrong Model," Oxford Review of Economic Policy, Oxford University Press, vol. 7(4), pages 57-75, Winter.
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Cited by:
  1. R.T.A. de Haas, 2001. "Financial development and economic growth in transition economies A survey of the theoretical and empirical literature," Research Series Supervision (discontinued) 35, Netherlands Central Bank, Directorate Supervision.
  2. Quack, Sigrid & Hildebrandt, Swen, 1995. "Das Geheimnis der Banken: zum Einfluß von Organisationsstrukturen und Personalpolitiken deutscher und französischer Kreditinstitute im mittelständischen Unternehmensgeschäft," Discussion Papers, Research Unit: Organization and Employment FS I 95-103, Social Science Research Center Berlin (WZB).
  3. Ralph De Haas & Daniel Ferreira & Anita Taci, 2007. "What determines banks’ customer choice? Evidence from transition countries," Working Papers 104, European Bank for Reconstruction and Development, Office of the Chief Economist.
  4. Schmidt, Klaus-Dieter, 1996. "German unification: A progress report," Kiel Working Papers 722, Kiel Institute for the World Economy.
  5. De Haas, Ralph & Naaborg, Ilko, 2006. "Foreign banks in transition countries. To whom do they lend and how are they financed?," MPRA Paper 6320, University Library of Munich, Germany.
  6. De Haas, Ralph & Ferreira, Daniel & Taci, Anita, 2010. "What determines the composition of banks' loan portfolios? Evidence from transition countries," Journal of Banking & Finance, Elsevier, vol. 34(2), pages 388-398, February.
  7. Ralph de Haas & Ilko Naaborg, 2005. "Does Foreign Bank Entry Reduce Small Firms' Access to Credit? Evidence from European Transition Economies," DNB Working Papers 050, Netherlands Central Bank, Research Department.
  8. Hyman, Richard, 1996. "Institutional transfer: industrial relations in eastern Germany," Discussion Papers, Research Unit: Economic Change and Employment FS I 96-305, Social Science Research Center Berlin (WZB).

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