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The profit elasticity of investment in West Germany and the investment diversion effects of unification

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  • Geoffrey Pugh

Abstract

This paper estimates investment equations for pre-unification West Germany in which changes in profitability have strong explanatory power with respect to changes in real investment. Accordingly, post-unification decline in profitability suggests that investment by west German firms in eastern Germany entailed investment diversion. In addition, we explain how we calculate t-statistics for long-run coefficients arising from Almon lag and partial adjustment models.

Suggested Citation

  • Geoffrey Pugh, 1998. "The profit elasticity of investment in West Germany and the investment diversion effects of unification," Applied Economics Letters, Taylor & Francis Journals, vol. 5(2), pages 97-99.
    • Handle: RePEc:taf:apeclt:v:5:y:1998:i:2:p:97-99
    DOI: 10.1080/758523512
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