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Eastern Germany: Can't We Be More Optimistic?

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  • Burda, Michael C
  • Funke, Michael

Abstract

This paper argues that the application of the `2% rule' to the case of Eastern Germany, which implies convergence in three decades or more, is overly pessimistic. First, it ignores discrete improvements in initial conditions related to the transition, which have been significant to date. Because labour productivity in manufacturing exhibits wide sectoral dispersion, structural change is likely to increase aggregate productivity further. Second, convergence is also driven by physical and human capital mobility, which in contrast to labour mobility appears to be high in Eastern Germany. Finally, an unusually high rate of physical investment in Eastern Germany will accelerate convergence.

Suggested Citation

  • Burda, Michael C & Funke, Michael, 1993. "Eastern Germany: Can't We Be More Optimistic?," CEPR Discussion Papers 863, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:863
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    Citations

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    Cited by:

    1. Klodt, Henning, 1994. "Wieviel Industrie braucht Ostdeutschland?," Open Access Publications from Kiel Institute for the World Economy 1615, Kiel Institute for the World Economy (IfW Kiel).
    2. Falko Juessen, 2009. "A distribution dynamics approach to regional GDP convergence in unified Germany," Empirical Economics, Springer, vol. 37(3), pages 627-652, December.
    3. Yvonne Schindele, 2010. "How Long Does it Take to Become an Entrepreneurial Society - The Case of German Convergence in Self-Employment," Jena Economics Research Papers 2010-015, Friedrich-Schiller-University Jena.
    4. Michael Funke & Jörg Rahn, 2002. "How efficient is the East German economy? An exploration with microdata," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 10(1), pages 201-223.
    5. Lehmann,Hartmut, 1995. "Active labor market policies in the OECD and in selected transition economies," Policy Research Working Paper Series 1502, The World Bank.
    6. Noland, Marcus & Robinson, Sherman & Wang, Tao, 2000. "Modeling Korean Unification," Journal of Comparative Economics, Elsevier, vol. 28(2), pages 400-421, June.
    7. Frank Siebern, 2000. "Better LATE? Instrumental Variables Estimation of the Returns to Job Mobility during Transition," German Economic Review, Verein für Socialpolitik, vol. 1(3), pages 335-362, August.
    8. Jean-Marc Germain & Stéphanie Guichard, 1998. "L'Asie du Sud-Est : quelles perspectives de croissance à moyen terme ?," Économie et Statistique, Programme National Persée, vol. 311(1), pages 3-36.
    9. Barrell Ray & Willem te Velde Dirk, 2000. "Catching-up of East German Labour Productivity in the 1990s," German Economic Review, De Gruyter, vol. 1(3), pages 271-297, August.
    10. Wendy Carlin & Peter Richthofen, 1995. "Finance, economic development and the transition: the East German case," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 3(2), pages 169-195, June.
    11. Keller, Wolfgang, 2000. "From socialist showcase to Mezzogiorno? Lessons on the role of technical change from East Germany's post-World War II growth performance," Journal of Development Economics, Elsevier, vol. 63(2), pages 485-514, December.
    12. Falko Juessen, 2005. "A distribution dynamics approach to regional income convergence in reunified Germany," ERSA conference papers ersa05p411, European Regional Science Association.
    13. Hughes Hallett, A. & Ma, Y. & Melitz, J., 1996. "Unification and the policy predicament in Germany," Economic Modelling, Elsevier, vol. 13(4), pages 519-544, October.
    14. Hans‐Werner Sinn, 1995. "Staggering along: wages policy and investment support in East Germany," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 3(4), pages 403-426, December.
    15. Karl Brenke & Klaus F. Zimmermann, 2009. "Ostdeutschland 20 Jahre nach dem Mauerfall: was war und was ist heute mit der Wirtschaft?," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 78(2), pages 32-62.
    16. Rodrik, Dani, 1996. "Coordination failures and government policy: A model with applications to East Asia and Eastern Europe," Journal of International Economics, Elsevier, vol. 40(1-2), pages 1-22, February.
    17. Westermann, Thomas, 1995. "Das Produktionspotential in Ostdeutschland," Discussion Paper Series 1: Economic Studies 1995,04, Deutsche Bundesbank.

    More about this item

    Keywords

    Convergence; Eastern Germany; Factor Mobility; German Unification; Regional Integration;
    All these keywords.

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F20 - International Economics - - International Factor Movements and International Business - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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