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Regional economic integration and factor mobility in unified Germany

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  • Böhm, Sebastian

Abstract

The massive movement of capital and labor in opposite directions is the most striking characteristic of economic integration of Eastern and Western Germany. Beyond that, wage-setting behavior during the early years of unification and massive public social transfers have affected the transition path of the Eastern economy. In this paper, I set up a two-region open economy model with capital and labor mobility, wage-setting behavior, and public social transfers to explain major empirical trends of the German integration episode. I show that the model is able to replicate aggregate migration pattern in unified Germany and that wage-setting behavior has delayed labor productivity convergence between both German regions, whereas public social transfers have reduced the effect of wage setting on East-West net migration.

Suggested Citation

  • Böhm, Sebastian, 2015. "Regional economic integration and factor mobility in unified Germany," FSES Working Papers 463, Faculty of Economics and Social Sciences, University of Freiburg/Fribourg Switzerland.
  • Handle: RePEc:fri:fribow:fribow00463
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    More about this item

    Keywords

    Economic Integration; German Reunification; Capital Mobility; Migration;

    JEL classification:

    • F20 - International Economics - - International Factor Movements and International Business - - - General
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers

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